Earnings Signal End to Tech Boom

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A week of earnings by big technology companies has been a rout for investors, as recession fears and the strong dollar hit businesses that were thought to be more resilient.

And these industry giants warn more pain is ahead.

“It’s just hard to see any points of good news on the horizon,”

Intel Corp.

INTC 10.66%

Chief Executive

Pat Gelsinger

said. Inflation in the U.S., Europe’s economy rattled by high energy costs and the war in Ukraine, and disruptions in Asia mean “we’re still looking to have the economic headwinds as we go into next year,” he said Thursday as the company cut its full-year sales outlook.

Tech companies that enjoyed strong growth in the early days of the pandemic are feeling the effects of a new reality of high inflation, rising interest rates, currency headwinds and other issues on their income statements. The slowdown in personal-computer sales and digital advertising seen earlier this year appears to be spreading to areas such as cloud computing that were thought to be resistant to economic weakness.

‘It’s just hard to see any points of good news on the horizon.’


— Intel CEO Pat Gelsinger

As a result, leaders

Apple Inc.,

AAPL 7.56%

Amazon.

AMZN -6.80%

com Inc.,

Microsoft Corp.

MSFT 4.02%

, Facebook parent

Meta Platforms Inc.

META 1.29%

and Google parent

Alphabet Inc.

GOOG 4.30%

are sharpening their control over costs and monitoring head count—sounding more like old blue chips than highflying tech juggernauts.

Meanwhile, investors in those five companies have lost more than $218 billion combined through Friday’s market close, after quarterly earnings—often paired with muted forecasts—pummeled their stocks. They have lost a total of more than $3 trillion this year.

Amazon’s sales forecast for the current quarter, for example, missed Wall Street expectations by up to $15 billion, causing its shares to fall more than 6% in Friday trading.

Growth in the cloud-computing sector, an indicator of broader business adoption of tech, has fallen faster than expected from the highs of the past two years. Amazon Web Services posted a 27% year-over-year increase in net sales, down from its 39% growth a year earlier. Microsoft’s cloud-computing figure came in at 35% for the most recent quarter, compared with 50% a year ago, and is expected to slow sequentially this quarter, Chief Financial Officer

Amy Hood

said.

The industrial sector also showed clear signs in the third quarter of feeling the effects of a slowdown. “We saw weakness begin to broaden in the industrial market,”

Dave Pahl,

head of investor relations at chip maker

Texas Instruments Inc.,

TXN 3.76%

said on an analysts call Tuesday.

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Those problems are only compounding an already difficult market for tech companies with demand for PC and other personal electronics slumping. Worldwide shipments of personal computers dropped nearly 20% in the third quarter from the year-ago period—the steepest decline in more than two decades, according to

Gartner Inc.

Intel reported a sharp decline in quarterly sales, cut its expectation for PC shipments this year, and said next year could be even worse. Microsoft saw sales of its Windows operating system fall 15% during the September quarter, with sales there expected to drop more than 30% in the current quarter.

Apple’s iPhone sales came in slightly under analyst expectations, but have largely avoided impacts from the macroeconomic headwinds that have been hitting its fellow tech giants, Chief Executive

Tim Cook

said. The company said overall sales growth in the current quarter would be more subdued than during the three months ended in September.

Samsung Electronics Co.

, South Korea’s electronics and chip giant, posted a 23.6% decline in net profit this week and forecast that the smartphone market will likely continue to be pressured into next year.

Across tech, companies are moving aggressively to slash costs and are preparing employees for lean times ahead.

During a companywide meeting Thursday, Google CEO

Sundar Pichai

told employees the company had grown too fast and needed to be more responsible with spending, according to people who heard the remarks.

“We are working very hard to make sure that current profitability is not the new normal,” Amazon’s chief financial officer,

Brian Olsavsky,

said after the company’s quarterly results.

Amazon has moved to subleasing millions of square feet of warehouse space and paused hiring among some of its teams. “We are going to be very careful on our hiring,” Mr. Olsavsky said during a call with reporters Thursday. “We certainly are looking at our cost structure and looking for areas where we can save money.”

Intel said Thursday that it plans to deliver $3 billion in cost reductions in 2023 and $8 billion to $10 billion in annualized savings from 2025. The company is embarking on job cuts and considering some divestitures to deal with economic conditions, Mr. Gelsinger said.

Meta’s

Mark Zuckerberg

said the social-media giant’s workforce of 87,000-plus employees could be smaller next year. The company also has said it is rationalizing office space.

Tech executives signaled they are keenly aware just how rising prices and economic upheaval are pressuring consumer and company wallets. Microsoft CEO

Satya Nadella,

on an earnings call, touted the ability of the company’s Edge web browser to save consumers money. People are using the browser’s coupon and price-comparison features to save money, he said.

He and Google counterpart Mr. Pichai both said their tech tools could help businesses save money. “We’re helping them understand demand, deal with inventory challenges, increase loyalty, and much more,” Mr. Pichai said.

Compounding those issues for some tech giants is the massive disruption that has unfolded over the past year in the digital-ad market. Changes Apple introduced last year to ad tracking as well as recession-driven spending cuts have weighed heavily on digital-ad-based companies.

Alphabet this week reported the first-ever drop in YouTube year-over-year ad sales. Meta posted its second consecutive decline in revenue. A steep selloff in its shares brought its market cap down to 2016 levels.

Not everything is getting pummeled. Texas Instruments said the automotive sector is the only area that held strong in the quarter. Less clear, though, is how long it may be before car demand also slumps.

“We’re not really trying to worry about when that will happen,” Texas Instruments’ Mr. Pahl said.

Write to Meghan Bobrowsky at [email protected]

Copyright ©2022 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8

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