Microchip Technology is planning to implement temporary furloughs for employees at its Gresham factory for two weeks in March, with the possibility of a similar furlough in June. This decision comes as a response to a significant decline in sales, despite having recently secured substantial federal and state funding for the expansion of the Gresham plant. The company emphasized that these furloughs do not alter its expansion plans for the Oregon factory, attributing the short-term issues to customers' inventory backlogs. Microchip CEO Ganesh Moorthy stated that during uncertain business times, the company occasionally calls for shared sacrifices, such as short-term shutdowns, to maintain full staffing levels and avoid layoffs.
Microchip explained that the sales decrease is a result of its customers reducing orders or temporarily shutting down their own factories at the end of last year, leading to delayed shipments and a subsequent 22% decline in quarterly revenue. Despite the temporary setback, the company remains committed to expanding its Gresham facility due to the sustained growth in demand for its products. Notably, the company's sales had increased by 13% in the first six months of its fiscal year. Microchip clarified that the upcoming furloughs are intended as short-term measures to navigate through the current downturn and reaffirmed its adaptability and perseverance through business cycles.
The semiconductor industry's cyclicality presents challenges for companies seeking government support for expansions, much like Microchip's current situation. The federal government and the state of Oregon have provided subsidies to bolster the domestic chip industry with the aim of revitalizing U.S. electronics manufacturing and decreasing reliance on Asian factories, particularly those in China. It's important to note that these subsidies come with conditions, requiring companies to meet employment targets and fulfill their expansion plans. Failure to do so would necessitate the immediate repayment of state funding.
Microchip Technology's decision to implement furloughs reflects a short-term response to the sales decline and aims to sustain the company's long-term expansion plans while managing the impact of cyclical market conditions in the semiconductor industry.
