Changewave Research: 1Q / 2Q 2006 Corporate Sales

ChangeWave Research: 1Q / 2Q 2006 Corporate Sales

ChangeWave Research Report:

1Q/2Q 2006 Corporate Sales Survey

AllianceSurvey Shows ModeratelyStrong 1st Quarter Sales Growth with Greater Customer Willingness to Spend and Improved Visibility

Overview:

The latest Alliance quarterly sales survey points to moderately strong 1st Quarter sales growth – led by noticeable surges in Computer Hardware/Networking and Telecom along with theSemiconductor Equipment segment. The survey results also showimproved visibility going forward and a greater customer willingness to spend.

A total of 2,027ChangeWave Alliance members participated in the survey, conducted February 28 - March6, 2006.

Highlights:

1Q Performance:A total of 35% of respondents are now projecting that their company sales will come in "Above Plan" for 1st Quarter 2006 – 2-percentage points less than the previous quarter. Another 18% of respondents report their company sales will come in "Below Plan" – 1-point more than previously.

The Last 16 Quarterly Sales Surveys:As the following chart shows, the current survey results (Mar 2006) represents the best 1st Quarter performance since we began these Quarterly Sales surveys four years ago.

Other Key Findings:

Continued Green Light on Spending: Focusing on the immediate future, we asked respondents to rate the current willingness of their existing customers to spend money on their company’s products and services. In a highly bullish sign, 69% report their existing customers have a “Green Light” to spend (i.e., “spending is normal”) – a 2-pt improvement over the previous quarter, and the highest percentage recorded in the past four years.

What’s in the Pipeline for 2nd Quarter 2006:Visibility has improved going forward.Sales pipeline projections for 2nd Quarter 2006 show 40% of Alliance members saying their company will come in "Above Plan" –2-points more than the previous quarter. At the same time, only 9% say they’ll come in “Below Plan,” unchanged from previously.

Capital Spending Growth Rate: A total of 21% think they'll see an "increase" in their company's Capital Budget for the 2nd Quarter –a 3-point decline from the previous quarter. Only 10% of respondents think they'll see a "decrease" – 1-pt less than previously.

While the +11 Net Difference Score (21% increase vs. 10% decrease) is slightly below last quarter’s capital spending growth rate, it ishigher than the +10 recordedback in 1Q 2005.

Slight Easing in Price Pressures: Alliance member companies typically tend to see downward price pressures on their products, because many are in the IT sectors and related markets. But, in recent quarters we have witnessed an increase in inflationary pressures.

Not so this quarter. A2-pt decline has occurred in the percentage of members who report rising prices for their company's products – down from 19% last quarter to just 17% currently. The percentage reporting falling prices remains unchanged at 15%. This easing in price pressures isa reversal of the inflationary pressures found in our previous two surveys.

Sectors with the Most Momentum:Computer Hardware/Networking and Telecom led all other sectors in terms of the biggest quarter over quarter improvements, followed by the Semiconductor Equipment segment. Note that the positive momentum in Semis occurred exclusively among Equipment companies – Semi Manufacturers actually lostground.Next week we’ll send you a full report on these leading sectors.

Bottom Line: The survey findings point to moderately strong 1st Quarter sales growthcoupled with improved visibility going forward.In a highly bullish finding, seven-in-ten respondents say their existing customers have a “Green Light” to spend – the highest levelwe’ve seenin 4 years.

At the sector level, the clear momentum winners for the 1st Quarter occurred in Computer Hardware/Networking, Telecom and the Semiconductor Equipment segment.

The ChangeWave Alliance is a group of 7,000 highly qualified business, technology, and medical professionals in leading companies of select industries—credentialed professionals who spend their everyday lives working on the frontline of technological change. ChangeWave surveys its Alliance members on a range of business and investment research and intelligence topics, collects feedback from them electronically, and converts the information into proprietary quantitative and qualitative reports.

