Microchip Technology Revises Revenue Forecast, Plans Factory Closure; Shares Decline
Microchip Technology has revised its revenue forecast for the December 2024 quarter, projecting figures closer to the lower end of the initially anticipated range of $1.025 billion. This adjustment occurred due to the company experiencing slower-than-expected order returns.
The company's Interim CEO, Chairman, and Board Member Steve Sanghi expressed his commitment to remaining in his position for an indefinite period to ensure stability and continuity in leadership.
Microchip has decided to close its wafer manufacturing facility in Tempe, known as Fab 2, due to high inventory levels and sufficient existing capacity. Operations from this facility are also being conducted at the company's plants in Oregon and Colorado, which have room for expansion.
The closure is planned for the September 2025 quarter and is expected to generate approximately $90 million in annual cash savings. However, due to the First In, First Out (FIFO) inventory accounting method, profit and loss savings will not materialize until the June 2026 quarter.
The company anticipates that the closure will begin reducing inventory levels starting from the March 2025 quarter. Microchip estimates that the short-term restructuring costs related to the closure will range between $3 million and $8 million, with potential additional costs of up to $15 million in the future. These figures will become clearer as more details are obtained.
Despite these changes, Sanghi has provided assurance to investors regarding the company's strong long-term growth and profitability expectations, citing robust design integration momentum and strategic initiatives. The fab restructuring is viewed as a significant move to optimize Microchip's manufacturing footprint, and the company has indicated its openness to taking further steps to enhance growth and financial performance.
Additionally, Microchip plans to present its strategies and outlook at the UBS Global Technology and AI Conference, which will take place on December 3 and 4, 2024.