UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended March 2, 2006

OR

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)

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 ý 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 ý        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 ý

The number of outstanding shares of the registrant’s common stock as of April 5, 2006, was 676,133,149.

PART I.  FINANCIAL INFORMATION

Item 1.           Financial Statements

MICRON TECHNOLOGY, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Amounts in millions except per share amounts)

(Unaudited)

See accompanying notes to consolidated financial statements.

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MICRON TECHNOLOGY, INC.

CONSOLIDATED BALANCE SHEETS

(Dollars in millions except par value amounts)

(Unaudited)

See accompanying notes to consolidated financial statements.

2

MICRON TECHNOLOGY, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in millions)

(Unaudited)

See accompanying notes to consolidated financial statements.

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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 reportable segments, Memory and Imaging.  The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America 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 second quarter of fiscal 2006 and 2005 ended on March 2, 2006 and March 3, 2005, respectively.  The Company’s fiscal 2005 ended on September 1, 2005.  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 September 1, 2005 and the Current Report on Form 8-K dated February 7, 2006.

Recently issued accounting standards:  In February 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“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 March 2, 2006, 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 is required to adopt SFAS No. 154 for accounting changes and error corrections that occur after the beginning of 2007.  The Company’s results of operations and financial condition will only be impacted following the adoption of SFAS No. 154 if it implements changes in accounting principle that are addressed by the standard or corrects accounting errors in future periods.

In March 2005, the FASB issued Interpretation No. 47, “Accounting for Conditional Asset Retirement Obligations,” which clarifies that an entity is required to recognize a liability for the fair value of a conditional asset retirement obligation if the fair value can be reasonably estimated even though uncertainty exists about the timing and (or) method of settlement.  The Company is required to adopt Interpretation No. 47 prior to the end of 2006.  The Company does not expect the adoption of Interpretation No. 47 to have a significant impact on the Company’s future results of operations or financial condition.

Stock-based compensation:  Effective the beginning of 2006, the Company adopted SFAS No. 123(R), “Share-Based Payment,” and elected to adopt the modified prospective application method.  Accordingly, stock-based compensation cost is measured at the grant date, based on the fair value of the award, and is recognized as expense over the requisite service period.  For stock awards granted in 2006, expenses are amortized under the straight-line attribution method.  For stock awards granted prior to 2006, expenses are amortized under the multiple option method prescribed by FASB Interpretation No. 28.  Previously reported amounts have not been restated.

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Supplemental Balance Sheet Information

Other receivables include $171.1 million in conjunction with the settlement of the Company’s Call Spread Options, which was subsequently received on March 3, 2006.  (See “Supplemental Balance Sheet Information – Debt” note.)  The notes receivable from Intel for its contribution to IMFT are accounted for as a reduction to minority interest and are not included in receivables as of March 2, 2006.  (See “Joint Ventures – IM Flash Technologies, LLC” note.)

During the first six months of 2006 and 2005, the Company capitalized $17.5 million and $16.0 million, respectively, for product and process technology with weighted average useful lives of 10 years.

Subsequent to the second quarter of 2006, as a result of the Company’s consolidation of TECH, the $44.5 million net intangible asset associated with the TECH joint venture supply arrangement became part of the Company’s investment in TECH’s net assets and will be eliminated in consolidation beginning in the third quarter of 2006.  (See “Joint Ventures – TECH Semiconductor Singapore Pte. Ltd.” note.)

Amortization expense for intangible assets was $13.1 million and $26.1 million for the second quarter and first six months of 2006, respectively, and $12.6 million and $25.1 million for the second quarter and first six months of 2005, respectively.  Annual amortization expense for intangible assets held as of March 2, 2006, excluding future amortization of the TECH joint venture supply arrangement, is estimated to be $46.8 million for 2006, $41.4 million for 2007, $40.7 million for 2008, $29.6 million for 2009 and $21.2 million for 2010.

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Depreciation expense was $285.7 million and $578.1 million for the second quarter and first six months of 2006, respectively, and $303.2 million and $602.8 million for the second quarter and first six months of 2005, respectively.

As of March 2, 2006, notes payable in the above table included $253.0 million, denominated in Japanese yen, at a weighted average interest rate of 1.2%.

In the second quarter of 2006, the Company’s $632.5 million 2.5% Convertible Subordinated Notes (“Notes”) were converted into 53.7 million shares of the Company’s common stock.  In addition, the Company’s related interest rate swap terminated by its terms on February 6, 2006 and, as a result, $34.8 million pledged as collateral for the swap became unrestricted.

