Microchip Technology to Lay Off 2,000 Workers Amid Financial Woes: Will It Help?

American chipmaker Microchip Technology has announced plans to lay off about 2,000 employees, or roughly 9% of its total workforce, as part of a restructuring exercise. The company has been facing a sharp earnings slump due to slow demand from automakers, which has led to a high inventory pile-up.

Arizona-based Microchip Technology designs, manufactures, and sells a range of microcontrollers, analog, mixed-signal, and Flash-IP integrated circuits to the automotive, industrial, consumer, aerospace, and communications industries. According to a Reuters report, the company has been struggling to clear its chip inventories after an aggressive build-up during pandemic-induced supply snags.

On March 3, the company announced that it would reduce headcount at its manufacturing facilities in Gresham, Oregon, and Colorado Springs, Colorado, as well as its backend manufacturing facility in the Philippines. The company is also reducing headcount in various business units and support groups.

Microchip Technology has also accelerated its plan to shut down manufacturing operations at its Tempe, Arizona, wafer fabrication facility, which will cease operations in May 2025.

In an SEC filing, the company said the workforce reduction will cost $30-$40 million. The entire restructuring is expected to be completed by June 2025, resulting in annualised operating expense savings of $90-$100 million.

Additionally, the company expects to save $25 million in employment-related costs and incur $45 million in charges related to the cancellation of wafer supply agreements.

Layoffs Amid Lagging Earnings

During the third quarter of fiscal year 2025, Microchip Technology's revenue declined by 42% year-over-year, leading to a net loss of $53.6 million.

"Our December quarter performance reflects the need for the decisive steps we are taking to realign our business, as revenue declined to $1.026 billion and inventory levels reached 266 days," said Microchip CEO and President Steve Sanghi.

Microchip Technology has also announced plans to sell its integrated circuit dies to a Chinese partner, which will handle testing, assembly, and marketing under a Chinese brand. Similarly, competitors like Allegro Microsystems are taking steps to localise their supply chains within China.