Helping You Profit From A Rapidly Changing World ™

Table of Contents

Summary of Key Findings...... 4

Chart One: 1Q 2006 Sales Results...... 4
Chart Two: 4Q 2005 Sales vs. 1Q 2006 Sales...... 5
Chart Three: Last 16 Surveys Comparison...... 5

What’s in the Pipeline...... 6

Chart Four: 2Q 2006 Projected Sales Pipeline...... 6
Chart Five: 1Q 2006 Sales Projections vs. 2Q 2006 Sales Projections...... 6

Putting the Findings in Context...... 7

Chart Six: 1Q 2006 “Above Plan” Survey Results – A Comparison...... 7

Current Willingness of Customers to Buy Products...... 8

Chart Seven: Willingness of Customers to Spend Money...... 8
Chart Eight: Willingness to Spend – A Comparison...... 8

Inflationary Pressures ...... 9

Chart Nine: Price Pressures in the Current Marketplace...... 9

Capital Spending Growth Rate...... 10

Chart Ten: Overall 2Q Capital Budgets...... 10
Chart Eleven: Overall 2Q Capital Budgets – A Comparison...... 10

SectorsWith the Most Momentum...... 11

Computer Hardware ...... 11
Telecom...... 11
Semiconductor Equipment...... 12

Survey Methodology...... 12

Additional Findings and Highlights...... 13

1st Quarter Cancelled Orders...... 13

Chart Twelve: 1Q 2006 Cancelled Orders...... 13
Chart Thirteen: 1Q 2006 Cancelled Orders – A Comparison...... 13

Company Sales for Final 2 Weeks of 1st Quarter...... 14

Chart Fourteen: Company Sales for Final 2 Weeks of 1st Quarter...... 14
Chart Fifteen: Company Sales – A Comparison...... 14

Hiring Trends in the 1st Quarter...... 15

Chart Sixteen: 1Q 2006 Hiring Trends – A Comparison...... 15

Layoff Trends in the 1st Quarter...... 16

Chart Seventeen: 1Q 2006 Layoff Trends – A Comparison...... 16

Customer Visibility into Next Quarter...... 17

Chart Eighteen: Customer Visibility into Next Quarter...... 17
Chart Nineteen: Customer Visibility – A Comparison...... 17

Product Inventories for the 1st Quarter...... 18

Chart Twenty: Product Inventories during the 1st Quarter...... 18
Chart Twenty-One: Product Inventories – A Comparison...... 18

Backlog of Orders for the 1st Quarter...... 19

Chart Twenty-Two: Backlog of Orders for the 1st Quarter...... 19
Chart Twenty-Three: Backlog of Orders – A Comparison...... 19

ChangeWave Research Methodology...... 21

About ChangeWave Research...... 22

I. Summary of Key Findings

The latest ChangeWave Alliance quarterly sales survey, conducted February 28 - March6, 2006, points to moderately strong 1st Quarter sales growth – led by noticeable surges in the Computer Hardware/Networking and Telecom sectors, and in Semiconductor Equipment. The survey results also show improved visibility going forward and a greater customer willingness to spend.A total of 2,027 Alliance members participated in the survey.

A Comparison: The 35% "Above Plan" finding for the 1st Quarter is2-points lower than the previous quarter. Another 18% report their company sales will come in “Below Plan” for the quarter – 1-point higher than in our previous quarterly survey.

The Last 16 Quarterly Sales Surveys:As the following chart shows, the current survey results (Mar 2006) represents the best 1st Quarter performance since we began these Quarterly Sales surveys four years ago.

What's in the Pipeline for 2nd Quarter 2006?

Visibility has improved going forward.Sales pipeline projections for 2nd Quarter 2006 show 40% of Alliance members saying their company will come in "Above Plan" –2-points more than the previous quarter. At the same time, only 9% say they’ll come in “Below Plan,” unchanged from previously.

Putting the Findings in Context

The following chart reflects the relationship since September 2001 between our Alliance “AbovePlan” Quarterly Survey results and the movement of the Nasdaq 100 Index (QQQQ).

Current Willingness of Customers to Buy Products

Continued Green Light on Spending: Focusing on the immediate future, we asked respondents to rate the current willingness of their existing customers to spend money on their company’s products and services. In a highly bullish sign, 69% report their existing customers have a “Green Light” to spend (i.e., “spending is normal”) – a 2-pt improvement over the previous quarter, and the highest percentage recorded in the past four years.

Only 24% said their customers have either a "Yellow Light" (i.e., spending is downsized, though not completely stopped) or a "Red Light" (i.e., spending is virtually on hold), a 3-point improvement from the previous quarter.

Inflationary Pressures

Slight Easing in Price Pressures: Alliance member companies typically tend to see downward price pressures on their products, because many are in the IT sectors and related markets. But, in recent quarters we have witnessed an increase in inflationary pressures.

Not so this quarter. A 2-pt decline has occurred in the percentage of members who report rising prices for their company's products – down from 19% last quarter to just 17% currently. The percentage reporting falling prices remains unchanged at 15%. This easing in price pressures is a reversal of the inflationary pressures found in our previous two surveys.

