Chipmaker Microchip Technology Inc. (Nasdaq: MCHP) is intensifying its response to a significant sales slump by implementing layoffs and plant closures, affecting approximately 500 employees. The company also revised its revenue forecast for the fourth quarter of 2024 (October-December) downward, as disclosed in its fiscal Q3 2025 earnings report ending December 31, 2024. The report revealed a sharp 41.9% year-over-year and 11.8% quarter-over-quarter decline in revenue to $1.026 billion, well below market expectations. Microchip attributed the poor performance to ongoing inventory corrections and weak demand in key markets.

To mitigate losses, Microchip plans to reduce capacity and cut costs by closing its Tempe, Arizona, wafer fabrication plant by September 2025. The decision, announced in a December 2, 2024, securities filing, is driven by excess inventory and available capacity at its Oregon and Colorado facilities. The closure is expected to save the company approximately $90 million but will impact around 500 employees.

In an email to employees, Microchip Vice President Dan Malinaric confirmed layoffs at its Gresham, Oregon, and Colorado Springs plants, though the exact number of affected employees remains undetermined. The company also announced two additional weeks of furloughs to soften the blow. “This adjustment enables us to keep more of our valued employees, who will be essential when Fab 4 is ready to ramp up and support our business growth,” Malinaric stated.

Microchip CEO Steve Sanghi highlighted the challenges of navigating a post-COVID inventory correction, with inventory levels reaching 266 days at the end of December 2024, significantly above the target range of 130 to 150 days. The company aims to reduce its inventory balance by $250 million by March 2026.

The semiconductor industry has faced a prolonged downturn, with companies like Lattice Semiconductor, On Semiconductor, and Intel also implementing layoffs. Despite these challenges, Microchips shares saw a 2.5% increase in late trading on Friday, though they remain down approximately 29% over the past year.

Microchips struggles reflect broader market pressures, including high interest rates and cautious customer behavior in industrial and automotive sectors. Former CEO Ganesh Moorthy noted in November 2024 that clients were “strictly managing inventory and adjusting procurement plans,” underscoring the persistent demand weakness impacting the companys operations.

As Microchip restructures, it remains focused on long-term growth, banking on a recovery in semiconductor demand and operational efficiencies to stabilize its business.