Microchip reports falling sales amid slowing global economy; revises capex plans downward

On February 6, US-based MCU and analog chip developer Microchip Technology released a fourth-quarter net sales prediction that did not meet the average estimates from analysts.

In its report for the fiscal third quarter of fiscal 2025 (April 2024 to March 2025), the company revealed net sales of US$1.03 billion, a 42% decrease compared to the same period last year. In addition, the gross margin decreased to 55.4%, down from 63.8% the previous year, and did not reach the projected 57.8%.

Microchip commented on the challenges posed by a slowing global economy, mentioning that it has halted most of its factory expansion plans and scaled back its capital investment forecasts through fiscal 2026. The company pointed out significant inventory reductions among its customers and distribution partners, indicating that the inventory correction cycle has yet to conclude. Although bookings for the March quarter have outpaced those in December, the overall volume remains low.

For the fourth quarter, Microchip Technology anticipates net sales between US$920 million and US$1 billion, which falls short of the Bloomberg Consensus estimate of US$1.05 billion. The gross margin is projected to be between 52% and 54%, significantly lower than the 57.9% estimated by Bloomberg.

In terms of annual projections, Microchip has adjusted its capex forecast to approximately US$135 million, down from the previous estimate of US$175 million and below the consensus projection of US$147.9 million.

Analysts have voiced concern regarding Microchip Technology's underwhelming fiscal results and somber outlook. According to Bloomberg, Vital Knowledge pointed out that the shortfall in earnings was attributable to weaker sales and gross margins. The company has indicated that it is making "decisive steps to turn the business around."

Truist Securities echoed these concerns, noting that both the results and the outlook fell short of expectations and were "well below consensus." Evercore ISI also emphasized that both the results and the outlook did not meet expectations, intensifying the negative sentiment surrounding the company's recent performance.

Federal Circuit upholds ruling to invalidate HD Silicon's semiconductor patent case against Microchip

Meanwhile, Bloomberg reported that the US Federal Circuit upheld a decision to invalidate a semiconductor patent, US Patent No. 6,774,033, held by HD Silicon Solutions LLC, in a lawsuit against Microchip. Although the court found that the Patent Trial and Appeal Board misinterpreted the term "comprising tungsten," it agreed with invalidating the patent's claims.

Source: Microchip, February 2025