microchip halts chips act application amid industry hurdles
Chandler, Thursday, 5 December 2024.
Microchip Technology has paused its application for $162 million in subsidies under the U.S. CHIPS and Science Act. This marks a significant shift as Microchip becomes the first semiconductor company to step back from the program. The decision comes amid persistent challenges in the semiconductor industry, such as overcapacity and inventory issues. Microchip has faced two worker furloughs in Oregon and plans to close its Arizona factory, impacting 500 employees. These setbacks have led to a revised revenue forecast, with expectations falling near the lower end of its guidance range for the December quarter. The move poses a challenge to the Biden administration’s efforts to boost domestic chip production through the CHIPS Act. As the semiconductor industry grapples with cyclical downturns, Microchip’s actions reflect broader challenges that may influence other industry players and ongoing subsidy negotiations.
Market impact and stock performance
The market has responded negatively to Microchip’s challenges, with the company’s stock experiencing a significant decline of 27% in 2024 [6]. Financial performance has been particularly concerning, with third-quarter revenue reaching $1.164 billion, marking a substantial year-over-year decline of 48.4% [6]. The company’s decision to withdraw from CHIPS Act funding has contributed to making it one of the worst-performing stocks in the Philadelphia Stock Exchange Semiconductor Index [6].
Financial implications of restructuring
Microchip faces immediate restructuring costs between $3 million and $8 million for the Arizona factory closure, with potential additional costs up to $15 million [1][6]. The company expects to realize cost savings from these measures starting in Q3 2025, with full benefits materializing by Q2 2026 [6]. The decision to pause the $162 million CHIPS Act application reflects CEO Steve Sanghi’s concerns about the investment-to-subsidy ratio, noting that government funding covers only 15 cents per dollar spent [2].
Industry outlook and future prospects
Despite current challenges, the broader semiconductor market shows promise for recovery, with projections indicating 13.1% growth in 2025 and anticipated annual sales of $588.4 billion [6]. The Biden administration maintains communication with Microchip regarding their long-term plans [1][2]. The company’s strategic pivot includes focusing on Total System Solutions across consumer, industrial, automotive, and data center sectors [6], although immediate market conditions remain challenging.