Microchip pulls out of US semiconductor grants amid inventory crisis
- Microchip Technology Inc has paused its application for U.S. semiconductor grants due to high inventory levels and overcapacity.
- The company has faced significant stock declines and has made workforce reductions in response to financial challenges.
- These developments reflect broader macroeconomic issues affecting the semiconductor industry, particularly post-U.S. embargo on China.
In the United States, Microchip Technology Inc made the decision to withdraw its application for federal semiconductor grants as announced by CEO Steve Sanghi at a UBS conference. This withdrawal was largely influenced by the company's current state of overcapacity and high levels of inventory. Microchip was originally a candidate for $162 million in funding from the CHIPS Act, which aims to bolster domestic semiconductor manufacturing and reduce reliance on overseas suppliers. However, significant recent difficulties have impacted the company's operations. Microchip's stock has faced considerable downward pressure, having plunged 29% year-to-date and becoming a significant detractor in the Philadelphia Stock Exchange Semiconductor Index. In light of its disappointing quarterly earnings, several Wall Street analysts aggressively lowered their price targets for the company's shares in recent months. CEO Ganesh Moorthy also pointed to macroeconomic weaknesses affecting manufacturing sectors, particularly in Europe, involving the industrial and automotive industries. To address its financial troubles, Microchip has implemented drastic measures, including workforce reductions at its Oregon facilities. Just earlier this week, the company revised its third-quarter revenue projections downward and announced plans to restructure operations, which included the closure of its wafer fabrication plant located in Tempe, Arizona. This closure is anticipated to impact approximately 500 employees and stemmed from similar concerns about overcapacity. Sanghi indicated that the company now expects its revenue for December 2024 to settle around the low end of the $1.025 billion to $1.095 billion range, contrasting with analyst expectations of $1.090 billion due to slower-than-expected order turnaround times. Additionally, the revised guidance and operational changes at Microchip followed the U.S.'s latest semiconductor embargo targeting China. This move further complicated relationships with advanced chip equipment manufacturers and has prompted China to respond with stricter export controls on essential minerals necessary for chip manufacturing, including gallium, germanium, and antimony. These geopolitical tensions have heightened the challenges faced by companies in the semiconductor domain. The combination of poor sales forecasts and international production complexities suggests a tumultuous path ahead for Microchip Technology as it navigates these headwinds while seeking potential recovery in a competitive market.