Microchip Technology tumbled the most in almost 14 years and shares of rival chipmakers fell after it said product orders had missed its forecast, hurt by falling demand in China.

Microchip's announcement triggered a sell-off in semiconductor stocks yesterday, putting the Philadelphia Semiconductor Index on course for its worst one-day decline since 2011.

Microchip fell as much as 14 per cent and was trading at $39.95 as of lunchtime in New York. Peers such as Freescale Semiconductor also dropped more than 10 per cent. Microchip makes semiconductors for products ranging from home appliances to computer network hardware to cars. So its earnings are a broad indicator of industry demand.

China is the largest market for key products such as smartphones, with factories there responsible for much of the world's electronics production. "The revenue miss was led by China where the September quarter is traditionally the strongest," Microchip chief executive officer Steve Sanghi said in a statement.

“Microchip often sees the turn of the industry ahead of others in the semiconductor industry. We believe that another industry correction has begun and that this correction will be seen more broadly across the industry in the near future.”

The report raises concerns that chipmakers may have built stockpiles of parts they will struggle to sell. Microchip recognises sales only when distributors of its products sell them to device makers. If, like some of its peers, it booked revenue when chips are sold to distributors, its sales would have appeared larger, Sanghi said.

Preliminary revenue for the second quarter is about $546.2 million, including $16.9 million from the company’s recent ISSC Technology acquisition, Microchip said. In July, the company had forecast $560 million to $575.9 million in revenue. Analysts had projected $568.2 million.

- (Bloomberg)