Question Asked: “With regard to your own company, how are the prices for your products doing in the current marketplace?”

*Note that a total of 61% report their company’s prices are holding firm in the marketplace.

Capital Spending Growth Rate

Question Asked: “Do you think you'll see an increase in your overall Capital Budget, a decrease, or will your overall Capital Budget remain the same for the 2nd Quarter (Apr-Jun) 2006 vs. the current quarter?”

Capital Spending Growth Rate: A total of 21% think they'll see an "increase" in their company's Capital Budget for the 2nd Quarter –a 3-point decline from the previous quarter. Only 10% of respondents think they'll see a "decrease" – 1-pt less than previously.

While the +11 Net Difference Score (21% increase vs. 10% decrease) is slightly below last quarter’s capital spending growth rate, it ishigher than the +10 recorded back in 1Q 2005.

Sectors Showing Most Momentum

Computer Hardware/Networking and Telecom led all other sectors in terms of the biggest quarter over quarter improvements, followed by the Semiconductor Equipment segment. Note that the positive momentum in Semis occurred exclusively among Equipment companies – Semi Manufacturers actually lost ground. Next week we’ll send you a full report on these leading sectors.

A. Computer Hardware/Networking

B. Telecom

C. Semiconductor Equipment

II. Survey Methodology

This report is based on a survey of ChangeWave Alliance members conducted online between February28–March6, 2006. The goal of the survey was to get an up-to-date picture of the health of the “Nasdaq” Economy and its sectors, including any changes during the 1st Quarter of 2006. To this end, the survey was composed of a sample of2,027accredited members of the ChangeWave Alliance.

III. Additional Findings and Highlights

1st Quarter Cancelled Orders

A total of 7% of members reported an increase in the number of cancelled orders for the 1st Quarter, 1-point more than in the previous quarter.

The percentage of members reporting their companies are experiencing a decrease in cancelled orders is 6%, the same as in the previous quarter.

Company Sales For Final Two Weeks of 1st Quarter

We asked members to look ahead and characterize their company’s prospects with regards to sales for the final two weeks of the 1stQuarter – normally the make-or-break period for meeting a sales plan. Nineteen percent (19%) said sales would be above expectations, the same as in the previous quarterly survey.

Eleven percent (11%) said sales would be below expectations during the final two weeks of the 3rd Quarter, 3-points less than previously.

Hiring Trends

We asked respondents about hiring trends in their company for the quarter.

Question Asked: We are two-thirds through 1st Quarter 2006. How would you characterize the number of new hires (full or part-time payroll employees) in your company at this point in 1Q 2006 compared with the same point in the previous quarter (4Q 2005)?

Hiring Trends / Current
Quarter
1Q 2006 / Previous
Quarter
4Q 2005 / Previous
Quarter
3Q 2005 / Previous
Quarter
2Q 2005 / Previous
Quarter
1Q 2005
More new hires at this point in
1Q 2006 compared to 4Q 2005 / 28% / 27% / 27% / 28% / 27%
Equal amount of new hires in
1Q 2006 compared to 4Q 2005 / 22% / 22% / 22% / 21% / 20%
Less new hires at this point in
1Q 2006 compared to 4Q 2005 / 13% / 14% / 13% / 13% / 13%
No new hires at this point in either 1Q 2006 or 4Q 2005 / 30% / 31% / 29% / 30% / 32%
Don’t Know / No Answer / 6% / 6% / 8% / 8% / 8%

A total of 28% of respondents say there are more new hires in their company at this point in 1st Quarter 2006 vs. 4th Quarter 2005, up 1-point from the previous survey. Another 13% say there are less new hires in their company at this point in 1st Quarter vs. 4th Quarter, down 1-point from previously.

Layoff Trends

We also asked respondents about layoff trends in their company for the quarter.

Question Asked: And, how would you characterize the number of layoffs of full or part-time payroll employees in your company at this point in 1Q 2006 compared with the same point in the previous quarter (4Q 2005)?

Layoff Trends / Current
Quarter
1Q 2006 / Previous
Quarter
4Q 2005 / Previous
Quarter
3Q 2005 / Previous
Quarter
2Q 2005 / Previous
Quarter
1Q 2005
More layoffs at this point in
1Q 2006 compared to 4Q 2005 / 9% / 8% / 7% / 8% / 8%
Equal amount of layoffs in
1Q 2006 compared to 4Q 2005 / 10% / 12% / 12% / 11% / 12%
Less layoffs at this point in
1Q 2006 compared to 4Q 2005 / 10% / 10% / 11% / 10% / 10%
No layoffs at this point in either 1Q 2006 or 4Q 2005 / 65% / 65% / 62% / 64% / 61%
Don’t Know / No Answer / 6% / 6% / 8% / 8% / 9%

One-in-ten respondents (10%) say there are “Less” layoffs at this point in 1st Quarter 2006 vs. 4th Quarter 2005, unchanged from the previous quarter. Another 9% say there are “More” layoffs at this point in the 1st Quarter 2006 vs. 4th Quarter 2005, 1-point more than previously.