On February 14, 2006, the Company terminated its outstanding call spread options covering a total of approximately 53.7 million shares of its common stock (“Call Spread Options”).  The Company originally entered into the Call Spread Options in connection with its issuance of the Notes.  The Company had a receivable of $171.1 million as of the end of the second quarter of 2006 for the settlement of the Call Spread Options, which was received on March 3, 2006.  The settlement was accounted for as a capital transaction.

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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 United States, Germany, France, the United Kingdom and Italy.  The Company also is engaged in litigation with Tessera, Inc. (“Tessera”) relating to certain of Tessera’s patents and certain of the Company’s patents in 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, and DDR2 SDRAM 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 investigation, at least eighty-four (seven of which have been dismissed) 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 by 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 DRAM products.  The complaints seek treble damages for the alleged damages sustained by purported class members, in addition to restitution, costs and attorneys’ fees, as well as an injunction against the allegedly unlawful conduct.  Three purported class action lawsuits also have been filed in Canada, 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 and Puerto Rico.  The Company is unable to predict the outcome of these suits.  Based upon the Company’s analysis of the claims made and the nature of the DRAM industry, the Company believes that class treatment of these cases is not appropriate and that any purported injury alleged by plaintiffs would be more appropriately resolved on a purchaser-by-purchaser basis.  In addition, the Attorneys General of Alaska, Arizona, Arkansas, California, Colorado, Delaware, Florida, Hawaii, Idaho, Illinois, Iowa, Louisiana, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Nebraska, Nevada, New Jersey, New Mexico, New York, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, South Carolina, Tennessee, Texas, Utah, Vermont, Virginia, Washington, West Virginia, and Wisconsin are investigating potential state and federal civil claims against the Company and other DRAM suppliers on behalf of state and governmental entities that were direct or indirect purchasers of DRAM and potentially on behalf of other indirect purchasers of DRAM.  The Company has been served with civil investigative demands or subpoenas issued by at least six of the state Attorneys General and is responding to those requests.  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 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.  Tessera also has asserted certain antitrust and unfair competition claims relating to Tessera’s packaging technology.  These complaints seek treble damages, punitive damages, attorneys’ fees, costs, and a permanent injunction enjoining the defendants from the conduct alleged in the complaints.  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.

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

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Securities Exchange Act of 1934, as amended, and Rule 10b-5 promulgated thereunder.  Three substantially similar complaints have been filed subsequently.  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 complaints generally allege 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 complaints seek unspecified damages, interest, attorneys’ fees, costs, and expenses.  The Company expects that these four lawsuits will be consolidated and that a single consolidated class action complaint will be filed. The Company is unable to predict the outcome of these cases.  A court determination in 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 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.  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. The Company is unable to predict the outcome of this case.  A court determination in this action 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, four purported class action complaints were filed in the Superior Court for the State of California (Alameda County) on behalf of shareholders of Lexar Media, Inc. (“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.  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 “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.

Stock Plans

As of March 2, 2006, the Company had an aggregate of 155.9 million shares of its common stock reserved for issuance under its various stock plans, of which 127.0 million shares were subject to outstanding options and 28.9 million shares were available for future grants of stock awards.  Options are subject to terms and conditions as determined by the Company’s Board of Directors.

Stock Options:   Stock options granted after June 16, 1999, are generally exercisable in increments of 25% during each year of employment beginning one year from the date of grant.  Stock options granted prior to June 16, 1999, are generally exercisable in increments of 20% during each year of employment beginning one year from the

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date of grant.  Stock options issued prior to January 19, 1998, and after September 22, 2004, expire six years from the date of grant.  All other options expire ten years from date of grant.

Option activity for the first six months of 2006 is summarized as follows:

The weighted average grant-date fair value per share was $5.90 and $5.89 for options granted during the second quarter and first six months of 2006, respectively, and $4.82 and $5.11 for options granted during the second quarter and first six months of 2005, respectively.  The total intrinsic value was $9.2 million and $10.5 million for options exercised during the second quarter and first six months of 2006, respectively, and $0.1 million for options exercised during the second quarter and first six months of 2005.

Changes in the Company’s nonvested options for the first six months of 2006 are summarized as follows:

As of March 2, 2006, there was $58.5 million of total unrecognized compensation cost, related to nonvested stock options, which is expected to be recognized over a weighted-average period of 1.8 years.

The fair value of each option award is estimated on 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:

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.

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Restricted Stock:   As of March 2, 2006, there were 2.3 million shares of restricted stock and stock units outstanding, of which 0.6 million were performance-based restricted stock awards.  For service-based restricted stock awards, restrictions lapse in one-third increments during each year of employment after the grant date.  For performance-based restricted stock awards, vesting is contingent upon meeting a certain performance goal.

