Microchip Technology Incorporated, a leading provider of smart, connected, and secure embedded control solutions, provided lower updated revenue guidance for the December 2024 quarter and announced manufacturing restructuring plans. This will include the shuttering of the Tempe wafer fabrication facility, referred to as Fab 2, in September 2025.
“In the first two weeks of my newly appointed role as Interim CEO and President, I have done a deep dive into the operations of the Company and determined that certain actions are necessary. I want to clarify for investors that I plan to stay in this role, even though the title is interim, for as long as it is necessary, so there is no definitive timeline for my successor.” said Steve Sanghi, Microchip’s CEO, President and Chair of the Board. Mr. Sanghi continued, The company indicated in their November 5, 2024 earnings call that significant turns orders were required to achieve the midpoint of their December 2024 quarter revenue guidance. Those turns orders have been slower than anticipated and they now expect the December 2024 revenue to be close to the low end of their original guidance which is $1.025 billion.
Mr. Sanghi added, “With inventory levels high and having ample capacity in place, we have decided to shut down our Tempe wafer fabrication facility that we refer to as Fab 2.” He went on to say, “Many of the process technologies that run in Fab 2 also run in our Oregon and Colorado factories, which both have ample clean room space for expansion.”
Microchip expects to be able to shut down Fab 2 in the September 2025 quarter at which time they expect that it will generate annual cash savings of approximately $90 million. Due to the high inventory of the products which are manufactured in Fab 2, they do not expect to see P&L savings from the shutdown until the start of the June 2026 quarter based on a First-In First-Out basis.
“We expect that the Fab 2 closure will begin to help us moderate our inventory levels beginning in the March 2025 quarter. We anticipate near-term restructuring costs to be between $3 million and $8 million from these actions, and it is possible that we could incur other restructuring and shut-down costs in the future of up to an additional $15 million. The estimates of the restructuring costs will be refined over time as more information becomes available.”
Mr. Sanghi also went on to reiterate, “I want to ensure investors of my confidence in the long-term growth and profitability of Microchip. Our design-in momentum continues to remain strong, driven by our Total System Solutions strategy and key market megatrends. The fab restructuring is a big step in right-sizing our manufacturing footprint, and we will continue to evaluate any further actions that are required to position Microchip for outsized growth and financial performance.”
