Microsoft executive says the economic environment is 'arguably the most uncertain we've seen in decades'

• This week Goldman Sachs' largest ever tech conference is happening in San Francisco.
• Tech executives from Microsoft, Qualcomm and Western Digital among others shared dour outlooks.

At the end of the first day of the Goldman Sachs Communacopia + Technology Conference, I met one of my oldest and best sources at the bar of the Palace Hotel in San Francisco.

"It's been a shitty year," the veteran tech investor said, sipping an Old Fashioned.

The stock market is down, and tech stocks have been walloped, especially the long-duration, growth companies he likes to back. The IPO market is dormant and probably won't recover until well into 2023, while tech M&A will be difficult, the investor added. Early on Monday, news broke that Goldman is cutting hundreds of jobs, lending an extra soupcon of gloom.

And yet, the conference was heaving with attendees and one Goldman banker noted this was the busiest version of the event ever. While many tech executives shared dour outlooks, no one was freaking out and some were cautiously optimistic about 2023.

These companies, especially chipmakers and their customers, are one of the best economic indicators to watch. Chips are in everything now, so when demand wanes, these businesses are among the first to feel it.

This is the message they shared this week: Welcome to the weirdest economic slowdown in recent memory. Interest rates are rising and inflation is staying stubbornly high, so people are expecting more pain to come. But the tech industry churns onward, with some enduring pockets of strength.

"Everyone is waiting for the wheels to come off but they are still turning," this investor said, citing Tesla and Amazon as examples. This person asked not to be identified so they could speak freely.

A "rather abrupt deceleration of demand"

Chuck Whitten, co-COO of Dell, one of the largest PC and server makers, shared a similar confounding mix of caution and quiet confidence during a Monday afternoon conference presentation.

Dell's CSG business, which sells laptops and other PC gear to consumers and companies, saw a "rather abrupt deceleration of demand" in the fiscal second quarter, Whitten said. Commercial customers are being more cautious about hiring, so need fewer new computers. On the consumer side, Dell expected the quarter to be challenging, but the deceleration was quicker than expected, he added.

Larger enterprises have slowed more than small and medium-sized firms, which is the opposite of what usually happens during an economic downturn.

"What do we make of that? We're not quite sure," Whitten said while noting that applying strategies from prior recessions may not work because the current economic situation is so different.

Dell's ISG division, which sells servers and data storage to big cloud companies and other corporate customers, is performing relatively better than the CSG unit. Dell feels very good about the backlog of its server orders, and it's seen no increases in order cancellations. The world is not meeting the demand of cloud customers right now, Whitten said.

Earlier in the day, Marvell executives were similarly confident about demand for their chips from cloud companies.

A "very difficult environment"

Other tech companies were less sanguine. Judson Althoff, an EVP and Chief Commercial Officer at Microsoft, said the economic environment is "arguably the most uncertain we've seen in decades."

Executives from Western Digital, which makes data storage components including NAND flash memory and DRAM chips, described a "very difficult environment," during their conference talk.

"The NAND industry is contracting at a rate that we've not seen in a very long time," Western Digital CEO David Goeckeler said. Pricing is deteriorating and the company will likely delay the start of its next factory, the executives added.

An employee from rival SK Hynix, who asked not to be named because he was not authorized to speak to the press, said he was not surprised by the dour comments from Western Digital executives. The NAND market is worse than the DRAM market right now, he explained. In the DRAM industry, there are only three main players now, so there's more bargaining power and the bottom-cycle profit margins are higher than in NAND, where there are five players and more competition, he added.

Cristiano Amon, CEO of wireless chipmaker Qualcomm, noted weaker consumer demand, especially toward the low-end of the smartphone mass-market.

"We kind of expect that weakness to propagate over the next 2 quarters," he added. "In 2023 at some point we get back to normal, but we see weakness with anything related to the consumer."

Got a tip? Reach out using the secure messaging app Signal (+1 415-341-4927) or via email on abarr@insider.com.