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Microchip Technology Inc. will move forward with a two-week shutdown in June at its three U.S. semiconductor fabs — including in Colorado Springs — as the company continues to grapple with an inventory correction.
The Chandler, Arizona-based microcontroller manufacturer's factories are running at lower utilization rates, prompting the shutdown to “help control the growth of inventory,” Microchip CEO Ganesh Moorthy said Monday on an earnings call with analysts after the company released its fiscal fourth quarter financials.
The company also predicted lower-than-expected revenue and profits during the first quarter of fiscal 2025, which pushed its shares lower in after-market trading Monday.
“We continue to work with our distribution partners to attempt to find the right balance of inventory required to serve their customers, manage through their cash flow requirements and be positioned for the eventual strengthening of business conditions,” Moorthy said.
Microchip in February announced it would implement two-week shutdowns in March and June at its three chip fabs in Tempe, Arizona; Gresham, Oregon, and Colorado Springs, along with activity reduction at other global factories.
“The operating expense reduction efforts we implemented last quarter, including broad-based salary sacrifices, are continuing this quarter,” Moorthy continued. “The shutdown for manufacturing team members and pay cuts for non-manufacturing team members are consistent with a long standing culture of shared sacrifices in down cycles and shared rewards in upcycles.”
When it made the initial announcement in February, Microchip (Nasdaq: MCHP) also said it would enact a 10% pay cut for employees not associated with factory shutdowns and a 20% pay cut for its executive team.
The company has more than 22,100 worldwide employees, according to Business Journal research.
Moorthy said around 98% of Microchip’s employees took pay cuts with some 700 who volunteered to take a higher salary reduction than requested by the company.
“We know this is difficult for employees. Inflation still exists. This is a challenge for employees,” Eric Bjornholt, Microchip's chief financial officer, said on the earnings call. “It’s not that we want to keep these in place, but at the time with where we're guiding revenue for the current quarter… it's appropriate, and we hope that we can restore normal salary levels as soon as possible.”
Microchip revenue slips in fiscal Q4
Microchip reported net income of $154.7 million, or 28 cents a share, in its fiscal fourth quarter that ended March 31. That compares to net income of $604 million, or $1.09 a share, in the prior year.
Microchip generated $1.3 billion in revenue during the latest quarter, down 40.6% from $2.2 billion in the prior year quarter. The company’s net income was adversely impacted by amortization related to assets associated with its previous acquisitions, and the current slowdown in the electric vehicle market continues to affect companies like Microchip that feed components into that market.
Microchip generated $7.6 billion in revenue in its fiscal year ending March 31, a 9.5% decrease from $8.4 billion in fiscal 2023, according to the company.
Microchip anticipates June quarter net sales between $1.22 billion and $1.26 billion, compared to $1.34 billion expected by analysts, as it sees early signs of stabilizing demand as it enters fiscal 2025, Moorthy said. The company expects adjusted earnings of between 29 and 32 cents per share, far lower than the 59 cents predicted by analysts.
Microchip’s stock was down 4% to $89.75 in after-hours trading on Monday on the news.
The company reduced its debt by $447.4 million while optimizing its capital structure by issuing $1 billion in senior notes due in 2029 at a 5% interest rate.
“We remain committed to further enhancing our capital structure in fiscal 2025 as additional portions of our outstanding debt mature,” Bjornholt said in a statement.
The company’s cancellation requests are beginning to subside and bookings have started to pick up again, Moorhy added.
In July, Microchip is expected to announce entry into the 64-bit embedded microprocessor market with a suite of products and tools to meet growing demand for high-performance processing applications.
“We believe that the June 2024 quarter marks the bottom of the cycle for Microchip and that our business will return to sequential revenue growth in the September 2024 quarter,” he said.