Restricted stock activity for the first six months of 2006 and 2005 is summarized as follows:

The weighted average grant-date fair value per share was $14.26 and $12.91 for restricted stock awards granted during the second quarter and first six months of 2006, respectively, and $12.17 for restricted stock awards granted during the first six months of 2005.  The total value of awards for which restrictions lapsed during the first six months of 2006 was $1.5 million.

As of March 2, 2006, there was $24.0 million of total unrecognized compensation cost, related to nonvested restricted stock awards, which is expected to be recognized over a weighted-average period of 1.3 years.

Stock-Based Compensation Expense:  Total compensation costs for the Company’s stock plans in the second quarter and first six months of 2006 were $6.6 million and $10.4 million, respectively, and included the following:

Stock-based compensation expense of $1.0 million was capitalized and remained in inventory at the end of the second quarter of 2006.  As of March 2, 2006, $82.5 million of total unrecognized compensation costs related to non-vested awards is expected to be recognized over a weighted average period of 1.6 years.

Through 2005, the Company accounted for its stock plans using the intrinsic value method prescribed by APB Opinion No. 25, “Accounting for Stock Issued to Employees,” and related Interpretations and provided the required pro forma disclosures of SFAS No. 123, “Accounting for Stock-Based Compensation.”  The following presents pro forma income and per share data as if a fair value based method had been used to account for stock-based compensation for the second quarter and first six months of 2005:

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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 second quarter of 2006 includes $230.0 million of net proceeds from Intel for the sale of the Company’s existing NAND Flash memory designs and certain related technology to Intel Corporation and the Company’s acquisition of a perpetual, paid-up license to use and modify such designs.  Other operating expense for the second quarter and first six month of 2006 include $9.2 million and $9.0 million, respectively, from losses net of gains on write-downs and disposals of semiconductor equipment.  Other operating income for the first quarter of 2006 includes net gains of $11.9 million from changes in currency exchange rates primarily as the result of a generally stronger U.S. dollar relative to the Japanese yen and euro.  Other operating expense for the first six months of 2005 includes net losses of $14.9 million from changes in currency exchange rates.  Other operating income for the first six month of 2005 includes $12.0 million in receipts from the U.S. government in connection with anti-dumping tariffs.

Income Taxes

Income taxes for 2006 and 2005 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 2006 and 2005 was substantially offset by a reduction in the valuation allowance.  Until such time as the Company utilizes a significant portion of its U.S. net operating loss carryforwards and unused tax credits, the provision for taxes on the Company’s U.S. operations is expected to be substantially offset by a reduction in the valuation allowance.  As of March 2, 2006, the Company had aggregate U.S. tax net operating loss carryforwards of $1.7 billion and unused U.S. tax credit carryforwards of $185.1 million.  The Company also has unused state tax net operating loss carryforwards of $1.3 billion and unused state tax credits of $146.0 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.  During the second quarter of 2006, the Company utilized approximately $1.0 billion of its U.S. and state tax net operating loss carryforwards as a result of IMFT related transactions.  (See “Joint Ventures – IM Flash Technologies, LLC” note.)

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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 97.0 million and 110.7 million for the second quarter and first six months of 2006, respectively, and 102.3 million and 99.5 million for the second quarter and first six months of 2005, respectively.

Comprehensive Income

Comprehensive income for the second quarter and first six months of 2006 was $193.4 million and $255.8 million, respectively.  Comprehensive income for the second quarter and first six months of 2005 was $118.0 million and $272.7 million, respectively.

Joint Ventures

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.  On March 3, 2006, certain shareholders of TECH contributed approximately $260 million in cash as additional capital to TECH, of which the Company’s contribution was approximately $130 million.  Following the contribution, the Company had an approximate 43% ownership interest in TECH.  The shareholders’ agreement for the TECH joint venture expires in 2011.

The Company entered into an agreement with EDB, effective March 3, 2006, whereby EDB granted the Company an option to purchase from EDB, and the Company granted EDB an option to sell to the Company, EDB’s shares of TECH common stock.  The Company’s option to purchase EDB’s shares in TECH is exercisable at any time until October 1, 2009.  EDB’s option to put its shares in TECH to the Company is exercisable from March 3, 2008, until October 1, 2010.  If either party exercises its option, the Company expects that it would own approximately 73% of the outstanding shares of TECH.  TECH is considered a variable interest entity under FASB Interpretation No. 46(R), “Consolidation of Variable Interest Entities.”  As a result of the option agreement with

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EDB, the Company has concluded that it is the primary beneficiary of TECH and, therefore, began consolidating TECH’s financial results from March 3, 2006.

