Changewave Research: 3Q/4Q 2004 Nasdaq Economy Survey
ChangeWave Research: 3Q/4Q 2004 Nasdaq Economy Survey
ChangeWave Research
3Q/4Q 2004 Corporate Sales Survey
Latest Alliance Survey Shows Significant Deceleration in 3rd Quarter Corporate Sales; Capital Spending Growth Rate Continues to Slow
Overview
The latest ChangeWave Alliance quarterly sales survey, completed September 15, 2004, shows a significant deceleration in corporate sales for the 3rd Quarter. In addition, this is the third consecutive survey in which the growth rate for capital spending declined. On a positive note, the surge in prices found in the previous two quarterly surveys has abated, indicating inflationary pressures are under control. A total of 1,178 Alliance members participated in the survey.
Far Fewer Winners: A total of 27% of Alliance respondents project that their company sales will come in "Above Plan" for 3rd Quarter – a 9-percentage point decline from the last quarter.
More Losers: There was also an increase in the percentage of losers for the 3rd Quarter, with 24% of respondents reporting their company sales will come in "Below Plan."
The Last 13 Quarterly Sales Surveys: As the following chart shows, the current pullback in sales represents a significant weakening in the growth rate from the high point reached three quarters ago (Dec 2003).
4Q Outlook: There has been a reduction in visibility going forward. Only 34% of Alliance members now say their company will come in "Above Plan" for 4th Quarter 2004 – a
9-percentage point drop from the previous quarter. And, the percentage of respondents who say their company will come in “Below Plan” has significantly increased since last quarter – rising from 10% to 14%.
Further Decline in Growth of Capital Spending: For the third survey in a row, respondents reported a decline in the growth rate of capital spending. Only 16% of Alliance members think they’ll see an increase in their company’s overall Capital Budget for the 4th Quarter –
a 5-percentage point drop from the previous quarter and a 7-point decline from six months ago.
Another 13% of members think they’ll see a decrease in their company’s 4Q Capital Budget – which is 1-point higher than last quarter – while 59% think it will remain the same. In sum, while the overall rate of growth in capital spending is still a net positive (16% increase vs. 13% decrease), these are the lowest percentages registered in a ChangeWave Quarterly Sales survey since June 2003.
Inflation Pressures Under Control: Alliance member companies are normally characterized by downward price pressures on a wide spectrum of their IT products (e.g., computer hardware). Currently, only 13% of respondents report rising prices for their products, down 4-points from the high reached last quarter and a signal that inflationary pressures are coming under control.
Bottom Line: The survey findings point to a deceleration in corporate sales for the 3rd Quarter and reduced visibility for the 4th. In addition, this is the third consecutive survey in which the growth rate for capital spending has declined.
These results closely mirror the sluggish findings in ChangeWave’s 4Q 2004 IT Spending Survey, and point to a slowdown in overall economic growth for the second half of 2004.
We note that this ChangeWave study focuses exclusively on economic growth for the 3rd and 4th Quarters of 2004. It does not address potentially rosier growth scenarios for 2005 or beyond, such as:
· CompTIA’s recent Yankee Group study suggesting revenue growth of 10% or more in 2005.
· Cantor Fitzgerald recently telling clients “We are finally hearing investors point to valuations based on 2005 estimates. That means they've basically written off the results for the remainder of this year..."
· Smith Barney forecasting the S&P 500 and the Dow will each rise 20% by the end of 2005.
We also note that investors often look beyond current economic conditions when making valuations, and it is particularly worth mentioning this in a Presidential election year in which the outcome could have a major impact on investor sentiment.
That said, the data from this survey strongly suggests that the very rapid economic growth seen in 2003 will not be replicated during 2004.
The ChangeWave Alliance is a group of 4,700 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 ™
www.ChangeWave.com
Table of Contents
Summary of Key Findings 4
· Chart One: 3Q 2004 Sales Results 4
· Chart Two: 2Q 2004 Sales vs. 3Q 2004 Sales 5
· Chart Three: Last 13 Surveys Comparison 5
What’s in the Pipeline 6
· Chart Four: 4Q 2004 Projected Sales Pipeline 6
· Chart Five: 3Q 2004 Sales Projections vs. 4Q 2004 Sales Projections 6
Putting the Findings in Context 7
· Chart Six: 3Q 2004 “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 Under Control 9
· Chart Nine: Price Pressures in the Current Marketplace 9
Decrease in Growth Rate for Capital Spending 10
· Chart Ten: Overall 4Q Capital Budgets 10
· Chart Eleven: Overall 4Q Capital Budgets – A Comparison 11
Survey Methodology 11
Additional Findings and Highlights 12
3rd Quarter Cancelled Orders 12
· Chart Twelve: 3Q 2004 Cancelled Orders 12
· Chart Thirteen: 3Q 2004 Cancelled Orders – A Comparison 12
Company Sales for Final 2 Weeks of 3rd Quarter 13
· Chart Fourteen: Company Sales for Final 2 Weeks of 3rd Quarter 13
· Chart Fifteen: Company Sales – A Comparison 13
Product Inventories for the 3rd Quarter 14
· Chart Sixteen: Product Inventories during the 3rd Quarter 14
· Chart Seventeen: Product Inventories – A Comparison 14
Backlog of Orders for the 3rd Quarter 15
· Chart Eighteen: Backlog of Orders for the 3rd Quarter 15
· Chart Nineteen: Backlog of Orders – A Comparison 15
Hiring Trends in the 3rd Quarter 16
Layoff Trends in the 3rd Quarter 17
Customer Visibility into Next Quarter 18
· Chart Twenty: Customer Visibility into Next Quarter 18
· Chart Twenty-One: Customer Visibility – A Comparison 18
Individual Sector Rankings – 3Q 2004 19
ChangeWave Research Methodology 20
About ChangeWave Research 21
I. Summary of Key Findings
The latest ChangeWave Alliance quarterly sales survey, conducted September 7-15, 2004, shows a significant deceleration in corporate sales for the 3rd Quarter. In addition, this is the third consecutive survey in which the growth rate for capital spending declined. On a positive note, the surge in prices found in the previous two quarterly surveys has abated, indicating inflationary pressures are under control. A total of 1,178 Alliance members participated in the survey.
