On Monday, Microchip Technology Inc (NASDAQ:MCHP) cut revenue guidance for the December 2024 quarter and announced manufacturing restructuring plans after a deep dive into the company's operations.
The update followed the Biden administration's third crackdown on China's semiconductor industry, which focused on advanced memory chips and chipmaking tools and affected chip equipment manufacturers.
Chair and interim CEO Steve Sanghi expects its December 2024 revenue to be close to the low end of its original guidance of $1.025 billion (versus the analyst consensus of $1.090 billion) due to slower turn orders than anticipated.
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The company previously expected third-quarter revenue of $1.025 billion-$1.095 billion.
It had announced an adjusted EPS outlook of $0.25-$0.35 (versus analyst consensus of $0.32). The company had projected an adjusted gross margin of 57.0%-59.0%
Sanghi said high inventory levels and ample capacity prompted the company to shut down its Tempe, Arizona wafer fabrication facility, also known as Fab 2.
Many of the process technologies that run in Fab 2 also run in its Oregon and Colorado factories, which both have adequate clean room space for expansion, Sanghi said.
He expects to be able to close the Fab 2 in the September 2025 quarter, by which time he hopes to generate annual cash savings of approximately $90 million.
Due to the high inventory of products manufactured in Fab 2, he expects P&L savings from the shutdown at the start of the June 2026 quarter, based on a First-in-First-out basis.
Sanghi expects the Fab 2 closure to help it moderate its inventory levels beginning in the March 2025 quarter. The company is looking to let go of 500 employees under the restructuring, according to the Wall Street Journal report.
He expects near-term restructuring costs of $3 million to $8 million from these actions and an additional $15 million in other restructuring and shutdown costs.
Sanghi noted that Microchip's design-in momentum continues to be strong, driven by its Total System Solutions strategy and key market megatrends.
He expects to continue as the interim CEO amid lack of a definitive timeline for his successor.
The company tapped Chair Sanghi to the additional position of interim CEO as of November 18, taking over from Ganesh Moorthy, who retired.
Microchip Technology stock plunged 19% year-to-date. Despite an upbeat second-quarter report, Wall Street analysts slashed their price targets on the stock.
On November 5, the company reported second-quarter sales of $1.164 billion, topping the consensus estimate of $1.152 billion. It posted EPS of 46 cents, which beat the consensus estimate of 43 cents.
Moorthy had flagged inventory correction amid macro weakness for many manufacturing businesses, underlined by exacerbated weakness in its European business, which is concentrated with Industrial and Automotive customers.
Price Action: MCHP stock is down 1.74% at $69.10 premarket at last check Tuesday.
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