Changewave Research: 1Q/2Q 2009 Corporate Quarterly Survey

ChangeWave Research: 1Q/2Q 2009 Corporate Quarterly Survey

ChangeWave Research Report:

1Q/2Q2009 Corporate Quarterly Survey

Dramatic TailspinContinues for U.S. Economy - AlthoughLonger TermOutlookContainsGlints of Hope

Overview: Last quarter’sacceleratingU.S. economic freefall has extended right through 1st Quarter 2009 – and includesyet a further downturn inthis quarter’s corporate sales projections and in customer willingness to spend. Our latest survey, however,also contains glints of hope, including a slight leveling off in the rate of contraction going forward.

But the bottom line isthe U.S. economy remainscaught in the clutches of a recession far deeper and more painful than that of 2001 – including alarmingly grim hiring trends and a continuedpullback in capital spending.

The ChangeWave corporate quarterly survey was conducted February 23-March 3, 2009 and a total of 3,076U.S. respondents participated.

Tailspin Continues for U.S. Economy

1st Quarter 2009 Performance: One-in-two respondents (52%) now project that their company sales will come in Below Plan for 1st Quarter 2009– 1-pt worse than the previous quarter. Only 9% say their company sales will come in Above Plan – a 2-pt decrease.

As the following chart shows, the 1st Quarter (Mar ’09) corporate sales projections are the worst ever recorded in a ChangeWave survey dating back to the depths of the 2001 recession.

Weakness in Customer Spending: We also asked respondents to rate the current willingness of their existing customers to spend money on their company’s products and services.

More than three-fourths (76%) say their customers have either a Yellow Light to spend (i.e., spending is downsized, though not completely stopped) or a Red Light (i.e., spending is virtually on hold) – 4-pts worse than the previous quarter.

Just 18% report that their existing customers have a Green Light to spend (i.e., spending is normal), which is 4-pts less than previously.

Labor Woes. The U.S.labor market also remains in a dismal state. Only 7% say there are More new hiresin their company at this point in the 1st Quarter vs. last quarter – a 1-pt decline since the previous survey. Another 30% say there are Less new hires– a tiny 1-pt improvement from previously, but overall the 2nd worst reading since we began asking this question five years ago.

But Longer Term Outlook Contains Glints of Hope

2ndQuarter 2009 Sales Pipeline:It’s when we asked respondents about their company sales pipeline projections for the 2nd Quarter that we begin to see the first glints of hope.

While just 11% say their company will come in Above Plan – that nonetheless represents a2-pt improvement from previously. At the same time, 38% report they’ll come in Below Plan – 1-pt improved over the previous survey.

Thus, for the first time in more than two yearswe’re picking up a slight leveling off in the rate of contraction going forward. And while next quarter’s sales projections remain horrific, the overall decline is not quiteas bad as the record collapserecorded in our previous survey.

A Similar Deceleration in the Rate of Cap Spending Decline:Last quarter we also reported “a massive cutback in capital spending going forward” and the current survey shows it’s largely set to continue – however once againwitha slight deceleration in the rate of decline.

Only5% project an increase in their company’s 2nd Quarter capital budget while 41% project a decrease– but that’s a net 3-pt improvement over the previous survey.

Thus, while we’re still witnessing a gigantic pullback in capital spending, it’s not quite as bad as the collapserecorded last quarter. Importantly, this is the first time we’ve recorded a deceleration in the rate of capital spending decline since September 2007.

Impact of the Credit Crunch. Forthe past 15 monthswe’ve been measuring the impact of the credit crisis on U.S. businesses – generally thought to be one of the key causesof the recession. And up till now – despite the U.S. government’s numerous attempts to open the credit spigot – our survey results have consistently shown the impact of the credit crisis continuing to worsen.

For the first time we’re picking up some beginning signs of stabilization.

While three-in-ten respondents (30%) continue to say that it is harder for their company to borrow money than it was just 90 days ago – that’s unchanged from the previous survey. And 1% now say it is easier to borrow money, 1-pt better than previously.

To be clear, the credit crisis remains significantly worse than it was even 90 days ago, but the rate of decline finally shows some signs of stabilizing.

The Price of Products. The slowing economy continues to drive down the prices companies are charging for their products.

Our current results show yet another leg downward in price pressures – the third consecutive survey showing a decline since the dramatic upward price spikes of the first half of 2008.

Only 5% now report prices are rising for their company's products – 2-pts less than previously, and a new record all time low in a ChangeWave survey. At the same time, the percentage reporting falling prices (26%) has gotten 2-pts worse.

Bottom Line:The difficulty of turning around an economy plunged headlong into recession is somewhat akinto turning around an out-of-control Supertanker. In short, the first sign of improvement is often simply a leveling off in the rate of economic freefall.

