Changewave Research: 2Q 2005 Corporate IT Spending Survey

ChangeWave Research: 2Q 2005 Corporate IT Spending Survey

ChangeWave Research Report:

Corporate IT Spending Survey

Modest Contraction in IT Spending Growth Rate – But Spending Is Still Relatively Strong

Overview

The Alliance's 2nd Quarter IT spending survey points to a modest contraction in the rate of growth in corporate IT spending. Nevertheless, overall spending is still relatively strong–led by an increase in Switches/Hubs/Routers, E-Mail Management software and PDAs. A total of 719 Alliance members participated in the survey, conducted Feb. 15-22, 2005.

2Q 2005 IT Spending: Overall, 33% of Alliance members report their company will increase IT spending for 2nd Quarter 2005, a 5-point contraction from the previous quarter. Another 12% of members report IT spending will decrease (or there will be no spending at all), 1-point worse than the previous survey.

Putting the Findings in Context: As the following chart shows, while overall growth continues, the current trajectory is lower than in the previous quarter. Nonetheless, this survey’s +21 Net Difference Score (33% “Increase in IT Spending” minus 12% “Decrease/No IT Spending”) is still higher than it was 6 months ago.

1Q 2005 IT Spending: When we asked respondents if their corporate IT spending is on track thus far in the 1st Quarter, the results were similar to those of the previous survey. A total of 16% say they have spent “More than Planned” to date, down 2-points from our Nov 2004 survey. But another 20% say they have spent “Less than Planned,” which is 3-points lower than the previous survey.

Future Spending: Focusing on the future, we asked respondents to rate the willingness of their company to spend money on IT products and services. In a surprisingly bullish finding, 57% said their company is currently giving a "Green Light" to IT spending (i.e., spending is normal) – a 2-point increase over the previous quarter and the highest percentage since we began asking this question in 2002.

Correspondingly, only 32% said their company has given a “Yellow Light" (i.e., spending is downsized, though not completely stopped), and another 6% said their company has given a "Red Light" to IT spending (i.e., spending is on hold). The combined “Yellow Light/Red Light” percentage (38%) is down 3-points from the previous quarter to an all-time low for this negative indicator.

Individual Winners and Losers. At the individual IT subcategory level, half (50%) of the subcategories we track show a decline in corporate expenditures for the 2nd Quarter while 29% show an increase – a reversal from three months ago when two-thirds of the subcategories registered an increase.

Where is spending bullish? The biggest winners in terms of a jump in 2Q IT spending are Switches/Hubs/Routers (+3), E-Mail Mgmt. Software (+3), and PDAs (+3).

On the down side, the largest drop-offs in 2Q IT spending are occurring in Portal and E-Business Development Software (-3), Enterprise/Network Security Software (-3), OS Unix Servers (-3), Printers (-3) and Wireless Networking (-3).

Bottom Line: The current findings point to a modest contraction from the previous quarter in the rate of IT spending growth, but overall spending remains relatively strong. Moreover, "Green Light" spending is up 2-points to its highest percentage in three years, and there is evidence that IT spending for the 1st half of 2005 will be greater than for the last six months of 2004.

At the IT subcategory level, there is clear evidence of spending declines for Portal and E-Business software, Enterprise/Network Security Software, OS Unix Servers, Printers and Wireless Networking. But there are also bright spots, led by Switches/Hubs/ Routers, E-Mail Management Software and PDAs – all of which registered noteworthy jumps in spending.

The ChangeWave Alliance is a group of 5,000 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.

