Despite Strong Bookings, Microchip Sees Uncertainty in Business

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  • Microchip expects that its capital expenditures for fiscal 2021 will be reduced to about $50 million to $70 million
  • The company said that the strong bookings may be a result of customer concerns about supply chain disruptions due to the COVID-19 virus

Microchip Technology Incorporated, a provider of smart, connected and secure embedded control solutions, has provided an update on its expected March 2020 quarter net sales and the current business environment. Microchip announced that its net sales for the
quarter ending 31 March 2020 is expected to be up about three per cent sequentially versus its revised guidance provided on second March 2020 of about flat sequentially.

“With millions of job losses, customer factories shutting down and weakening economic activity, we are taking actions to reduce expenses and capital expenditures to prepare for these conditions,” stated Steve Sanghi, Microchip’s CEO.

Bookings may be a result of customer concerns

The company informed that it has received record bookings for the March 2020 quarter and that its backlog for the June 2020 quarter is up about nine per cent from the March 2020 quarter backlog at the same point in time. However, the company believes that the strength in bookings may be a result of customer concerns about supply chain disruptions due to the COVID-19 virus.

“With economies around the world contracting rapidly, with millions of people getting laid off and with customer factory closures due to “shelter in place” ordinances in various countries, we believe that product demand is likely to weaken significantly,” read Microchip’s official statement.

“While we see strong bookings and backlog right now, we also see a very high degree of uncertainly in our business due to the impact of the COVID-19 virus,” added Sanghi.

Cuts in salary as measures

Microchip is proactively taking a series of actions to lower its cost structure. Microchip’s CEO, president and other executive staff members will take a 20 per cent salary cut effective on 20 April 2020 while the rest of the non-factory employees in the company will take a 10 per cent salary cut.

The salary cuts will be in addition to the reduction of cash bonuses and other discretionary expenses. The cost reduction actions in our U.S. factories will vary with some employees taking salary cuts and others taking rotating time off depending on the factory loading levels for various locations.

“Cost reduction actions in our non-U.S. locations will depend on local law requirements including obtaining works council approval in certain jurisdictions and employee consent for salary cuts in other jurisdictions. The Microchip board of directors will also take a 20 per cent cut in their cash compensation,” read Microchip’s official statement.

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