Thus, even as1st Quartercorporate sales projections are the worst ever in a ChangeWave survey and the labor market (which is a lagging indicator) remains absolutely terrible, the longer term economic outlook is beginning to show the first tinysigns of hope, including:

2nd Quarter Sales Projections– While still horrific, the overall projected sales decline for next quarteris not quite as bad as the collapse recorded in our previous survey
Capital Spending –Still in the midst of apullback going forward, but the cap spending rate of decline is also not quite as bad as the collapserecorded last quarter
The Credit Crunch –For the first time in 15 months one of the key causes of the recession – the credit crunch – appears to have stopped worsening, although it is clearlycontinuing to have a seriously negative impact on U.S.business

In sum, while the U.S. economy remains in a tailspin, the rate of decline going forwardhas begun toslow. The tricky part is whether this isa temporary trough before a further collapse, or if we’re seeing the first early signs of a bottom.Future surveys will provide the answer.

Summary of Key Findings

The ChangeWave Alliance is a group of 20,000 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 reports.

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Table of Contents

Summary of Key Findings...... 5

Key Findings...... 7

1Q 2009 Sales Results...... 7

Last 8 Years Comparison...... 7

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

Hiring Trends in the 1st Quarter...... 9

1Q 2009 Hiring Trends – A Comparison...... 9

Layoff Trends in the 1st Quarter...... 10

1Q 2009 Layoff Trends – A Comparison...... 10

What’s in the Pipeline?...... 11

2Q 2009 Projected Sales Pipeline...... 11
Overall Sales Pipeline Projections – A Comparison...... 11

Capital Spending Growth Rate...... 12

Overall 1Q Capital Budgets – A Comparison...... 12

Impact of Credit Crunch...... 13

Ability of Companies to Borrow Money – A Comparison...... 13
Ability of Companies to Borrow By Company Size...... 13
Impact of Credit Crisis on Specific Business Components ...... 14

Survey Methodology...... 15

Additional Findings and Highlights...... 16

Price Pressures ...... 16

Price Pressures in the Current Marketplace...... 16
Ability of Companies to Purchase Commodities...... 17

1st Quarter Cancelled Orders...... 17

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

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

ChangeWave Research Methodology...... 20

About ChangeWave Research...... 21

I. Key Findings

Overview: Last quarter’s accelerating U.S. economic freefall has extended right through 1st Quarter 2009 – and includes yet a further downturn in this quarter’s corporate sales projections and in customer willingness to spend. Our latest survey, however, also contains glints of hope, including a slight leveling off in the rate of contraction going forward.

But the bottom line is the U.S. economy remains caught in the clutches of a recession far deeper and more painful than that of 2001 – including alarmingly bad hiring trends and a continued pullback in capital spending.

The ChangeWave corporate quarterly survey was conducted February 23-March 3, 2009 and a total of 3,076U.S. respondents participated.

Tailspin Continues for U.S. Economy:

1st Quarter 2009 Performance: One-in-two respondents (52%) now project that their company sales will come in Below Plan for 1st Quarter 2009– 1-pt worse than the previous quarter. Only 9% say their company sales will come in Above Plan – a 2-pt decrease.

The Last 8Years:As the following chart shows, the 1st Quarter (Mar ’09) corporate sales projections are the worst ever recorded in a ChangeWave survey dating back to the depths of the 2001 recession.

Current Willingness of Customers to Buy Products

Weakness in Customer Spending: We also asked respondents to rate the current willingness of their existing customers to spend money on their company’s products and services.

Just 18% report that their existing customers have a Green Light to spend (i.e., spending is normal), which is 4-pts 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 2009. How would you characterize the number of new hires (full or part-time payroll employees) in your company at this point in 1st Q 2009 compared with the same point in the previous quarter (4Q 2008)?

Hiring Trends / Current
Quarter
1Q 2009 / Previous
Quarter
4Q 2008 / Previous
Quarter
3Q 2008 / Previous
Quarter
2Q 2008 / Previous
Quarter
1Q 2008
More new hires at this point in
1Q 2009 compared to 4Q 2008 / 7% / 8% / 16% / 17% / 18%
Less new hires at this point in
1Q 2009 compared to 4Q 2008 / 30% / 31% / 22% / 20% / 19%
Equal amount of new hires in
1Q 2009 compared to 4Q 2008 / 13% / 16% / 23% / 25% / 23%
No new hires at this point in either 1Q 2009 or 4Q 2008 / 45% / 39% / 32% / 32% / 32%
Don’t Know / No Answer / 5% / 6% / 7% / 6% / 7%

Layoff Trends

We also asked 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 2009 compared with the same point in the previous quarter (4Q 2008)?

Layoff Trends / Current
Quarter
1Q 2009 / Previous
Quarter
4Q 2008 / Previous
Quarter
3Q 2008 / Previous
Quarter
2Q 2008 / Previous
Quarter
1Q 2008
More layoffs at this point in
1Q 2009 compared to 4Q 2008 / 28% / 24% / 14% / 12% / 11%
Less layoffs at this point in
1Q 2009 compared to 4Q 2008 / 8% / 4% / 6% / 6% / 6%
Equal amount of layoffs in
1Q 2009 compared to 4Q 2008 / 13% / 11% / 12% / 13% / 11%
No layoffs at this point in either 1Q 2009 or 4Q 2008 / 46% / 55% / 60% / 63% / 64%
Don’t Know / No Answer / 6% / 6% / 8% / 6% / 8%

A total of 28% say there are More layoffs at this point in 1st Quarter 2009 vs. 4th Quarter 2008, a 4-pt jump over last quarter and double the percentage of just 6 months ago. At the same time, however, 8% now say there are Less layoffs – a 4-pt improvement from the previous quarter.

