Changewave Research: 1Q/2Q 2003 Nasdaq Economy Survey

ChangeWave Research: 1Q/2Q 2003 Nasdaq Economy Survey

ChangeWave Research

1Q/2Q 2003 Corporate Sales Survey

A Clear Pullback: Latest Alliance Sales Survey Shows 1st Quarter Downturn – With Poor Visibility Going Forward

Abstract

It’s Deja-Vu all over again. Our latest ChangeWave Alliance quarterly survey, conducted March 11 – 18, 2003, shows a clear pullback in 1st Quarter corporate sales across virtually all sectors of the Nasdaq economy – with little-to-no visibility going forward.

Far More Losers: Better than one in three Alliance members (36%) are now projecting that their company sales will come in "Below Plan" for 1st Quarter 2003 - a 16% increase over the previous quarter. The biggest pullbacks occurred in Data Storage, Financial/ Investing Services, Semiconductors, and B2B Software.

Fewer Winners: There will also be far fewer winners this quarter. Only 18% of members are reporting their company sales will come in "Above Plan" for the 1st Quarter - a 20% pullback from the previous quarter. This is the biggest decline we’ve recorded in a quarterly sales survey in the past two years, with the exception of a 33% drop in September 2001. The only significant improvements occurred in Wireless and Education.

What's Ahead for 2nd Quarter?: Expect little-to-no visibility looking forward, as the bad news extends to sales pipeline projections for the 2nd Quarter. Only 26% of members believe their company sales will come in "Above Plan" for 2nd Quarter 2003 - a 13% decrease from our previous quarterly survey results.

There is also a 31% increase in the number of projected losers for the 2nd Quarter compared to the previous quarter. More than one in every five members (21%) now report their sales pipeline is looking "Below Plan" for the coming quarter.

Corporate Capital Spending: Perhaps most ominously, only one in ten Alliance members (11%) think they’ll see an increase in their company’s overall Capital Budget for the 2nd Quarter compared to the current quarter – while a strikingly high 24% of members think they’ll see a decrease.

Such a cutback in 2nd Quarter Capital Spending would be a punch to the Solar Plexus for the Nasdaq Economy, and would guarantee that the current 1st Quarter downturn extends well into the second half of 2003.

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Table of Contents

Summary of Key Findings 3

· Chart One: 1Q 2003 Sales Results 3

· Chart Two: 4Q 2002 Sales vs. 1Q 2003 Sales 4

What’s Ahead for the 2nd Quarter 4

· Chart Three: 2Q 2003 Projected Sales Pipeline 4

· Chart Four: 1Q 2003 Sales Projections vs. 2Q 2003 Sales Projections 5

Fits, Starts & Drops: Putting The Findings in Context 6

· Chart Five: 1Q 2003 “Above Plan” Survey Results – A Comparison 6

Survey Methodology 7

Additional Findings and Highlights 8

1st Quarter Cancelled Orders 8

· Chart Six: 1Q 2003 Cancelled Orders 8

When Will We See a Turnaround 9

· Chart Seven: Recover in Which Quarter 9

Willingness of Customers to Buy Products & Services 10

· Chart Eight: Willingness of Customers to Buy Products & Services 10

Sales for the Final Two Weeks of 1st Quarter 11

· Chart Nine: Sales for the Final 2 Weeks of This Quarter 11

Price Pressures in the Current Marketplace 12

· Chart Ten: 1Q 2003 Price Pressures – A Comparison 12

Trends in Overall Capital Budgets 13

· Chart Eleven: Trends in Overall Capital Budgets 13

Individual Sector Rankings – 1Q 2003 14

ChangeWave Research Methodology 15

About ChangeWave Research 16

I. Summary of Key Findings

Our latest ChangeWave Alliance quarterly survey, conducted March 11 – 18, 2003, shows a clear pullback in 1st Quarter corporate sales across virtually all sectors of the Nasdaq economy – with little-to-no visibility going forward.

Fewer Winners: There will also be far fewer winners this quarter. Only 18% of members are reporting their company sales will come in "Above Plan" for the 1st Quarter. The only significant improvements occurred in Wireless and Education.

