Semiconductor stocks fall sharply after Microchip issues sales warning

Semiconductor stocks plunged after Microchip Technology cut its sales outlook for the quarter and warned investors to expect bad news from others in the sector.

The sector led all others downward Friday to end an extremely volatile week of U.S. trading.

Microchip Technology Inc., based in Chandler, Ariz., said it now expects second quarter sales of about $546.2 million, down from a range of $560 million to $575.9 million. Analysts had been looking for sales of roughly $566.3 million, according to FactSet.

Chipmaker stocks are almost always vulnerable to bad news from competitors, but comments by CEO CEO Steve Sanghi appeared to exacerbate the sell-off.

Sanghi said that he did not believe his company would be the last to report weakness.

"Microchip often sees the turn of the industry ahead of others in the semiconductor industry," Sanghi said in a news release. "We believe that another industry correction has begun and that this correction will be seen more broadly across the industry in the near future."

Microchip dropped $6.17, or 14 percent, to $39.49 in late-morning trading.

Other chipmakers followed Microchip's lead. Intel fell $1.55, or 5 percent, to $32.07 and Advanced Micro Devices, commonly known as AMD, dropped 16 cents, or 6 percent, to $2.78. Texas Instruments fell $3.66, or 7 percent, to $42.64.

Chipmakers make up a significant piece of the Nasdaq composite index, so Microchip's warning was causing the stock index to drop far more than the rest of the market. The Nasdaq fell 1 percent Friday, while less tech-heavy Standard & Poor's 500 index fell roughly 0.2 percent.