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Table of Contents

Summary of Key Findings 4

· Chart One: 2nd Quarter 2005 IT Spending 4

Putting the Findings in Context 5

· Chart Two: Last 15 IT Spending Surveys 5

“Green Light” Spending 5

· Chart Three: Willingness of Company to Spend on IT 5

· Chart Four: Willingness to Spend – A Comparison 6

A Closer Look at 2005 6

· Chart Five: IT Budget for 1st Half 2005 6

Spending So Far in 1st Quarter 7

· Chart Six: Actual IT Spending Thus Far in 1Q 7

Security Software 9

IT Spending Subcategories for 2nd Quarter 12

ChangeWave Research Methodology 23

About ChangeWave Research 24

I. Summary of Key Findings

Putting the Findings in Context: As the following chart shows, while overall growth continues the current trajectory is lower than in the previous quarter. Nonetheless, this survey’s +21 Net Difference Score (33% “Increase in IT Spending” minus 12% “Decrease/No IT Spending”) is still higher than 6 months ago (Sep 2004).

Future Spending: Focusing on the future, we asked respondents to rate the willingness of their company to spend money on IT products and services. In a surprisingly bullish finding, 57% said their company is giving a "Green Light" to IT spending (i.e., spending is normal) – a 2-point increase over the previous quarter and the highest percentage since we began asking this question in 2002.

A Closer Look at 2005. Looking at the entire first half of 2005 (Jan-Jun), 35% of respondents think their company's overall IT budget will be greater than the second half of 2004 (Jul-Dec), while 18% think it will be less. This compares with the last survey when 34% said their budget would be greater and 16% said it would be less.

Spending So Far in the 1st Quarter

We asked respondents several questions on planned vs. actual 1Q IT Spending to date:

(1) Question Asked: We’re halfway through the 1st Quarter. Based upon your IT Spending plans of three months ago, have you spent more than planned, less than planned, or the same as planned on IT products/services thus far in 1Q?

1Q 2005 IT Spending: When we asked respondents if their corporate IT spending is on track thus far in the 1st Quarter, the results were similar to those of the previous survey. A total of 16% say they have spent “More than Planned” to date, down 2-points from the Nov 2004 survey. But another 20% say they have spent “Less than Planned,” which is 3-points lower than the previous survey.

(2) Question Asked: For which of the following main IT Spending categories - if any - have you spent more than planned thus far in the 1st Quarter? (Check All That Apply)

Security / 14%
Networking / 10%
Software: Application Development / 10%
PCs / 9%
Storage / 8%
Servers / 8%
Communications / 6%
Outsourced Services / 6%
Software: Enterprise Applications / 6%
Software: Platforms / 2%
Don't Know / 19%
Other / 3%

(3) Question Asked: And for which of the following main IT Spending categories – if any – have you spent less than planned thus far in the 1st Quarter? (Check All That Apply)

PCs / 12%
Outsourced Services / 10%
Software: Enterprise Applications / 8%
Software: Application Development / 7%
Servers / 6%
Software: Platforms / 6%
Networking / 6%
Storage / 5%
Communications / 4%
Security / 3%
Don’t Know / 24%
Other / 2%

Net Difference Score – Current Survey (February 2005)

Overall IT Spending Categories / Spent More Than Planned in 1Q / Spent Less Than Planned in 1Q / Net Difference Score
Security / 14% / 3% / +11
Networking / 10% / 6% / +4
Software: Application Development / 10% / 7% / +3
Storage / 8% / 5% / +3
Communications / 6% / 4% / +2
Servers / 8% / 6% / +2
Software: Enterprise Applications / 6% / 8% / -2
PCs / 9% / 12% / -3
Software: Platforms / 2% / 6% / -4
Outsourced Services / 6% / 10% / -4

As we have consistently seen in our IT Spending surveys, Security (Net Difference Score = +11) is once again at the top of the list of spending categories for which member companies have spent more than planned so far in the quarter. On the down side Outsourced Services (-4) and Software: Platforms (-4) lead the list of 1Q IT spending categories for which member companies have spent less than planned.

These last few questions focus on Security Software.

(4A) Question Asked: What type of Anti-Virus software, if any, is your company currently using? (Check All That Apply)

Symantec/Norton Anti-Virus / 51%
McAfee / 30%
It is part of our Enterprise Security System / 12%
Trend Micro / 7%
Internet Security Systems / 6%
Microsoft / 6%
Check Point Software / 3%
AVG (Grisoft)* / 2%
We do not currently use any Anti-Virus software / 0%
Don't Know / 5%
Other / 5%

*Note AVG (Grisoft) was not included as a selection, but was provided as an ‘Other’ response by 2% of respondents.

