Microchip Technology Inc.'s latest 10-K filing for the fiscal year ended March 31, 2024, reveals a challenging business environment. The company faced adverse effects from slowing economic activity, business uncertainty, inflation, and higher interest rates. As a result, customer requests to push out or cancel backlog increased, leading to a large inventory correction.
To address the high inventory levels, Microchip Technology Inc. made strategic decisions. It closed its Tempe, Arizona wafer fabrication facility (Fab 2), expecting annual cash savings of approximately $90 million. The closure was completed in May 2025, with income statement savings expected to start in the June 2026 quarter.
Further restructuring actions were announced to reduce costs, resize manufacturing operations, and cut headcount at various facilities, aiming for approximately $25 million in annual savings from reduced compensation costs. Additionally, a 10% headcount reduction across the company is expected to reduce ongoing operating expenses by approximately $90 million to $100 million on an annualized basis.
The company's financial statements are prepared in accordance with U.S. GAAP, requiring estimates and judgments that affect reported assets, liabilities, revenues, and expenses. Microchip Technology Inc. uses the first-in, first-out method to value inventories and records charges to write down inventory for estimated excess, obsolete, or unmarketable inventory.
The fiscal year ended March 31, 2025, saw a significant decrease in net sales, amounting to $4,401.6 million, a 42.3% decline compared to the previous fiscal year. The decrease was attributed to adverse economic conditions, including slowing economic activity, business uncertainty, inflation, high interest rates, and shorter product lead times. However, the company's net sales by product line were diversified, with no single product or customer accounting for a material portion of the change in net sales.
Despite the challenging macroeconomic environment and company-specific operational adjustments, Microchip Technology Inc. remains focused on reducing inventory levels and days of inventory through fiscal 2026. The company also faces uncertainty regarding geopolitical tensions, the risk of a recession, and potential trade policies, including tariffs, which could impact revenue and cost of goods sold in the U.S. and internationally.
The market has reacted to these announcements by moving the company's shares -3.33% to a price of $56.12. Check out the company's full 10-K submission here.
