Changewave Research: 2Q/3Q 2005 Corporate Sales Survey

ChangeWave Research: 2Q/3Q 2005 Corporate Sales Survey

ChangeWave Research

2Q/3Q 2005 Corporate Sales Survey

Moderately Strong 2nd Quarter Growth asPrice Pressures Calm –

Top Sectors: Energy Utilities, Semiconductorsand Wireless

Overview

The latest ChangeWave Alliance quarterly sales survey, conducted May31-June 7, 2005,showsthe 2nd Quarter experiencingmoderately strong growth very similar tothe previous quarter – led by noticeable gains in the Energy Utility, Semiconductor and Wireless industries. In another positive sign,price pressures have calmed considerably from the uptick found in our last survey. A total of 1,611Alliance members participated in the current survey.

Highlights:

Q2 Performance: Better than three-in-ten Alliance members (31%) project their company sales will come in "Above Plan" for 2nd Quarter 2005 – 1 percentage point less than last quarter. There has also been a tiny increase in the percentage of losers, with20% of respondents now reporting their company sales will come in "Below Plan" for thequarter – a 1-point increase over the previous quarter.

The Last 16 Quarterly Sales Surveys: As the following chart shows,the overall growth rate this quarter appears quite similar to that of the previous quarter.

Other Key Findings:

Willingness to Spend: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 very positive sign, “Green Light” spending (i.e., “spending is normal”) registered a record new high, with 62% saying their existing customers currently have a "Green Light" to spend,1-percentage point more than the previous survey.

What’s in the Pipeline for 3rd Quarter 2005: Sales pipeline projections for 3rd Quarter 2005 show that36% of Alliance members now saytheir company will come in "Above Plan," 3-points less than the previous survey. Only 10% say they will come in “Below Plan,” the same as in the previous survey.

Similar Growth Rate for Capital Spending: A total of 20% think they’ll see an “increase” in their company’s overall Capital Budget for 3Q – 1-point less than the previous quarter. At the same time, 10% think they’ll see a “decrease” – also 1-point lower than last quarter.Thus, the overall rate of growth in capital spending remains constant with that of last quarter.

Inflationary Pressures Have Calmed: Alliance member companies typically tend to see more downward price pressures on their products, becausemany are in the IT sectors and related markets. In a turnabout from the hints of inflation found last quarter, more respondents are now reporting “falling” prices for their company’s products/services than are reporting “rising” prices.

Only 15% of respondents report prices rising for their products/services, down 3-points from the high reached last quarter, while 17% report prices are falling.

Sectors with Momentum:The Wireless, Energy Utilities and Semiconductor industriesshowed the greatest quarter to quarter improvement of all the sectors surveyed. We will provide further sector results in a follow-up report.

Bottom Line: Theresults of the current survey are very similar to those of the previous quarter - moderately strong growth, good visibility, and greater customer willingness to spend.At the same time, price pressures have calmed considerably from the uptick found in our last survey.

Overall, the survey findings are verygood news for the 2nd Quarter.

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.

Helping You Profit From A Rapidly Changing World ™

Table of Contents

Summary of Key Findings...... 4

Chart One: 2Q 2005 Sales Results...... 4
Chart Two: 1Q 2005 Sales vs. 1Q 2005 Sales...... 5
Chart Three: Last 16 Surveys Comparison...... 5

What’s in the Pipeline...... 6

Chart Four: 3Q 2005 Projected Sales Pipeline...... 6
Chart Five: 2Q 2005 Sales Projections vs. 3Q 2005 Sales Projections...... 6

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

Chart Six: 2Q 2005 “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 3Q Capital Budgets...... 10
Chart Eleven: Overall 3Q Capital Budgets – A Comparison...... 10

Survey Methodology...... 11

Additional Findings and Highlights...... 12

1st Quarter Cancelled Orders...... 12

Chart Twelve: 2Q 2005 Cancelled Orders...... 12
Chart Thirteen: 2Q 2005 Cancelled Orders – A Comparison...... 12

Company Sales for Final 2 Weeks of 2nd Quarter...... 13

Chart Fourteen: Company Sales for Final 2 Weeks of 2nd Quarter...... 13
Chart Fifteen: Company Sales – A Comparison...... 13

Product Inventories for the 2nd Quarter...... 14

Chart Sixteen: Product Inventories during the 2nd Quarter...... 14
Chart Seventeen: Product Inventories – A Comparison...... 14

Backlog of Orders for the 2nd Quarter...... 15

Chart Eighteen: Backlog of Orders for the 2nd Quarter...... 15
Chart Nineteen: Backlog of Orders – A Comparison...... 15

Hiring Trends in the 2nd Quarter...... 16

Layoff Trends in the 2nd Quarter...... 17

Customer Visibility into Next Quarter...... 18

Chart Twenty: Customer Visibility into Next Quarter...... 18
Chart Twenty-One: Customer Visibility – A Comparison...... 18

ChangeWave Research Methodology...... 19

About ChangeWave Research...... 20

I. Summary of Key Findings

The latest ChangeWave Alliance quarterly sales survey, conducted May 31- June 7, 2005,shows the 2nd Quarter experiencing moderately strong growth very similar to the previous quarter.Notably, price pressures have calmed considerably from the uptick found in our last survey. A total of 1,611Alliance members participated in the current survey.

