A new slowdown in the world semiconductor market is prompting Microchip Technology to end production at its Chandler plant. The company said it will consolidate chipmaking at its Tempe plant, 1200 S. 52nd St., and cut 140 jobs, or about 4 percent of the work force. The restructuring is expected to be completed by the end of June.
Microchip will continue to operate its corporate headquarters, engineering, testing and other support work at its Chandler complex, 2355 W. Chandler Blvd.
"Fab 1 (in Chandler) is our oldest manufacturing facility and utilizes our least advanced process technologies,” said CEO Steve Sanghi. “In this market environment, demand for products using our older technologies is weakest, and thus it is prudent to combine the Fab 1 and 2 activities into Fab 2 (in Tempe)."
The Tempe plant will be staffed by personnel from both Tempe and Chandler, but no equipment from the outdated 25-year-old Chandler plant will be transferred. In a related announcement, the company said revenue and earnings for the fiscal fourth quarter, which ended March 31, will be less than previously expected. It was the second earnings warning the company has issued in the past three weeks.
Microchip has been hard hit by a slump in demand related to the war in Iraq, he said. Also the outbreak of severe acute respiratory syndrome has disrupted business in Asia, he said. Sanghi said sales for the fiscal fourth quarter are expected to be $159 million to $160 million, about a 7 percent decline from the previous quarter. Earnings are expected to be about 16 cents a share, down two cents from the previous quarter.
On March 18, the company predicted its fourth quarter earnings would be 17 cents a share. The company's actual earnings will be announced on April 23.
A 14 percent increase in revenue in Europe was offset by a 12 percent decline in the Americas and a 14 percent decline in Asia, Sanghi said. Specifically the company has seen weakness in cell telephones and in a wide range of consumer goods that use microchips such as appliances, televisions, toys and audio and video equipment.
“Consumers are not shopping. They're watching TV at home,” he said. Sanghi said such a steep drop in sales had occurred only three previous times in the company's history. All were connected with major events — an industry inventory correction in 1996, the Asian financial crisis in 1998 and the dot-com meltdown in 2001.
Under the circumstances, the most cost effective response is to consolidate production at the more modern Tempe fab rather than reduce production in Chandler and Tempe while keeping both open, he said. Sanghi said the company still plans to begin production in October at its most modern plant in Gresham, Ore., which will be used to make the company's most advanced products. Microchip hopes to transfer some employees from Chandler to Oregon, which would hold down the number of layoffs, he said.
The company will take a restructuring charge for the Chandler plant closing and layoffs in the April-June quarter of about $27 million to $33 million. “These actions will position us well for growth as geopolitical conditions clear and consumer and business confidence returns to normal,” Sanghi said. Microchip has no planned use for the clean room space that will be closed in Chandler, said chief financial officer Gordon Parnell. “It is very unlikely that it would ever be restarted,” he said.
Microchip shares dropped $1.77, or 8.62 percent, to close at $18.76 Tuesday on the Nasdaq stock market.