Microchip Technology cuts revenue guidance amid restructuring plans

In a significant move, Microchip Technology Inc, based in the United States, revised its revenue guidance downwards for the December 2024 quarter, predicting it to hover around the lower end of its previous estimate of $1.025 billion. This change comes in light of a comprehensive evaluation of the company's operations, prompted by an ongoing downturn in sales caused by high inventory levels and slower-than-expected orders, as market demands continue to fluctuate. The company announced its restructuring strategies at the beginning of December 2024, amidst broader industry implications stemming from the U.S. government's intensified regulations on China's semiconductor sector. Steve Sanghi, who serves as the chair and interim CEO, forecasted this revenue figure, noting a deviation from analyst expectations which had predicted revenues could reach around $1.090 billion. Simultaneously, the company modified its earnings per share outlook, projecting it between $0.25 and $0.35 against a consensus of $0.32. Responding to the deteriorating market conditions and elevated inventory levels triggered by such dynamics, Sanghi emphasized the need for immediate restructuring. One significant aspect of this restructuring involves the planned shutdown of its Tempe, Arizona wafer fabrication facility, known as Fab 2, expected to finalize in the September 2025 quarter. The closure of Fab 2, where many process technologies also operate in other facilities in Oregon and Colorado, is anticipated to generate substantial cost savings, estimated at $90 million annually. This move aims to directly address the excessive stockpile of products manufactured at the site, anticipating that the benefits will reflect in the financials starting in the June 2026 quarter, aligning with standard inventory accounting practices. The decision underscores the company's strategic pivot towards moderating inventory levels and adapting to changes in demand amid competitive market landscapes. The restructuring plan also includes the reduction of approximately 500 positions, which was reported earlier. The initial costs related to this restructuring are expected to fall between $3 million and $8 million, with projected additional expenses amounting to $15 million arising from the shutdown and other transformation costs. Despite experiencing a decline in stock value, the company remains optimistic about its design-in momentum. Sanghi highlighted the strength of its Total System Solutions strategy and the influence of key market megatrends, even as the firm grapples with the pressures from macroeconomic weaknesses that have plagued many manufacturing sectors, particularly in Europe, affecting its Industrial and Automotive customer base.