Microchip Technology Inc. has announced a significant shift in its operations as it works to reduce costs and adapt to a challenging business environment. The company revealed plans to shut down its Tempe, Arizona-based silicon wafer fabrication facility by the second quarter of fiscal year 2026, affecting approximately 500 workers. The closure is part of a broader cost-cutting strategy in response to an anticipated slowdown in sales, and the company expects to save around $90 million annually as a result.

The decision comes after a review of the company's operations by CEO Steve Sanghi, who returned to the top role in late November. He concluded that "certain actions are necessary" to align with the company’s future goals, which led to the decision to close the Tempe facility.

In addition to the factory closure, Microchip has also paused its application for US semiconductor subsidies under the CHIPS and Science Act. The company was previously in line to receive $162 million in grants to support its plants in Oregon and Colorado. However, given the company’s ongoing financial struggles, including a 40% revenue decline this year and a significant drop in stock value, Microchip has decided to hold off on the CHIPS Act funding process for now.

Sanghi explained the decision at a UBS conference, stating, "I have put the negotiations with the CHIPS office on hold for now. Probably, by the time I get my arms around it, we’re into the new administration." This move comes as part of a broader trend within the semiconductor industry, where the cyclical nature of the market presents challenges for long-term investment decisions.

Microchip’s sales slump, attributed to its focus on older-generation chips used in products like cars and consumer devices, has left the company grappling with excess capacity in the semiconductor market. Sanghi emphasized that the company’s decision to pause the CHIPS Act process is a result of the current overcapacity in the sector. “The world was going to build silicon fabs forever,” Sanghi said. “Today, we have too much capacity.”

The pause in negotiations with the CHIPS office is a setback for the U.S. government’s efforts to distribute the $39 billion in grants earmarked for semiconductor manufacturing. With major players like Intel and Taiwan Semiconductor Manufacturing Company already receiving funding, Microchip’s decision could further complicate efforts to finalize agreements under the bipartisan law, especially ahead of the transition to a new administration in 2025.

The U.S. Department of Commerce has indicated that it continues to engage with Microchip about its long-term plans, but it remains uncertain whether the company will be able to access the funding set aside for it under the CHIPS Act. Despite the current challenges, Microchip remains in communication with the Commerce Department and is working on ways to adapt to the rapidly changing semiconductor landscape.