Business Segments, Geographic Information, and Concentrations of Risk

12 Months Ended

Jul. 01, 2022

Business Segments, Geographic Information, and Concentrations of Risk

The following table summarizes the operating performance of the Company’s reportable segments:


	2022			2021			2020
	(in millions, except percentages)
Net revenue:
Flash	$	9,753		$	8,706		$	7,769
HDD	9,040			8,216			8,967
Total net revenue	$	18,793		$	16,922		$	16,736
Gross profit:
Flash	$	3,527		$	2,611		$	1,903
HDD	2,661			2,221			2,602
Total gross profit for segments	6,188			4,832			4,505
Unallocated corporate items:
Amortization of acquired intangible assets	(66)			(331)			(610)
Stock-based compensation expense	(48)			(55)			(51)
Contamination related charges	(207)			—			—
Recoveries from a power outage incident	7			75			(68)
Other	—			—			5
Total unallocated corporate items	(314)			(311)			(724)
Consolidated gross profit	$	5,874		$	4,521		$	3,781
Gross margin:
Flash	36.2		%	30.0		%	24.5		%
HDD	29.4		%	27.0		%	29.0		%
Consolidated gross margin	31.3		%	26.7		%	22.6		%

Goodwill

In connection with the Company’s determination of its operating segments, effective July 3, 2021, the Company determined that its operating segments were also its reporting units and re-allocated its goodwill between its reporting units based on the estimated relative fair values of the reporting units. In addition, management performed a goodwill impairment assessment for each segment and concluded there were no impairment indicators as of July 1, 2022.

In May 2022, the Company made a decision to exit its RISC-V development operations and completed the sale of the portion of its business for a price of $25 million. The sale of this business included the transfer of a small number of employees and an immaterial amount of other tangible and intangible assets as well as goodwill. The transaction resulted in a gain of approximately $9 million recorded in Employee termination, asset impairment, and other charges in the Consolidated Statements of Operations for the fiscal year ended July 1, 2022. The revenues and expenses related to this business were not material to the Consolidated Financial Statements and did not qualify to be reported as a discontinued operation. The operating results of this business have been reflected in the Company’s results from continuing operations in the Consolidated Statements of Operations for all periods presented through the date of disposition.

The following table provides a summary of goodwill activity for the period:


	Flash		HDD		Total
	(in millions)






Balance at July 2, 2021	$	5,738	$	4,328	$	10,066
Reduction in goodwill in connection with disposition of business	(14)		—		(14)
Foreign currency translation adjustment	(6)		(5)		(11)

Balance at July 1, 2022	$	5,718	$	4,323	$	10,041

Disaggregated Revenue

The Company’s broad portfolio of technology and products address multiple end markets. In 2022, the Company refined the end markets it reports to be Cloud, Client and Consumer. Cloud represents a large and growing end market comprised primarily of products for public or private cloud environments and enterprise customers, which the Company believes it is uniquely positioned to address as the only provider of both Flash and HDD. Through the Client end market, the Company provides its OEM and channel customers a broad array of high-performance flash and hard drive solutions across personal computer, mobile, gaming, automotive, virtual reality headsets, at-home entertainment, and industrial spaces. The Consumer end market is highlighted by the Company’s broad range of retail and other end-user products, which capitalize on the strength of the Company’s product brand recognition and vast points of presence around the world.

The Company’s disaggregated revenue information is as follows:


	2022		2021		2020
	(in millions)
Revenue by End Market
Cloud	$	8,017	$	5,723	$	7,018
Client	7,076		7,281		6,335
Consumer	3,700		3,918		3,383
Total Revenue	$	18,793	$	16,922	$	16,736

The Company’s operations outside the United States include manufacturing facilities in China, Japan, Malaysia, the Philippines and Thailand, as well as sales offices throughout the Americas, Asia Pacific, Europe and the Middle East. The following tables summarize the Company’s operations by geographic area:


	2022		2021		2020
	(in millions)
Net revenue (1)
United States	$	5,411	$	3,789	$	4,679
China	4,525		4,339		4,075
Hong Kong	3,645		3,624		2,592
Rest of Asia	1,884		1,492		1,699
Europe, Middle East and Africa	2,872		3,061		2,926
Other	456		617		765
Total	$	18,793	$	16,922	$	16,736

(1) Net revenue is attributed to geographic regions based on the ship-to location of the customer. License and royalty revenue is attributed to countries based upon the location of the headquarters of the licensee.


	2022		2021
	(in millions)
Long-lived assets (1)
United States	$	1,130	$	1,068
Malaysia	831		632
China	441		395
Thailand	816		651
Rest of Asia	406		398
Europe, Middle East and Africa	46		44
Total	$	3,670	$	3,188

(1) Long-lived assets include property, plant and equipment and are attributed to the geographic location in which they are located.

Customer Concentration and Credit Risk

The Company sells its products to computer manufacturers and OEMs, cloud service providers, resellers, distributors and retailers throughout the world. For each of 2022, 2021 and 2020, no customer accounted for 10% or more of the Company’s net revenue. For 2022, 2021 and 2020, the Company’s top 10 customers accounted for 45%, 39%, and 42% respectively, of the Company’s net revenue.

The Company performs ongoing credit evaluations of its customers’ financial condition and generally requires no collateral. The Company maintains allowances for potential credit losses, and such losses have historically been within management’s expectations. At any given point in time, the total amount outstanding from any one of a number of its customers may be individually significant to the Company’s financial results. As of July 1, 2022, the Company had net accounts receivable of $2.8 billion, and no customer accounted for 10% or more of the Company’s outstanding accounts receivable. As of July 2, 2021, the Company had net accounts receivable of $2.3 billion, and one customer, Kingston Technology Company, accounted for 12% of the Company’s net accounts receivable. Reserves for potential credit losses were not material as of each period end.

The Company also has cash equivalent and investment policies that limit the amount of credit exposure to any one financial institution or investment instrument and requires that investments be made only with financial institutions or in investment instruments evaluated as highly credit-worthy.

Supplier Concentration

All of the Company’s Flash require silicon wafers for the memory and controller components. The Company’s flash memory wafers are currently supplied almost entirely from Flash Ventures (as defined in Note 10) and the Company’s controller wafers are all manufactured by third-party sources. The failure of any of these sources to deliver silicon wafers could have a material adverse effect on the Company’s business, financial condition and results of operations.

In addition, some key components are purchased from single source vendors for which alternative sources are currently not available. Shortages could occur in these essential materials due to an interruption of supply or increased demand in the industry. If the Company was unable to procure certain of such materials, the Company’s sales could decline, which could have a material adverse effect upon its results of operations. The Company also relies on third-party subcontractors to assemble and test a portion of its products. The Company does not have long-term contracts with some of these subcontractors and cannot directly control product delivery schedules or manufacturing processes. This could lead to product shortages or quality assurance problems that could increase the manufacturing costs of the Company’s products and have material adverse effects on the Company’s operating results.