What's in the Pipeline for 2nd Quarter 2009?

2ndQuarter 2009 Sales Pipeline:It’s when we asked respondents about their company sales pipeline projections for the 2nd Quarter that we begin to see the first glints of hope.

Thus, for the first time in more than two yearswe’re picking up a slight leveling off in the rate of contraction going forward. And while next quarter’s sales projections remain horrific, the overall decline is not quite as bad as the record collapse recorded in our previous survey.

Capital Spending Growth Rate

A Similar Deceleration in the Rate of Cap Spending Decline: Last quarter we also reported “a massive cutback in capital spending going forward” and the current survey shows it’s largely set to continue – however once again with a slight deceleration in the rate of decline.

Only5% project an increase in their company’s 2nd Quarter capital budget while 41% project a decrease– but that’s a net 3-pt improvement over the previous survey.

Impact of Credit Crunch

Forthe past 15 monthswe’ve been measuring the impact of the credit crisis on U.S. businesses – generally thought to be one of the key causesof the recession. And up till now – despite the U.S. government’s numerous attempts to open the credit spigot – our survey results have consistently shown the impact of the credit crisis continuing to worsen.

For the first time we’re picking up some beginning signs of stabilization

Question Asked: Would you say it is now harder for your company to borrow money than it was 90 days ago, easier to borrow money, or has there been no change in your company's ability to borrow money?

While the tight credit market continues to impact companies of all sizes, the biggest negative change in the current survey is among smaller companies (Less than 100 Employees).

To be clear, the credit crisis remains significantly worse than it was even 90 days ago, but the rate of decline finally shows some signs of stabilizing.

Question Asked: Sales cycles tend to fluctuate over time. Focusing on sales cycles for your own company's products/services, would you say sales cycles are currently longer than they were 90 days ago, shorter, or have they remained the same compared to the previous 90 days?

Current
Survey
Mar ‘09 / Previous
Survey
Dec ‘08 / Previous
Survey
Sep ‘08
Significantly Longer / 10% / 8% / 4%
Somewhat Longer / 31% / 28% / 25%
Somewhat Shorter / 5% / 5% / 5%
Significantly Shorter / 1% / 1% / 0%
Remained the Same / 28% / 32% / 42%
Don’t Know / 25% / 26% / 23%

II. Survey Methodology

This report is based on a survey of members conductedonline between February23 – March3,2009. The goal of the survey was to get an up-to-the-minute picture of the health of the U.S. Economy and its sectors for 1st Quarter 2009 and 2nd Quarter 2009. A total of 3,076 accredited members of the ChangeWave Alliance participated in the survey.

III. Additional Findings and Highlights

The Price of Products

A Further Drop in the Price of Products.The slowing economy continues to drive down the prices companies are charging for their products.

Our current results show yet another leg downward in price pressures – the third consecutive survey showing a decline since the dramatic upward price spikes of the first half of 2008.

*Note that a total of 60% report their company’s prices are holding firm in the marketplace.

We note that the ability to purchase commodities remains virtually unchanged from our previous survey, with 27% reporting it is easier for their company to purchase commodities than it was 90 days andjust 8% saying it’s become harder.

Question Asked: How would you rate the availability of commodities? Would you say there is an excess supply, a sufficient supply or a short supply of the commodities your company uses?(n=1,567)

Current
Survey
Mar ‘09 / Previous
Survey
Dec ‘08 / Previous
Survey
Sep ‘08
Excess Supply / 13% / 10% / 1%
Sufficient Supply / 57% / 59% / 56%
Short Supply / 5% / 6% / 16%
Don't Know / 25% / 26% / 26%

1st Quarter Cancelled Orders

A total of 29% report their company is experiencing an increase in cancelled orders – tied with the previous survey for the worst reading ever in a ChangeWave survey.

At the same time, only 5% report their companies are experiencing a decrease in cancelled orders – aslight 1-pt improvement from previously.

1st Quarter Product Inventories

Inventories:We asked respondents to describe their product inventories for the current quarter.

In a positive finding, the results show a decrease in inventories for the 1st Quarter, with 15%reporting their inventories decreased, and only 13% saying they’ve increased.

Backlog of Orders for the 1st Quarter

Order Backlog: We asked respondents if they have noticed any change in their backlog of orders for the current quarter. A total of 11% report an increase in their Order Backlog during the 1st Quarter, unchanged from last survey. Two-in-five (40%) report a decrease in Order Backlogs, also unchanged.

IV. ChangeWave Research Methodology

This report is based on a survey of ChangeWave Alliance members conducted online between February 23 – March3, 2009. The goal of the survey was to get an up-to-date picture of the health of the U.S. Economy and its sectors, including any changes during the 1st Quarter of 2009. Atotalof 3,076accreditedU.S. Alliance members participated in the survey.