No Big Surprises - Sales as Expected: Better than three-in-tenAlliance members (31%) project their company sales will come in "Above Plan" for 2nd Quarter 2005 – 1-percentage point less than last quarter.

Slight Increase in Losers: There has been a slight increase in the percentage of losers, with20% of respondents now reporting their company sales will come in "Below Plan" for thequarter – a 1-point increase over the previous quarter.

A Comparison: The 31% "Above Plan" finding for the 2nd Quarter is one point lower than the previous quarter. Similarly, 20% of respondents report their company sales will come in “Below Plan” for the 2nd Quarter – 1-point more than the previous quarter.

The Last 16 Quarterly Sales Surveys: As the following chart shows, the overall growth rate this quarter appears quite similar to that of the previous quarter.

What's in the Pipeline for 3rd Quarter 2005?

There has been a very slight reduction in visibility going forward.Sales pipeline projections for 3rd Quarter 2005 show that36% of Alliance members now saytheir company will come in "Above Plan," 3-points less than the previous quarter. Only 10% say they will come in “Below Plan,” same as in the previous quarter.

Putting the Findings in Context

The following chart reflects the relationship since September 2001 between our Alliance “Above Plan” 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 very positive sign, “Green Light” spending (i.e., “spending is normal”) registered a record new high, with 62% saying their existing customers currently have a "Green Light" to spend,1-percentage point more than the previous survey.

Thirty-one percent (31%) 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). This represents a 1-percentage point decline from the previous quarter.

Inflationary Pressures

Inflationary Pressures Have Calmed: Alliance member companies are normally characterized by downward price pressures on a wide spectrum of their IT products (e.g., computer hardware). In a turnabout from the hints of inflation found last quarter, more respondents are now reporting“falling” prices for their companies products/services than arereporting “rising” prices.

Only 15% report prices are rising for their products/services, down 3-points from the high of 18% reached last quarter. At the same time, the number of respondents reporting falling prices increased a point to 17%.

Question Asked: For the past sixteen quarterly surveys we’ve asked our members, “With regard to your own company, how are the prices for your products doing in the current marketplace?”

*Note that a total of 58% 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 3rd Quarter (Jul-Sep) 2005 vs. the current quarter?”

Similar Growth Rate for Capital Spending: A total of 20% think they’ll see an “increase” in their company’s overall Capital Budget for 3Q – 1-point less than the previous quarter. At the same time, 10% think they’ll see a “decrease” – also 1-point lower than last quarter.

Thus, the overall rate of growth in capital spending remains constant with that of last quarter.

II. Survey Methodology

This report is based on a survey of ChangeWave Alliance members conducted online between May 31–June 7, 2005. 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 2nd Quarter of 2005. To this end, the survey was composed of a sample of 1,611 accredited members of the ChangeWave Alliance.

III. Additional Findings and Highlights

2nd Quarter Cancelled Orders

A total of 8% of members reported an increase in the number of cancelled orders for the 1st Quarter, unchanged from the previous quarter.

The percentage of members reporting their companies are experiencing a decrease in cancelled orders is 7%, also unchanged from the previous quarter.

Company Sales For Final Two Weeks of 2nd Quarter

We also asked members to look ahead and characterize their company’s prospects with regards to sales for the final two weeks of the 2ndQuarter – normally the make-or-break period for meeting a sales plan. Seventeen percent (17%) said sales would be above expectations, a
2-percentage point decrease over the 19% who said the same in the previous quarterly survey.

Fourteen percent (14%) said sales would be below expectations during the final two weeks of the 2nd Quarter, up1-points from the previous quarter.

Product Inventories for the 2nd Quarter

Inventories Down: We asked respondents to describe their product inventories for the current quarter. The results show a decrease in inventories. A total of 13% of respondents report their product inventories have decreased during the 2nd Quarter, while only 7% report they increased.

The decrease in product inventories for the 2nd Quarteris slightlymore than in the two previous surveysas can be seen in Chart Seventeen below.

Backlog of Orders for the 2nd Quarter

Order Backlog: We also asked respondents if they have noticed any change in their backlog of orders for the current quarter. A total of 24% now report an increase in their Order Backlog during the 2nd Quarter, 1-percentage point lower than last survey. Significantly, 17% of respondents report a decrease in Order Backlogs, 2-percentage pointsmore than last survey. Another 58% 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 2nd Quarter (Mar - Jun). Column One shows the results for the current quarter.