Far Fewer Winners: A total of 27% of Alliance respondents project that their company sales will come in "Above Plan" for 3rd Quarter – a 9-percentage point decline from the last quarter.
More Losers: There was also an increase in the percentage of losers for the 3rd Quarter, with 24% of respondents reporting their company sales will come in "Below Plan."
A Comparison: The 27% "Above Plan" finding for the 3rd Quarter represents a significant 9-percentage point decline over the previous quarter.
The Last 13 Quarterly Sales Surveys: As the following chart shows, the current pullback in sales represents a significant weakening in the growth rate from the high reached in Dec 2003. 
What's in the Pipeline?
There has been a reduction in visibility going forward. Only 34% of Alliance members now say their company will come in "Above Plan" for 4th Quarter 2004 – a 9-percentage point drop from the previous quarter.
More Losers for 4th Quarter 2004: The percentage of respondents who say their company will come in “Below Plan” has increased 4-percentage points to 14%.
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 (QQQ).
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. One-half of all respondents (50%) said their existing customers currently have a "Green Light" to spend (i.e., spending is normal) – a 7-percentage point drop from the previous quarter.
Forty-two percent (42%) 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 7-percentage point rise from the previous quarter.
Inflationary Pressures Under Control
Alliance member companies are normally characterized by downward price pressures on a wide spectrum of their IT products (e.g., computer hardware). Only 13% of respondents report prices are rising for their products, down 4-points from the high reached last quarter and a clear signal that inflationary pressures are coming under control.
The number of respondents reporting falling prices has risen by 3-points in three months.
Question Asked: For the past thirteen 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 60% report their company’s prices are holding firm in the marketplace.
Decrease in Growth Rate for Capital Spending
We asked the Alliance a question on their company’s overall Capital Budget to get an accurate reading on 4th Quarter 2004 capital spending.
Question Asked: “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 4th Quarter (Oct-Dec) 2004 vs. the current quarter?”
Increase in 4th Quarter Capital Budget 16%
Decrease in 4th Quarter Capital Budget 13%
Remain the Same 59%
Don’t Know 11%
Further Decline in Growth of Capital Spending: For the third survey in a row, respondents reported a decline in the growth rate of capital spending. Only 16% of Alliance members now think they’ll see an increase in their company’s overall Capital Budget for the 4th Quarter – a 5-percentage point drop from the previous quarter and a 7-point decline from six months ago.
Another 13% of members think they’ll see a decrease in their company’s 4Q Capital Budget – which is 1-point higher than last quarter – while 59% think it will remain the same. Thus, while the overall rate of growth in capital spending is still a net positive (16% increase vs. 13% decrease), these are the lowest percentages registered in a ChangeWave Quarterly Sales survey since June 2003.
Question Asked: “Would you say your company's capital budget is more affected by short term business conditions (e.g., rise in oil prices) or long term economic trends (e.g., interest rates)?”
Short Term Business Conditions / 23%Long Term Economic Trends / 39%
Equally By Both / 27%
Don't Know / No Answer / 12%
Thirty-nine percent (39%) of respondents say their company’s capital budget is more affected by long term economic trends, while 23% see short term business conditions as having more of an influence on their capital budget. Another 27% say it is affected equally by both.
II. Survey Methodology
This report is based on a survey of ChangeWave Alliance members conducted online between September 7 - 15, 2004. 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 3rd Quarter of 2004. To this end, the survey was composed of a sample of 1,178 accredited members of the ChangeWave Alliance.
III. Additional Findings and Highlights
3rd Quarter Cancelled Orders
A total of 9% of members reported an increase in the number of cancelled orders for the 3rd Quarter. This is 1-percentage point more than the previous quarter’s 8%.
The percentage of members reporting their companies are experiencing a decrease in cancelled orders is 6%, 4-percentage points less than the previous quarter.
Company Sales For Final Two Weeks of 3rd 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 3rd Quarter – normally the make-or-break period for meeting a sales plan. Sixteen percent (16%) said sales would be above expectations, down
4-points from the previous quarter.
Seventeen percent (17%) said sales would be below expectations during the final two weeks of the 3rd Quarter, up 3-points from the previous survey.
Product Inventories for the 3rd Quarter
Inventories Stabilizing: We asked respondents to describe their product inventories for the current quarter and for the second survey in a row, there was little change. A total of 12% of respondents report their product inventories have decreased during the 3rd Quarter, while 10% report they have increased.