A Comparison: The 18% “Above Plan” finding for the 1st Quarter represents a 20% pullback from the previous quarter. This is the biggest decline we’ve recorded in a quarterly sales survey in the past two years, with the exception of a 33% drop in September 2001.

What's Ahead for 2nd Quarter?: Expect little-to-no visibility looking forward, as the bad news extends to sales pipeline projections for the 2nd Quarter.

Fewer projected winners for 2nd Quarter: Only 26% of members believe their company sales will come in "Above Plan" for 2nd Quarter 2003 - a 13% decrease from our previous quarterly survey results.

More projected losers for 2nd Quarter: There has also been a 31% increase in the number of projected losers for the 2nd Quarter compared to the previous quarter. More than one in every five members (21%) now report their sales pipeline is looking "Below Plan" for the coming quarter.

ChangeWave Research: 1Q 2003/2Q 2003 Nasdaq Economy Survey

II. Fits, Starts & Drops: Putting The Findings in Context

As the following chart shows, the Nasdaq economy has been in a perpetual state of yoyo for more than 24 months, and we’re apparently in yet another downturn. The current Quarterly Sales survey provides virtually no evidence that we are breaking out of this multi-year pattern of economic fits, starts and drops.

Note that the percentage of Alliance members reporting their company sales came in “Above Plan” was an exceptionally accurate indicator of the movement of the Nasdaq 100 Index (QQQ) through 4th Quarter 2001. And while it still is an accurate indicator, there has been an important change beginning in 2002: The percentage of Alliance members reporting their company sales came in “Above Plan” has crossed and remained above the Nasdaq 100 Index (QQQ) for all of 2002 and into 2003.

As previously discussed in earlier Corporate Sales reports, this trend may point to a fundamental revaluation occurring among technology stocks. At present, investors are worried about both consumer spending and business capital spending. When you weigh in the effects of war with Iraq, terrorism, bankruptcies and other investor fears, you still have the negative psychological ingredients necessary for continued turmoil in the financial markets.

Note that in Chart Five above, the Alliance “Above Plan” results for each of our 11 quarterly economic surveys is weighted by a factor of 2.0, in order to correlate them with the Nasdaq 100 Index (QQQ). The actual Alliance “Above Plan” results for the 11 surveys we’ve conducted are:

1/4/01 – 1/10/01 Survey Above Plan = 31.0%

2/27/01 – 3/5/01 Survey Above Plan = 18.0%

4/17/01 – 4/26/01 Survey Above Plan = 21.0%

6/18/01 – 6/26/01 Survey Above Plan = 18.0%

9/24/01 – 10/3/01 Survey Above Plan = 12.0%

12/3/01 – 12/11/01 Survey Above Plan = 18.0%

3/5/02 – 3/12/02 Survey Above Plan = 23.5%

6/18/02 – 6/26/02 Survey Above Plan = 19.0%

9/24/02 – 10/1/02 Survey Above Plan = 16.0%

12/3/02 – 12/10/02 Survey Above Plan = 22.5%

3/11/03 – 3/18/03 Survey Above Plan = 18.0%

III. Survey Methodology

These findings are based on a survey of ChangeWave Alliance members conducted online between March 11 and March 18, 2003. 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 2003. To this end, the survey was comprised of a sample of 911 accredited members of the ChangeWave Alliance.

IV. Additional Findings and Highlights

1st Quarter Cancelled Orders

A total of 15% of members reported an increase in the number of cancelled orders for the 4th Quarter. This is 25% more than the previous quarter.

Correspondingly, the percentage of members reporting their companies are experiencing a decrease in cancelled orders fell to 7%. That represents a 30% decrease from the previous quarter.

When Will We See a Turnaround?

We asked our members in which quarter they think their own company will begin to see a sustainable uptick in growth:

· Two in five respondents (39%) think their own company will see an uptick over the next six months (between now and the end of 3rd Quarter 2003).

· However, 37% of respondents think their company will not see an uptick until 4th Quarter 2003 or beyond.