A majority of respondents (51%) say their company uses Symantec/Norton Anti-Virus software, while 30% say their company uses McAfee. Another 12% say Anti-Virus software is part of their Enterprise Security System.

(4B) Question Asked: What type of Anti-Spyware software, if any, is your company currently using? (Check All That Apply)

Ad-Aware Pro (Lavasoft) / 18%
Spybot Search & Destroy / 17%
It is part of our Anti-Virus Program / 13%
It is part of our Enterprise Security System / 13%
Microsoft AntiSpyware (Beta) / 8%
Spy Sweeper / 4%
Adware Remover Gold / 2%
AntiSpy / 2%
Pest Patrol / 2%
Spyware Doctor / 2%
CounterSpy / 1%
Spy Hunter / 1%
Spy Remover / 1%
Spyware Eliminator / 1%
BPS Spyware Remover / 0%
Spy Subtract / 0%
TZ Spyware-Adware Remover / 0%
We do not currently use any Anti-Spyware software / 16%
Don't Know / 21%
Other / 2%

Ad-Aware Pro (Lavasoft; 18%) and Spybot Search & Destroy (17%) are the leading Anti-Spyware software packages currently being used by respondent companies. Another 13% say Anti-Spyware is part of their Anti-Virus Program and 13% also say it is part of their Enterprise Security System.

(4C) Question Asked: And what type of Authentication and Identification software, if any, is your company currently using? (Check All That Apply)

Microsoft / 20%
It is part of our Enterprise Security System / 16%
Verisign / 12%
RSA Security / 8%
Check Point Software / 5%
Novell / 5%
Internet Security / 3%
Netegrity / 2%
Veritas / 2%
Critical Path / 1%
Entrust / 1%
iPAS / 1%
CloudMark / 0%
Oblix / 0%
Radware / 0%
We do not currently use any Authentication and Identification software / 18%
Don't Know / 18%
Other / 3%

Microsoft (20%) ranks first in terms of the Authentication and Identification software being used by respondent companies. Verisign’s (12%) Authentication and Identification software also received double-digit mention. We note that another 16% said Authentication and Identification was part of their Enterprise Security System.

(5) Question Asked: Last week, Microsoft announced they were buying anti-virus software provider Sybari Software. Some analysts believe Microsoft's entry into this market poses a threat to major security providers like Symantec and McAfee. Other analysts believe it's a non-event. What about you? Do you believe Microsoft's move into security will hurt major providers like Symantec and McAfee, or will it have little to no effect? Please explain why.

(n=456)

Microsoft’s Move Will Hurt Other Companies

Microsoft’s Move into Security Will Hurt Other Companies / 21%
Microsoft’s Move Will Hurt Others if They Bundle it With OS/Software or Offer it for Free / 10%

Microsoft’s Move Will Have Little to No Effect

Little to No effect / 24%
No Effect Because Microsoft has little Credibility in the Market / 10%

Mixed Reaction

Little to No Effect in the Short run, but may Hurt Others in the Long Run / 9%
Microsoft Will Penetrate the Market but not Necessarily Hurt Others / 6%

Thirty-one percent of respondents (31%) believe Microsoft’s move into the anti-virus software market will hurt other companies, and nearly a third of these respondents say Microsoft’s ability to bundle the software will be the key determinant.

Conversely, 34% think Microsoft’s entry will have little to no effect on other security companies, with lack of market credibility/experience the most frequently cited reason.

Another 15% believe Microsoft will successfully penetrate the market, but it will not have a major impact, at least for the short term.

Respondent LUD6529 asserts that Microsoft’s move will hurt others, writing "The economy of scale that Microsoft has access to is tremendous. This is why I see the buy as a real threat." Respondent ESH4187 adds, "…The ability of Microsoft to bundle the application and, more importantly, virus definition updates, with other Windows updates is very attractive and convenient for the customers."