(n = 133)

Order Backlog
# of Days / Column
One
Current
Quarter
2Q 2005 / Column
Two
Previous
Quarter
1Q 2005 / Column
Three
Previous
Quarter
4Q 2004 / Column
Four
Previous
Quarter
3Q 2004 / Column
Five
Previous
Quarter
2Q 2004 / Column
Six
Previous
Quarter
1Q 2004 / Column
Seven
Previous
Quarter
4Q 2003
1-10 Days / 11% / 12% / 15% / 8% / 7% / 10% / 10%
11-20 Days / 15% / 21% / 17% / 18% / 21% / 22% / 19%
21-30 Days / 21% / 10% / 13% / 18% / 23% / 20% / 14%
31-60 Days / 17% / 17% / 18% / 21% / 22% / 16% / 21%
61-120 Days / 14% / 18% / 13% / 11% / 10% / 10% / 14%
More Than 120 Days / 12% / 15% / 13% / 14% / 13% / 15% / 12%
Don't Know / 10% / 7% / 11% / 11% / 4% / 7% / 10%

Hiring Trends

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

Question Asked: We are two-thirds through 2nd Quarter 2005. How would you characterize the number of new hires (full or part-time payroll employees) in your company at this point in 2Q 2005 compared with the same point in the previous quarter (1Q 2005)?

Hiring Trends / Current
Quarter
2Q 2005 / Previous
Quarter
1Q 2005 / Previous
Quarter
4Q 2004 / Previous
Quarter
3Q 2004 / Previous
Quarter
2Q 2004 / Previous
Quarter
1Q 2004
More new hires at this point in
2Q 2005 compared to 1Q 2005 / 28% / 27% / 28% / 26% / 30% / 31%
Equal amount of new hires in
2Q 2005 compared to 1Q 2005 / 21% / 20% / 19% / 20% / 20% / 17%
Less new hires at this point in
2Q 2005 compared to 1Q 2005 / 13% / 13% / 14% / 12% / 11% / 10%
No new hires at this point in either2Q 2005 or 1Q 2005 / 30% / 32% / 33% / 32% / 32% / 35%
Don’t Know / No Answer / 8% / 8% / 7% / 10% / 8% / 8%

A total of 28% of respondents say there are more new hires in their company at this point in the 2nd Quarter 2005 vs. 1st Quarter 2005, up 1-point from the previous survey. Thirteen percent(13%) say there are less new hires in their company at this point in 2nd Quarter vs. 1st Quarter, unchanged 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 2Q 2005 compared with the same point in the previous quarter (1Q 2005)?

Layoff Trends / Current
Quarter
2Q 2005 / Previous
Quarter
1Q 2005 / Previous
Quarter
4Q 2004 / Previous
Quarter
3Q 2004 / Previous
Quarter
2Q 2004
No layoffs at this point in either
2Q 2005 or 1Q 2005 / 64% / 61% / 59% / 57% / 59%
More layoffs at this point in
2Q 2005 compared to 1Q 2005 / 8% / 8% / 9% / 9% / 8%
Equal amount of layoffs in
2Q 2005 compared to 1Q 2005 / 11% / 12% / 11% / 13% / 11%
Less layoffs at this point in
2Q 2005 compared to 1Q 2005 / 10% / 10% / 14% / 12% / 14%
Don’t Know / No Answer / 8% / 9% / 7% / 10% / 8%

In a positive sign, the percentage reporting “No” layoffs in either 2Q 2005 or 1Q 2005 rose by 3-points to 64%.

One-in-tenrespondents (10%) say there are “Less” layoffs at this point in the 2nd Quarter 2005 vs. 1st Quarter 2005, unchanged fromthe previous quarter.Also unchanged from previously, 8% of respondents say there are “More” layoffs at this point in the 2nd Quarter 2005 vs. 1st Quarter 2005.

Customer Visibility into Next Quarter

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

For the second consecutive quarter customer visibility trends weakened slightly,as can be seen in the Chart below. Twenty-fourpercent (24%) of respondents report their customers see an uptick for 3rd Quarter sales – 3-percentage points less than last quarter. Sixteen percent (16%) report their customers do not see an uptick for 3rd Quarter sales –the same asthree months ago.

ChangeWave Research: 2Q/3Q 2005 Corporate Sales Survey

IV. ChangeWave Research Methodology

This report is based on a survey of ChangeWave Alliance members conducted online between May31 – June 7, 2005. 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 2nd Quarter of 2005. To this end, the survey was composed of a sample of 1,611 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 (58%) have advanced degrees (e.g., Master’s or Ph.D.) and 94% 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 5,000-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.

The ChangeWave Alliance is composed of senior technology and business executives in leading companies - credentialed professionals who spend their everyday lives working on the frontline of technological change.

This proprietary research and business intelligence gathering system 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. ChangeWave surveys its 5,000 Alliance members on a wide range of investment research topics and converts the findings into valuable investment and business intelligence reports. ChangeWave delivers its products and services on the Web at

ChangeWave Research does not make any warranties, express or implied, as to results to be obtained from using the information in this report. Investors should obtain individual financial advice based on their own particular circumstances before making any investment decisions based upon information in this report.

For More Information:

ChangeWave ResearchTelephone: 301-279-4200

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Rockville, MD20850

Helping You Profit From A Rapidly Changing World ™