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Micron Warns of Possible Capacity Constraints Despite Long-Term Supplier Contracts
Memory maker signals potential weakness in supplier contracts that may result in margin pressure.
January 8, 2021
Micron (MU) relies on suppliers for chemicals, silicon wafers, gases, photoresist, controllers, substrates, lead frames, printed circuit boards, targets, and reticle glass blanks. The prior quarterly filing is MU’s 10-K in which it offers boilerplate language warning investors of limited availability of key components and supplies.

“Shortages or increases in lead times may occur from time to time in the future. Our manufacturing processes are also dependent on our relationships with third-party manufacturers of controllers used in a number of our products and with outsourced semiconductor assembly and test providers, contract manufacturers, logistic carriers, and other service providers.”

In its latest 10-Q, Micron includes the above risk factor but adds language warning investors that despite its long-term contracts, it may not be able to rely on key suppliers.

“Although we have certain long-term contracts with some of our third-party service providers, most of these contracts do not provide for long-term capacity commitments.”

The disclosure raises questions about the strength of Micron’s supplier contracts. The filing also includes new language indicating that despite written agreements, Micron’s suppliers can allocate capacity to MU’s competitors.

“To the extent we do not have firm commitments from our third-party service providers over a specific time period or for any specific quantity, our service providers may allocate capacity to their other customers. Accordingly, capacity for our products may not be available when we need it or at reasonable prices.”
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