TECH’s semiconductor manufacturing facilities use 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, 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 $146.8 million and $286.7 million for the second quarter and first six months of 2006, respectively.  The net cost of products purchased from TECH amounted to $176.0 million and $320.5 million for the second quarter and first six months of 2005, respectively.  Amortization expense resulting from the TECH supply arrangement, included in the cost of products purchased from TECH, was $2.9 million and $5.8 million for the second quarter and first six months of 2006, respectively, and $2.9 million and $5.9 million for the second quarter and first six months of 2005, respectively.  Effective as of the beginning of the third quarter, the Company will consolidate the operating results of TECH and the foregoing intercompany transactions will be eliminated.

Receivables from TECH were $23.6 million and payables to TECH were $69.8 million as of March 2, 2006.  Receivables from TECH were $24.0 million and payables to TECH were $51.4 million as of September 1, 2005.  TECH supplied approximately 25% of the total megabits of memory produced by the Company in the first six months of 2006.

IM Flash Technologies, LLC (“IMFT”):  IMFT, which began operations on January 6, 2006, is a joint venture between the Company and Intel Corporation (“Intel”) and was formed to manufacture NAND flash memory products for the exclusive benefit of its partners.  In connection with the formation of IMFT, the Company contributed land and facilities in Lehi, Utah, a fully paid lease of a portion of the Company’s manufacturing facility in Manassas, Virginia, a wafer supply agreement to be supported by the Company’s operations located in Boise, Idaho and $250.0 million in cash.  The aggregate fair value of these contributions was $1.245 billion. In connection with the contribution of land and facilities in Lehi, Utah, the Company recorded a $1.6 million gain, which is included in other non-operating income in the accompanying consolidated statement of operations. Intel contributed $1.196 billion in cash and notes to IMFT.  As a result of these contributions, the Company owns 51% and Intel owns 49% of IMFT.  The parties share the output of IMFT generally in proportion to their ownership in IMFT.

Under the terms of the lease, IMFT has the use of approximately 50% of the Company’s manufacturing facility in Manassas, Virginia for a period of 10 years.  IMFT will purchase and install manufacturing equipment into the leased facility which will be operated and maintained by the Company.  The cost of operating and maintaining the equipment is charged to IMFT.  Under the terms of the wafer supply agreement, the Company will manufacture wafers for IMFT in its Boise, Idaho facility for a period of five years.  Such wafers will be sold to IMFT at prices equal to the Company’s variable cost to manufacture, subject to certain cost and volume performance metrics.

IMFT manufactures NAND Flash memory products based on NAND Flash designs developed by the Company and Intel and licensed to the Company.  Product design and other research and development costs for NAND Flash are shared equally among the Company and Intel.  In the second quarter of 2006, the Company received net proceeds of $230.0 million from Intel 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.

The Company and Intel entered into various service contracts with IMFT under which they will provide operational and administrative support services.  The Company and Intel will generally charge IMFT for costs of providing such services.

The Company has determined that IMFT is a variable interest entity as defined in FASB Interpretation No. 46(R) and that the Company is the primary beneficiary of the venture.  Accordingly, IMFT’s financial results are included in the accompanying consolidated financial statements of the Company.  All amounts pertaining to Intel’s interests in IMFT are reported as noncontrolling interest.

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The Company is obligated to provide certain NAND flash memory products to Apple Computer Inc. (“Apple”) until December 31, 2010, pursuant to a NAND Flash supply agreement.  Under the terms of the agreement, the Company will supply Apple with a significant portion of its share of IMFT’s NAND Flash memory output and Apple made a prepayment of $250.0 million to the Company.  The prepayment is included in other liabilities in the accompanying consolidated balance sheet and in other cash flows from operating activities on the consolidated statement of cash flows.

Lexar Media, Inc.

On March 8, 2006, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Lexar Media, Inc. (“Lexar”), a designer, developer, manufacturer and marketer of Flash memory products.  The Merger Agreement contemplates that, subject to terms and conditions, at the effective time of the merger, each issued and outstanding share of common stock of Lexar will be converted into the right to receive 0.5625 shares of Micron common stock (the “Exchange Ratio”), and each issued, outstanding and unexercised Lexar employee stock option that has an exercise price per share of $9.00 or less will be converted into a Micron employee stock option using the Exchange Ratio.  As of December 31, 2005, Lexar had outstanding approximately 81 million shares of common stock.  Completion of the Merger is subject to customary closing conditions, including Lexar shareholder and regulatory approvals.  The Merger Agreement contains certain termination rights for both Micron and Lexar, and further provides that, upon termination of the Merger Agreement under specified circumstances, Lexar may be required to pay Micron a termination fee of $22.0 million.

