What happened

Shares of hard disk drive and NAND flash chip producer Western Digital (WDC 1.82%) slid 13.8% this week, eclipsing the decline of the tech market overall.

All stocks, and especially technology stocks, took a big hit after Tuesday's consumer price index (CPI) came in hotter than expected. However, the downturn was compounded by management's appearance at the Goldman Sachs Communacopia & Technology conference on Monday. In it, management gave a pretty somber update on Western Digital's near-term business outlook.

So what

At the conference on Monday, CEO David Goeckeler said the macroeconomic environment had become incrementally worse, even since the company gave a bearish outlook in its Aug. 5 earnings release and conference call.

In that earnings release, Western Digital had forecast its revenue to fall nearly 19% in the current quarter, and for non-GAAP (adjusted) earnings per share to fall by more than half. Unfortunately, management said that things had gotten even worse since then, especially in the NAND flash business, where pricing has plummeted. In fact, Goeckeler said it was probably the toughest NAND environment in the last 10 or 15 years.

Management also said that generating free cash flow would be "challenging" not only for the upcoming quarter, but also all of fiscal 2023, which ends next June.

When you combine that dour outlook with Tuesday's CPI report, it doesn't present a pretty picture. If the Federal Reserve raises interest rates to quell inflation to the extent that the economy enters a recession, the low demand environment could last for a while.

Now what

Despite the difficult near-term environment, Western Digital shareholders have two things going for it; first, the stock is quite cheap, trading at just 8.7 times earnings. Yes, those earnings will go down this year, but with a multiple that cheap, a downturn seems to be priced in to some extent.

Second, and perhaps most importantly, Western Digital is in ongoing negotiations with activist investor Elliott Management, which took a large stake in Western Digital earlier this year, and is advocating splitting off or selling the NAND business in order to unlock value.

Management didn't give specific updates for that, but did say that a lot of parties were doing very detailed work on that very strategy. A low share price combined with a potential transaction could be a catalyst for big returns in a short amount of time.

On the other hand, Western Digital might not get a great price for the NAND business in this current environment. Therefore, investors may have to continue to endure this semiconductor bear market, which isn't very fun.