A Microchip logo appears in this illustration taken August 25, 2025. REUTERS/Dado Ruvic/Illustration

(Reuters) -Microchip Technology forecast third-quarter net sales below Wall Street estimates on Thursday, indicating tepid demand for its chips as customers in the automotive and industrial markets continue to clear excess inventory.

Clients have been working to lower chip inventory levels, after excessive buying during the pandemic led to a supply glut, hampering demand for providers such as Microchip.

Microchip expects net sales in the range of $1.11 billion to $1.15 billion for the third quarter, compared with analysts' average estimate of $1.18 billion, according to data compiled by LSEG.

Shares of the Chandler, Arizona-based chipmaker fell nearly 6% in extended trading.

It expects to post third-quarter adjusted earnings between 34 cents and 40 cents per share, the midpoint of which is below analysts' expectations of a 40-cent profit, according to data compiled by LSEG.

Automotive and industrial chip provider Texas Instruments also forecast fourth-quarter revenue and profit below Wall Street estimates last month, stoking fears of a long road ahead for a full recovery in the market due to murky tariff rules for the semiconductor industry.

Microchip posted net sales of $1.14 billion for the second quarter, in line with estimates.

It, however, indicated inventory rebalancing is underway.

"Customer requests for expedited shipments have also increased significantly, indicating inventory normalization is progressing," CEO Steve Sanghi said in a statement.

(Reporting by Arsheeya Bajwa; Editing by Shilpi Majumdar)