microchip technology withdraws from chips act subsidy amid challenges
United States, Wednesday, 4 December 2024.
Microchip Technology Inc. has halted its application for U.S. Chips Act subsidies, becoming the first company to pull back from the initiative aimed at boosting American chip production. The decision follows operational scale-backs, including two furloughs in Oregon and plans to close a factory in Arizona, affecting 500 employees. This move interrupts the company’s anticipated $162 million grant from the Chips and Science Act. CEO Steve Sanghi cited the need to reassess priorities amid an industry downturn, with expectations of a 40% revenue drop in 2024. This pause complicates efforts by the Biden administration to distribute subsidies before President-elect Donald Trump assumes office. The decision highlights the semiconductor industry’s cyclicality and challenges in balancing government incentives with commercial viability. Microchip’s shares have declined 27% this year, reflecting broader industry struggles.
Market impact and investor concerns
The withdrawal from the Chips Act program has intensified investor concerns about Microchip’s financial outlook. The company’s stock performance, already down 27% this year[1], reflects broader market skepticism about semiconductor manufacturers. Industry analysts are closely monitoring how this decision might affect other companies considering similar subsidies, particularly as the sector grapples with excess capacity and inventory challenges.
Strategic realignment under returning CEO
Steve Sanghi, who returned as CEO last month, has taken a pragmatic approach to the company’s challenges. ‘Do I want to spend $100 million to get $15 million back from the government — if I don’t need it?’ Sanghi questioned[2]. This stance marks a significant shift from the industry’s previous expansion mindset, when ‘everybody thought factory capacity was never enough,’ as Sanghi noted. The decision aligns with his focus on navigating through the current downturn.
Broader industry implications
The Commerce Department has made preliminary agreements with over 20 companies, committing nearly half of the $39 billion allocated for domestic semiconductor production[2]. Microchip’s withdrawal occurs amid heightened U.S.-China tensions, with recent U.S. export controls targeting 140 Chinese technology companies[3]. This complex landscape has created uncertainty for semiconductor manufacturers balancing government incentives against market realities.
Regional economic impact
The decision’s ripple effects extend beyond Microchip’s operations. The closure of the Arizona facility and Oregon furloughs represent significant local economic impacts. This contrasts with other regions benefiting from Chips Act funding, such as Pennsylvania’s Powerex receiving $3 million for facility modernization[4]. These divergent outcomes highlight the uneven distribution of semiconductor industry challenges and opportunities across different U.S. regions.