Customer Visibility into Next Quarter

We asked Alliance respondents to describe the visibility of their existing customers into the next quarter.

While customer visibility trends are nearly the same as last quarter, theyare considerably stronger than six months ago as can be seen in the Chart below. Twenty-eight percent (28%) of respondents report their customers see an uptick for 2nd Quarter sales – the same as last quarter. Fifteen percent (15%) report their customers do not see an uptick for 1st Quarter sales – 1-point less than three months ago.

Product Inventories for the 1st Quarter

Inventories Down: We asked respondents to describe their product inventories for the current quarter. The results show a decrease in inventories for the 1st Quarter, with 13% of respondents reporting their product inventories have decreased, and only 9% report they’ve increased.

While these results show product inventories decreasing in the 1st Quarter, the rate of decrease is slightly less than in either of the two previous surveys.

Backlog of Orders for the 1st Quarter

Order Backlog: We also asked respondents if they have noticed any change in their backlog of orders for the current quarter. One-third (33%) now report an increase in their Order Backlog during the 1st Quarter, 5-points more than last survey. Thirteen percent (13%) of respondents report a decrease in Order Backlogs, unchanged from last survey. Another 53% report no change in their Order Backlog.

We also asked those members who reported an increase in their Order Backlog, to estimate their actual backlog (# of days) for the current 1st Quarter (Jan - Mar). Column One shows the results for the current quarter. (n = 199)

Order Backlog
# of Days / Column
One
Current
Quarter
1Q 2006 / Column
Two
Previous
Quarter
4Q 2005 / Column
Three
Previous
Quarter
3Q 2005 / Column
Four
Previous
Quarter
2Q 2005 / Column
Five Previous
Quarter
1Q 2005
1-10 Days / 7% / 16% / 11% / 11% / 12%
11-20 Days / 11% / 11% / 20% / 15% / 21%
21-30 Days / 15% / 17% / 15% / 21% / 10%
31-60 Days / 21% / 18% / 20% / 17% / 17%
61-120 Days / 17% / 9% / 13% / 14% / 18%
More Than 120 Days / 20% / 19% / 14% / 12% / 15%
Don't Know / 11% / 9% / 7% / 10% / 7%

This information is from ChangeWave Research, LLC and contains confidential business information.

ChangeWave Research: 1Q / 2Q 2006 Corporate Sales

IV. ChangeWave Research Methodology

This report is based on a survey of ChangeWave Alliance members conducted online between February 28 – March 6, 2006. The goal of the survey was to get an up-to-date picture of the health of the “Nasdaq” Economy and its sectors, including any changes during the 1st Quarter of 2006. To this end, the survey was composed of a sample of 2,027 accredited members of the ChangeWave Alliance.

The Alliance’s proprietary research and business intelligence gathering system is based upon the systematic gathering of valuable business and investment information directly over the Internet from accredited members.

ChangeWave surveys its Alliance members on a range of business and investment research and intelligence topics, collects feedback from them electronically, interprets and reconciles the information in a cohesive manner and converts the information into valuable quantitative and qualitative reports.

The Alliance has assembled its membership team from senior technology and business executives in leading companies of select industries. Nearly 3 out of every 5 members (56%) have advanced degrees (e.g., Master’s or Ph.D.) and 93% have at least a four-year bachelor’s degree.

The business and investment intelligence provided by the Alliance provides a real-time view of companies, technologies and business trends in key market sectors, along with an in-depth perspective of the macro economy – well in advance of other available sources.

V. About ChangeWave Research

ChangeWave Research, a subsidiary of Phillips Investment Resources, LLC, identifies and quantifies "change" in industries and companies through surveying a network of thousands of business executives and professionals working in more than 20 industries.

ChangeWave has a very unique asset in its 7,000-member Alliance. We have assembled our membership team from a broad cross section of more than 20 vertical markets such as telecom, semiconductors, data storage, and biotechnology, along with a wide range of professional disciplines including CIOs, IT managers and programmers, executive management, scientists, engineers and sales personnel.