It Took Just One Sentence From A Semiconductor CEO To Send Tech Stocks Into Free Fall

"We believe that another industry correction has begun and that this correction will be seen more broadly across the industry in the near future."

In an announcement on Thursday night, Microchip president and CEO Steve Sanghi sounded the alarm for the semiconductor industry with the above quote, and on Friday shares of Microchip and the whole sector are getting crushed.

In afternoon trade on Friday, Microchip shares were down 11%, while the SMH ETF that tracks the semiconductor sector was down about 5%.

Microchip, with a market cap of $8 billion, is a good-sized company, but its warning is impacting companies as large Intel, which has a market cap of over $160 billion and was down as much as 4% on Friday.

Other semiconductor and tech companies under pressure on Friday include Texas Instruments (-7%), Micron (-7%), Analog Devices (-5%), Freescale Semiconductors (-10%), and STMicroelectronics (-4%).

The tech-heavy Nasdaq was also feeling the heat on Friday, falling about 0.5% as the semiconductor warning, as well as the steep drop in Tesla shares, weighed on the index.

Microchip said that in the second quarter it expects revenue to come in at about $546.2 million, below the $560-$575.9 million the company previously expected.

Additionally, Thursday's guidance includes $16.9 million in sales from its recent ISSC acquisition, down from expectations for $18 million in July.

"Microchip often sees the turn of the industry ahead of others in the semiconductor industry," Sanghi said.

"First, in contrast to many others in the industry, we report sales from distribution on a sell-through basis worldwide. We built a significant amount of inventory in the distribution channel in the September quarter. If like many others in the industry, we recognized sales on a sell-in basis to our distributors, our sales would been significantly higher for the September quarter."

So basically Sanghi is saying that revenue is going to decline for its competitors, too, but that this might show up on a delay given how they do their accounting.

Sanghi also said that the revenue miss for the second quarter was led by China where the September quarter is "traditionally the strongest."

Sanghi said Microchip is currently reducing production levels and that during industry corrections, sequential growth - or growth in consecutive quarters - typically returns after two quarters and the company expects the same this time.

Here's the ugly intraday chart of Microchip, which basically fell off a cliff at the open and hasn't recovered.