AI buyers seized suppliers' factories, Microchip says, as lead times stretch to 32 weeks and shares slide

US analog chipmaker Microchip Technology beat quarterly forecasts, but its shares fell more than 20% over two sessions after CEO Steve Sanghi said AI customers had seized its suppliers' factory capacity and stretched delivery times sharply. AI companies “came in and took over the whole factory. They pushed everybody out,” Sanghi told investors on the earnings call.

Lead times stretched from 4–8 weeks to 6–32 weeks

On the November 5 earnings call, Sanghi said standard products that once shipped in four to eight weeks now take six to 32 weeks. The bottleneck is not Microchip's own fabs but foundries, outsourced assembly and test (OSAT) houses and substrate supply, where AI customers' larger order books have monopolised capacity. That has left Microchip unable to ship some high-margin products, with many orders pushed into the March quarter. Moving the work to alternative suppliers will take about six months, the company said.

Quarterly revenue of $1.622 billion; data centre business up more than 50%

For the fiscal second quarter ended in September, Microchip reported revenue of $1.622 billion, up 42.2% year on year and above the $1.60 billion consensus, with non-GAAP earnings of $0.97 a share versus $0.936 expected. Industrial revenue rose 50.3% and data centre revenue rose 55.7% to more than $250 million, or 16.7% of sales. The book-to-bill ratio stayed above one, and backlog entering the December quarter was higher than entering the September quarter.

Weak December guidance; Sanghi says the data centre market may be in a bubble

Despite the strong demand, guidance for the December quarter was soft: revenue of $1.573 billion to $1.638 billion, gross margin of 64% to 65%, and earnings of $0.87 to $0.95 a share. Sanghi went further on the call, saying data centre spending was “in a bubble and the second derivative of growth must come down substantially,” and that a slowdown in AI demand would actually help in the near term by freeing up constrained capacity. The shares closed at $58.35 on November 6, down about 10% on the day and more than 20% from $75.34 two sessions earlier.

Hailo and VORAGO deals closed, adding edge AI

Microchip also completed two acquisitions: Hailo, an edge AI chipmaker, and VORAGO, an aerospace and defence chipmaker. The company said Hailo accelerates its AI-enabled microcontroller roadmap by about five years. Hailo and VORAGO are expected to add about $4 million and $6 million respectively to December-quarter sales.

Chip stocks swung wildly; peers did not flag the same problem

The report came during a volatile week for chip stocks: the Nasdaq fell 5.5% on November 5, with Nvidia down more than 8%, before rebounding on November 6 as Nvidia rose nearly 3%, Micron about 5% and Lam Research about 11% after announcing a $25 billion buyback. By contrast, fellow analog chipmakers Texas Instruments and NXP guided December flat to higher, suggesting Microchip's problem is its own supply chain rather than a broad demand downturn.