US chipmaker Microchip forecasts weak profit on memory shortages

Microchip Technology forecast lower-than-expected profit for Q4 due to ongoing memory shortages, causing its shares to drop over 5% in after-hours trading.

The chipmaker, based in Chandler, Arizona, expects adjusted earnings of around 40 cents per share, below the analyst estimate of 48 cents, and sales between US$1.2 billion and US$1.3 billion, compared to an estimate of US$1.2 billion.

In the third quarter, Microchip reported US$1.2 billion in sales, slightly above the forecast of US$1.2 billion, and an adjusted profit of 44 cents per share, exceeding expectations of 41 cents.

The company cited a global memory supply crunch affecting the electronics industry, leading to reduced orders from smartphone and PC makers, and impacting suppliers like Microchip.

🔗 Source: Reuters

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Implications, context, and why it matters.

### Microchip’s profits are getting squeezed by internal costs, even with pockets of strength in memory

Executives described mixed effects from memory-market dynamics, with certain lines benefiting while profitability took hits from other issues 1.
Management said the company is gaining share in serial EEPROM (electrically erasable programmable read-only memory) as some rivals move capacity into broader flash memory, and it expects that demand to hold while the shortage continues 1.
Profit pressure also comes from internal charges tied to resizing its manufacturing footprint and from inventory accounting, both of which can drag on margins even when sales stay steady.
In the September quarter, factory underutilization charges plus inventory write-offs totaled $122.8 million, and management said that cut non-GAAP (non-Generally Accepted Accounting Principles) gross margin by 10.8 percentage points 2.
Those underutilization costs ran a little over $50 million in the December quarter, and management said the reduction effort will take a couple of years 1.

### Microchip is shifting toward AI data centers and automotive, while dialing back buybacks

In AI data centers, Microchip said it is sampling a 3-nanometer PCI Express Gen 6 (a high-speed standard for connecting chips inside servers) switch and has three design wins 1.
The company said one of those wins could generate more than $100 million in calendar 2027 revenue based on current customer forecasts 1.
Microchip described a long-cycle upgrade wave in automotive and industrial connectivity, supported by a collaboration with Hyundai Motor Group to integrate 10BASE’T1S (an Ethernet standard designed for in-vehicle networking over a single twisted pair) into next-generation vehicle platforms 1.
Management said high debt after the last cycle has made the company cautious, so it plans to pause buybacks and prioritize deleveraging (paying down debt) 1.