Microchip Technology revises revenue outlook, plans fab closure; shares drop

Microchip Technology (NASDAQ:MCHP ) has announced a revision to its revenue guidance for the December 2024 quarter, projecting figures closer to the lower end of its original forecast of $1.025 billion. This adjustment comes as the company experiences slower-than-expected turn orders.

Steve Sanghi, the company's Interim CEO, President, and Chair of the Board, expressed his commitment to remaining in his role for an indefinite period to ensure stability and continuity in leadership.

In response to high inventory levels and sufficient existing capacity, Microchip has decided to close its Tempe wafer fabrication facility, known as Fab 2. This facility's processes are also conducted in the company's Oregon and Colorado factories, which have room for expansion.

The shutdown is scheduled for the September 2025 quarter and is expected to result in annual cash savings of around $90 million. However, profit and loss savings will not materialize until the June 2026 quarter due to the First-In First-Out inventory accounting method.

The company anticipates that the closure will begin to reduce inventory levels starting in the March 2025 quarter.

Microchip estimates near-term restructuring costs associated with the closure to be between $3 million and $8 million, with the possibility of additional costs up to $15 million in the future. These figures are subject to refinement as more details become available.

Despite these changes, Sanghi assured investors of the company's strong long-term growth and profitability prospects, citing robust design-in momentum and strategic initiatives. The fab restructuring is seen as a significant move to optimize Microchip's manufacturing footprint, with the company open to further actions to enhance growth and financial performance.

Additionally, Microchip is set to participate in the UBS Global Technology and AI Conference, taking place on December 3 and 4, 2024, where it will present its strategies and outlook.

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Source: Investing.com