Microchip Technology MCHP announced a revision to its revenue guidance for the December 2024 quarter, expecting $1.025 billion. The figure is closer to the lower end of its original guidance. This adjustment comes as MCHP experiences slower-than-expected turn orders.

MCHP also announced that the company plans to close its Fab 2 manufacturing facility in Tempe, AZ, by the September 2025 quarter. This move is part of its efforts to optimize Microchip's manufacturing footprint and reduce costs. This shutdown is expected to save it approximately $90 million annually.

Following the announcement of revised revenue guidance and restructuring plans, Microchip’s shares fell nearly 1.92% in today’s pre-market trading session. The market reaction indicates investors’ concerns over slower-than-anticipated order momentum, high inventory levels and near-term restructuring costs, despite the company’s long-term cost-saving measures and growth strategies.

Microchip plans to transfer production from its Fab 2 facility to its Oregon and Colorado plants, which have adequate capacity for expansion. This restructuring aims to address high inventory levels, with moderation expected by March 2025.

The company estimates near-term restructuring costs between $3 million and $8 million, related to its plan to shut down the Fab 2 facility. Additionally, MCHP foresees the potential for further restructuring and shutdown expenses, which could total up to an additional $15 million.

MCHP’s Shares Underperform Industry & Sector

On a year-to-date basis, Microchip Technology’s shares have lost 22%, underperforming the broader Zacks Computer & Technology Sector’s appreciation of 28.2% and the Zacks Semiconductor - Analog and Mixed industry’s decline of 2.3%.

MCHP's share price decline is due to a significant drop in net sales growth which fell 48.4% year over year to $1.164 billion in the second quarter of fiscal 2025.

The sales decline was due to continued customer destocking and weak demand, especially in the consumer and automotive sectors, with a nearly 22% sequential drop. This is expected to impact top-line growth in the near term.

Can MCHP’s Broad Product Range Boost Its Prospects?

MCHP boasts a wide product portfolio and has continuously expanded this into various segments to sustain the company's robust growth and presence in its broad market.

Microchip introduced the Microchip Graphics Suite, a comprehensive solution aimed at simplifying the integration of graphical user interfaces into embedded electronic devices.

The 101765-320-A VCSO (Voltage-Controlled SAW Oscillator) from Microchip Technology is a high-performance oscillator designed for radar and sensing applications.

MCHP expanded its TrustFLEX portfolio with the introduction of three new CryptoAuthentication ICs: the ECC204, SHA104 and SHA105.

The company has expanded its Ethernet portfolio with the launch of MCHP’s LAN887x Ethernet PHY transceiver family, a key addition to its Single-Pair Ethernet solutions. This now includes 100BASE-T1 and 1000BASE-T1 PHY transceivers, designed to enhance network interoperability.

Most recently, the company has launched IGBT 7 devices for high-growth sectors, including sustainability, e-mobility and data centers. It is designed to meet the increasing demand for high efficiency, compact size and enhanced performance in power electronics.

MCHP’s Zacks Rank & Stocks to Consider

Microchip Technology currently carries a Zacks Rank #5 (Strong Sell).

Audioeye AEYE, Broadcom AVGO and Cognizant Technology Solutions CTSH are some better-ranked stocks in the broader tech sector. Each of the stocks currently has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The long-term earnings growth rate for AEYE, AVGO and CTSH is currently pegged at 25%, 16.52% and 7.79%, respectively.

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Microchip Technology Incorporated (MCHP) : Free Stock Analysis Report

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