On Tuesday, Microchip Technology Inc . (NASDAQ:MCHP) shares, currently trading at $70.31 and down over 25% in the past six months according to InvestingPro data, faced a revised December quarter revenue outlook and unveiled additional restructuring initiatives, including the imminent closure of a manufacturing facility. Despite these changes, Needham reiterated its Buy rating and $85.00 price target for the company's stock.
Microchip announced that it would immediately cease operations and eventually permanently close its 200mm Fab 2 in Tempe, Arizona. This strategic move is part of a broader restructuring plan as the company navigates current market conditions.
InvestingPro data shows 18 analysts have recently revised their earnings estimates downward, with revenue expected to decline this year. The closure is expected to result in inventory level improvements starting next quarter, although the anticipated cost savings of $90 million per year will not impact financials until the June 2026 quarter due to the first-in, first-out (FIFO) accounting method's effects.
In light of these developments, Needham has adjusted its financial projections for Microchip. The firm has lowered its F3Q25 revenue estimate to $1.025 billion and slightly revised its gross margin expectations downward. Nevertheless, the firm has decided to maintain its F4Q25 revenue estimate at $1.035 billion, noting that its forecast was already more conservative than the consensus estimates.
The firm's long-term financial estimates for Microchip remain unchanged, with the price target of $85 being upheld, based on a 25 times multiple of the firm's FY27 earnings estimate of $3.40 per share. The changes come as Steve Sanghi, who has over 22 years of experience as CEO of Microchip, returns to lead the company through this transition.
Despite current challenges, the company maintains a strong dividend history, having raised its dividend for 13 consecutive years. For deeper insights into Microchip's financial health and extensive metrics, including Fair Value analysis and growth prospects, investors can access the comprehensive Pro Research Report available on InvestingPro.
In other recent news, Microchip Technology has revised its revenue outlook, projecting a 12% quarter-over-quarter decrease due to slower-than-expected turn orders. The company also plans to close its Tempe wafer fabrication facility, a move expected to result in annual savings of around $90 million. Amid these changes, Steve Sanghi, the company's CEO, has committed to his role indefinitely to ensure stability.
In response to these developments, Stifel has recalibrated the 12-month price target for Microchip Technology to $87, while maintaining a Buy rating. KeyBanc Capital Markets and Citi have also maintained their positive ratings on the company, despite the revised revenue guidance.
In addition, Piper Sandler confirmed its Overweight rating, expressing confidence in the company's strategic direction. These recent developments highlight the company's proactive measures to manage its financial outlook amidst challenging market conditions.
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