These findings show a considerable weakening since our previous quarterly survey’s results.

Current Willingness of Customers to Buy Products

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.

Only 26% said their existing customers currently have a "Green Light" to spend (i.e., spending is normal); while 61% said their customers have a "Yellow Light" with regards to spending (i.e., spending is downsized, though not completely stopped); and 7% said their customers have a "Red Light" (i.e., spending is virtually on hold).

Company Sales For Final Two Weeks of 1st 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 1st Quarter – normally the make-or-break period for meeting a sales plan. The results speak for themselves:

· Only 9% said sales would be above expectations during the final two weeks of the 1st Quarter.

· 28% said sales would be below expectations during the final two weeks of the 1st Quarter.

Again, these findings are weaker than our previous quarterly survey’s results.

Price Pressures in the Current Marketplace

For the past seven 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?”

These survey results show an increase in downward pricing pressures in the current marketplace. A total of 29% of members report prices are falling for their company’s products, up from 27% in our previous survey.

Correspondingly, as the following chart shows, since September 2001 the percentage of members reporting rising prices has fluctuated by just 1 percentage point per quarter. Currently, 8% of respondents report rising prices, exactly the same as in our previous survey.

*Note that a total of 56% report their company’s prices are holding firm in the current marketplace – nearly identical to the previous six surveys.

Trends in Overall Capital Budgets

We asked the Alliance a question on their company’s overall Capital Budget to get an accurate reading on 2nd Quarter 2003 capital spending.

“Investments in IT are just one part of an overall Capital Budget. Looking at your own company's overall Capital Budget - and adjusting as best you can for seasonality - 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) 2003 vs. the current quarter?”

Increase in 2nd Quarter Capital Budget 11%

Decrease in 2nd Quarter Capital Budget 24%

Remain the Same 54%

Don’t Know 11%

Bottom Line – Deterioration in Overall Capital Budgets for the 2nd Quarter: The above findings confirm that 2nd Quarter 2003 Capital Budgets for Nasdaq economy companies will be lower. These results are clearly among the most bearish findings of the current survey.

V. Individual Sector Rankings – 1Q 2003

The chart below presents the ChangeWave Sector Rankings, based upon the 1st Quarter sales findings of our current survey (i.e., the rankings are based upon the percentage of companies reported as coming in “Above Plan” vs. “Below Plan” for each sector in the 1st Quarter).

The biggest pullbacks occurred in Data Storage, Financial/Investing Services, Semiconductors, and B2B Software. The only significant improvements occurred in Wireless and Education.

1st Quarter Individual Sector Rankings

1. Wireless

2. Energy (Natural Gas, Distributed E-Power)

3. Transportation/Aerospace

4. Government/Defense

5. Education/Training

6. Healthcare/Pharmaceuticals/Biotechnology

7. Financial/Investing Services

8. Optical Networking

9. Semiconductor

10. Data Storage

11. B2B Software and Services

12. Telecom

13. Electronic Manufacturing Services

In viewing this chart, remember that what we are ranking here is the actual economic sectors themselves—and NOT the stock market. There’s a difference! The stock market can be thought of as the collective “grade” investors give to companies and sectors based upon their future prospects. What goes into this “grade” is not only where a company or sector is today but where it’s perceived to be heading in the next six to 12 months. From the market’s perspective, today’s leading economic sectors may not be tomorrow’s.

These factors notwithstanding, the above ChangeWave Sector rankings are among the most valuable findings of our survey and highlight one of the Alliance’s greatest strengths. By pooling the observations of our 3,850 “Field Experts,” we are able to track individual sector performance in real-time and quickly alert Alliance members and ChangeWave subscribers on investable opportunities as they arise.

ChangeWave Research: 4Q 2002/1Q 2003 Nasdaq Economy Survey

VI. ChangeWave Research Methodology

This report is based on a survey of ChangeWave Alliance members conducted online between March 11 and March 18, 2003. 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 2003. To this end, the survey was composed of a sample of 911 accredited members of the ChangeWave Alliance.