Segment Information

The Company has determined, based on the nature of its operations and products offered to customers, that its reportable segments are Memory and Imaging. The Memory segment’s primary products are DRAM and NAND Flash memory products and the Imaging segment’s primary products are CMOS image sensors.  Segment information reported below is consistent with how it is reviewed and evaluated by the Company’s chief operating decision maker.  The Company does not identify or report depreciation and amortization, capital expenditures or assets by segment.  Prior to the first quarter of 2006, the Company had a single reportable segment.  The information below represents the Company’s reportable segments.

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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 growth for CMOS image sensor and NAND Flash markets and allocations of wafer starts to these products; in “IM Flash Technologies, LLC” regarding NAND Flash production in the third quarter of 2006; in “Net Sales” regarding increases in production of DDR2 and increases in and revenue from sales of NAND Flash and Imaging products; in “Selling, General and Administrative” regarding future increases in SG&A expenses; in “Research and Development” regarding expected quarterly R&D costs for 2006; in “Stock-Based Compensation” regarding increases in future stock-based compensation costs; in “Income Taxes” regarding future provisions for income taxes and a reduction in the valuation allowance; and in “Liquidity and Capital Resources” regarding capital spending in 2006 and future capital contributions to IMFT and TECH.  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 “Certain 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 September 1, 2005 and the Company’s Current Report on Form 8-K dated February 7, 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 TECH joint venture.

Overview

The Company is a global manufacturer of semiconductor devices, principally DRAM and NAND Flash memory products, and CMOS image sensors.  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, automotive applications and MP3 players.  The Company’s customers are principally original equipment manufacturers located around the world.  The Company’s success is largely dependent on the market acceptance of a diversified semiconductor product portfolio, 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.

The Company has 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 standardized DRAM products.  The Company leverages its expertise in semiconductor memory manufacturing and product and process technology to provide these products that are differentiated from competitors’ products based on performance characteristics.  In the second quarter of 2006, specialty memory products, CMOS image sensors and NAND Flash products constituted approximately 45% of the Company’s net sales.  The Company expects that the markets for these products will grow in the near term more rapidly than the overall semiconductor market.  The Company plans to allocate an increasing portion of its manufacturing capacity to CMOS image sensors and NAND Flash products in 2006.  The Company believes that the strategic diversification of its product portfolio will strengthen its ability to allocate manufacturing resources to achieve the highest rate of return.

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 introduces 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 of its 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 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

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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.

Recent Developments

IM Flash Technologies, LLC (“IMFT”):  IMFT, which began operations on January 6, 2006, is a joint venture between the Company and Intel Corporation.  IMFT manufactures NAND Flash memory products pursuant to NAND Flash designs developed by the Company and Intel and licensed to the Company.  The parties share the output of IMFT generally in proportion to their investment in IMFT.  IMFT’s financial results are included in the consolidated financial statements of the Company.  As a result of their contributions to IMFT, the Company owns 51% and Intel owns 49% of IMFT.  (See “Item 1. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Joint Ventures – IM Flash Technologies, LLC”)

TECH Semiconductor Singapore Pte. Ltd. (“TECH”):  On March 3, 2006, certain shareholders of TECH, including the Company and the Singapore Economic Development Board (“EDB”), contributed approximately $260 million in cash as additional capital to TECH, of which the Company’s contribution was approximately $130 million.  Following the contribution, the Company had an approximate 43% ownership interest in TECH.  Additionally, effective March 3, 2006, the Company entered into an agreement with EDB, whereby EDB granted the Company an option to purchase from EDB, and the Company granted EDB an option to sell to the Company, EDB’s shares of TECH common stock.  If either party exercises its option, the Company expects that it would own approximately 73% of the outstanding shares of TECH.  As a result of the option agreement with EDB, the Company has concluded that it is the primary beneficiary of TECH and, therefore, began consolidating TECH’s financial results from March 3, 2006.  (See “Item 1. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Joint Ventures – TECH Semiconductor Singapore Pte. Ltd.”)

Lexar Media, Inc. (“Lexar”):  On March 8, 2006, the Company entered into an Agreement and Plan of Merger with Lexar, a designer, developer, manufacturer and marketer of Flash memory products.  Completion of the merger is subject to customary closing conditions, including Lexar shareholder and regulatory approvals.  On March 28, 2006, the Company filed a registration statement on Form S-4 with the SEC containing full descriptions of the proposed merger and the merger agreement.   (See “Item 1. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Lexar Media, Inc.”)

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Results of Operations