Microchip Plans 4-Week H1 Shutdown Amid MCU Demand Slump

February 2nd Press Release: Microchip, a leading manufacturer of Microcontroller Units (MCUs), disclosed its financial results for the third quarter of the fiscal year 2024, concluding on December 31, 2023. The announcement came after the close of the US stock market on Thursday.

During this quarter, Microchip reported a revenue of $17.657 billion, marking an 18.6% year-on-year decline and a 21.7% quarter-on-quarter decrease. The gross profit margin was 63.8%, down from last year's 68.1%. The non-GAAP net profit reached $5.927 billion, with diluted earnings per share at $1.08, reflecting a substantial year-on-year drop of 30.8% and a quarter-on-quarter decline of 33.3%.

Yahoo Finance analysts anticipated Microchip's third-quarter revenue to be $17.7 billion, with non-GAAP diluted earnings per share projected at $1.04. While Microchip's performance aligned closely with these expectations, the gross profit margin fell short of the anticipated range of 64.0-65.0%.

Breaking down the business performance for the third quarter of the fiscal year 2024, Microchip reported revenue of $9.952 billion for mixed-signal MCUs, experiencing a 22.3% quarter-on-quarter decline, and $4.306 billion for analog ICs, reflecting a 30.9% quarter-on-quarter decrease.

Looking ahead to the fourth quarter of the fiscal year 2024, Microchip anticipates revenue between $12.25 billion and $14.25 billion (midpoint at $13.25 billion), with non-GAAP diluted earnings per share ranging from $0.46 to $0.68 (midpoint at $0.57). Analysts, on the other hand, expect revenue of $16.6 billion and non-GAAP diluted earnings per share of $0.91 for the same period.

Ganesh Moorthy, President and CEO of Microchip, stated on Thursday, "Our quarterly performance fell below guidance, primarily due to soft business conditions. The global economic environment's weakness compelled customers to reduce shipments and extend shutdown times to further mitigate inventory risks, preventing us from fulfilling previously planned backlog shipments. We are actively taking measures to address these short-term challenges, with a focus on ensuring the long-term sustainability and growth of our business."

To address the soft market demand and inventory issues, Microchip is implementing measures to restrict discretionary spending and closely manage inventory levels. A key initiative involves planning two-week closures for its large wafer fabrication facility (Gresham factory in Oregon) in the first and second quarters of this year, with activities at many other facilities also set to be scaled back, resulting in insufficient capacity utilization.

In January of this year, Microchip issued a revenue warning, citing inventory reductions by multiple customers. After predicting a 22% quarter-on-quarter revenue decrease for the third quarter of the 2024 fiscal year (ending on December 31, 2023), the company announced the aforementioned production reduction plan. At that time, it was mentioned that a further shutdown in June was under consideration, but no further confirmation was provided.