Lesson 6 of 8
Reading a semiconductor company
Micron's cost of goods sold was 109 percent of revenue in fiscal 2023 and 60 percent in fiscal 2025. Depreciation barely moved: the fabs were already built.
By Javier Sanz
Founder of ValueScreener. Built Ninety Nine, a securities services provider, and sold it to a tier-one global bank; ran operations and internationalization at Alpaca, the brokerage API.
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In one minute
- Capacity is committed years before the demand is known, so the cost base is fixed and the price is not.
- Micron's cost of goods sold was 109 percent of revenue in fiscal 2023, 78 percent in fiscal 2024 and 60 percent in fiscal 2025.
- Depreciation and amortisation went from 7,756 million dollars to 8,352 million across the same three years, a rise of 7.7 percent, while gross margin swung from minus 9 percent to plus 40 percent.
A semiconductor fabrication plant is decided years ahead, costs billions, and cannot be scaled down. What it produces is sold at a price set by how much capacity the whole industry happened to commit at the same time.
Micron, three filed fiscal years
| Line, in millions | FY2025 | FY2024 | FY2023 |
|---|---|---|---|
| Revenue | 37,378 | 25,111 | 15,540 |
| Cost of goods sold | 22,505 | 19,498 | 16,956 |
| Cost of goods sold, percent of revenue | 60% | 78% | 109% |
| Gross margin | 14,873 | 5,613 | -1,416 |
| Net income or loss | 8,539 | 778 | -5,833 |
| Depreciation and amortisation | 8,352 | 7,780 | 7,756 |
| Expenditures for property, plant and equipment | 15,857 | 8,386 | 7,676 |
The line that does not move
Depreciation and amortisation was 7,756 million dollars in fiscal 2023, 7,780 million in fiscal 2024 and 8,352 million in fiscal 2025. Across the same three years gross margin went from minus 1,416 million dollars to plus 14,873 million.
That is the industry in two rows. The charge for the plant is set by what was built, years ago, and it arrives whatever the price does. Revenue more than doubled across the period and the depreciation charge rose 7.7 percent.
Capital spent into the worst year
Expenditures for property, plant and equipment were 7,676 million dollars in fiscal 2023, the year cost of goods sold exceeded revenue and the company reported a net loss of 5,833 million.
That is not a mistake. A fab takes years to build and equip, and stopping midway forfeits the capacity for the recovery. So the spending that will serve the next upcycle is committed during the downcycle, and the cash flow statement of the worst year carries most of it.
By fiscal 2025 capital spending had reached 15,857 million dollars, 1.9 times the depreciation charge, which is the same commitment being made again at a different point in the cycle.
The inventory correction
Micron recorded a provision of 1,831 million dollars to write inventories down to net realisable value in fiscal 2023, and none in fiscal 2024 or fiscal 2025. Inventories stood at 8,355 million dollars at 28 August 2025 against 8,875 million a year earlier.
A write-down to net realisable value is what happens when the selling price falls below what the inventory cost to make. It is the accounting record of the cycle turning, it lands in cost of goods sold, and it is one of the reasons that line exceeded revenue in fiscal 2023.
It also flatters the following years. Inventory written down to a lower value carries a lower cost when it is eventually sold, so part of a recovery year's gross margin is the absence of a charge taken earlier.
The three disclosures that matter
Capital spending against depreciation, because it says where in the commitment cycle the company is. The inventory balance and any write-down, because that is the cycle recorded. And the capacity commitments and purchase obligations in the notes, because they say what has already been promised for years not yet begun.
Check yourself
Cost of goods sold was 109 percent of revenue in fiscal 2023. What does that mean?
- That the company mispriced its products
- That it cost more to produce what was sold than the sales brought in, so gross margin was negative at minus 1,416 million dollars
- That an accounting error occurred
Show the answer
Answer: B.
Part of it was a 1,831 million dollar write-down of inventories to net realisable value, which is the cycle turning recorded in cost of goods sold.Depreciation rose 7.7 percent across three years while gross margin swung from minus 9 percent to plus 40 percent. Why?
- Because assets were revalued
- Because the charge is set by plant built years earlier and arrives whatever the selling price does
- Because useful lives were extended
Show the answer
Answer: B.
Capacity is committed ahead of demand. The cost of it is fixed by the commitment; what varies is the price the output sells for.Why was 7,676 million dollars of capital spending committed in the year of the largest loss?
- To reduce the loss through capitalisation
- Because a fab takes years to build, so the capacity for the next upcycle has to be paid for during the downcycle
- Because the spending was contractually unavoidable
Show the answer
Answer: B.
Stopping midway forfeits the capacity when demand returns, which is why the worst year's cash flow statement carries the spending that serves the recovery.Sources
- Micron Technology, Inc., Form 10-K for the fiscal year ended 28 August 2025, filed 2025-10-03, accession 0000723125-25-000028: revenue, cost of goods sold and its percentage of revenue, gross margin, net income or loss, depreciation expense and amortisation of intangible assets, the provision to write down inventories to net realisable value, inventories, expenditures for property plant and equipment, and net cash provided by operating activities.
What this leaves out
- The percentages of revenue are as the filing presents them in its results discussion; the other arithmetic here is this course's.
- The point that a write-down lowers the cost of later sales follows from how net realisable value works, and the filing does not quantify that effect for any later year.
- Nothing here is a view on Micron Technology or on any security.