Microchip (MCHP) Status Update summary

Business update and recovery plan progress

• Net sales for the March quarter are on track with guidance, with distribution sales expected to bottom and inventory correction nearing completion.

• Bookings have meaningfully improved in January and February, and total backlog has stabilized with a slight upward trend.

• A nine-point recovery plan is underway, including resizing manufacturing, reducing inventory, reviewing growth initiatives, and streamlining operations.

• Fab 2 closure has been accelerated to May 2025, saving $90 million annually, with additional layoffs and operational adjustments in other facilities.

• Inventory is forecasted to decline by over $300 million by March 2026, aided by renegotiated foundry agreements and operational right-sizing.

Growth initiatives and strategic focus

• New anchor products, PIC64 and 10BASE-T1S Ethernet, are expected to drive future growth and higher attach rates for catalog products.

• Megatrend revenue grew at a 25.78% CAGR from FY21 to FY24, over 2x the rate of non-Megatrend revenue, and showed resilience in a down year.

• AI/ML has replaced 5G as a Megatrend, and e-mobility now encompasses a broader range of electric vehicles and infrastructure.

• An AI Coding Assistant was launched to boost customer productivity by over 40%.

• The China for China strategy aims to protect and grow the 4.5% of business at risk from local competition by partnering with a Chinese company for local branding and support.

Organizational and operational changes

• Completed a deep dive of all business units, resulting in consolidation and the creation of a new AI/ML business unit.

• Channel strategy was revised, including changes to distributor compensation, demand creation flags, and performance reviews.

• Customer relationship initiatives identified and prioritized clients for engagement, with positive early results from direct outreach.

• Long-term business model updated: revenue growth targeted at industry plus, gross margin at 65%, OpEx at 25%, and operating profit at 40%.

• Corporate-wide layoffs targeting a 10% reduction in office employees are expected to save $90–$100 million annually.