>> From theCUBE Studios in Palo Alto in Boston,
bringing you data driven insights from theCUBE and ETR.
This is Breaking Analysis with Dave Vellante.
>> New data from ETR's soon to be released April survey,
shows a clear deceleration in spending
and a more cautious posture from technology buyers.
Just this week, we saw sell side downgrades
in hardware companies like Dell and HP
and revised guidance from high flyer UiPath,
citing exposures to Russia, Europe
and certain sales execution challenges,
but these headlines, we think are a canary in the coal mine.
According to ETR analysis and channel checks in theCUBE,
the real story is these issues are not isolated.
Rather we're seeing signs of caution from buyers
across the board in enterprise tech.
Hello and welcome
to this week's Wikibon CUBE insights powered by ETR.
In this Breaking Analysis,
we are the bearers of bad news.
Don't shoot the messenger.
We'll share a first look
at fresh data that suggests a tightening in tech spending
calling for 6% growth this year
which is below our January prediction of 8% for 2022.
Now, unfortunately the party may be coming to an end
at least for a while.
You know, it's really not surprising, right?
We've had a two year record run
in tech spending and meteoric rises
in high flying technology stocks.
Hybrid work, equipping and securing remote workers.
The forced march to digital that we talk about sometimes.
These were all significant tailwinds for tech companies.
The NASDAQ peaked late last year
and then as you can see in this chart,
bottomed in mid-March of 2022,
and it made a nice run up through the 29th of last month,
but the mini rally appears to be in jeopardy
with FED rate hikes, Russia, supply chain challenges.
There's a lot of uncertainty
so we should expect the C-suite to be saying,
hey, wait slow down.
Now we don't think the concerns are confined
to companies with exposure to Russia and Europe.
We think it's more broad based than that
and we're seeing caution from technology companies
and tech buyers that we think is prudent,
given the conditions.
You know, looks like the two year party has ended
and as my ETR colleague Erik Bradley said,
a little hangover shouldn't be a surprise to anybody.
So let's get right to the new spending data.
I'm limited to what I can share with you today
because ETR is in its quiet period
and hasn't released full results yet
outside of its client base.
But, they did put out an alert today
and I can share this slide.
It shows the expectation on spending growth
from more than a thousand CIOs and IT buyers
who responded in the most recent survey.
It measures their expectations for spending.
The key focus areas that I want you to pay attention to
in this data are the yellow bars.
The most recent survey is the yellow
compared to the blue and the gray bars,
which are the December
and September '21 surveys respectively.
And you can see a steep drop from last year in Q1,
lowered expectations for Q2 in the far right,
a drop from nearly 9% last September to around 6% today.
Now you may think a 200 basis point downgrade
from our prediction in January of 8% seems somewhat benign,
but in a $4 trillion IT market,
that's 80 billion coming off the income statements
of some tech companies.
Now the good news is that 6% growth is still very healthy
and higher than pre pandemic spending levels.
And the buyers we've talked to this week are saying, look,
we're still spending money.
We just have to be more circumspect
about where and how fast.
Now, there were a few other callouts in the ETR data
and in my discussions today with Erik Bradley on this.
First, it looks like in response
to expected supply chain constraints
that buyers pulled forward their orders late last year
and earlier this year.
You remember when we couldn't buy toilet paper,
people started the stockpile
and it created this rubber banding effect.
So we see clear signs of receding momentum
in the PC and laptop market.
But as we said, this is not isolated to PCs,
UiPath's earning guidance confirm this
but the story doesn't end there.
This isn't isolated to UiPath in our view,
rather it's a more based slowdown.
The other big sign is spending in outsourced IT
which is showing a meaningful deceleration
in the last survey,
showing a net score drop from 13% in January to 6% today.
Net score remember is a measure
of the net percentage of customers in the survey
that on balance are spending more than last survey.
It's derived by subtracting the percent of customers
spending less from those spending more.
And there's a, that's a 700 basis point drop
in three months.
This isn't a market where you can't hire enough people.
The percent of companies hiring
has gone from 10% during the pandemic to 50% today
according to recent data from ETR.
And we know there's still an acute skills shortage.
So you would expect more IT outsourcing,
but you don't see that in the data, it's down.
And as this quote from Erik Bradley explains,
historically, when outsourced IT drops like this,
especially in a tight labor market,
it's not good news for IT spending.
All right, now, the other interesting callout from ETR
were some specific company names
that appear to be seeing the biggest change
in spending momentum.
Here's the list of those companies
that all have meaningful exposure to Europe.
That's really where the focus was.
SAP has big exposure to on-premises installations
and of course, Europe as well.
ServiceNow has European exposure
and also broad based exposure in IT
in across the globe, especially in the US.
Zoom didn't go to the moon, no surprise there
given the quasi return to work and Zoom fatigue.
McAfee is a bit of a concern
because security seemed to be one of those areas,
when you look at some of the other data,
that is per actually insulated
from all the spending caution.
Of course we saw the Okta hack
and we're going to cover that next week
with hopefully some new data from ETR,
but generally security's been holding up pretty well.
You look at CrowdStrike, you look at Zscaler in particular.
Adobe's another company that's had a nice bounce
in the last couple of weeks.
Accenture, again, speaks to that outsourcing headwinds
that we mentioned earlier.
And now the Google Cloud platform is a bit of a concern.
It's still elevated overall, you know
but down and well down in Europe.
Under that magic, you know
we often show that magic 40% dotted line,
that red dotted line of net score
anything above that we cite as elevated.
Well, some important callouts to hear
that you see companies that have Euro exposure.
And again, we see this as just not confined to Europe
and this is something we're going to pay close attention to
and continue to report on
in the next several weeks and months.
All right, so what should we expect from here?
The Ark investment stocks of Cathie Wood fame
have been tracking in a downward trend since last November,
meaning, you know, these high PE stocks
are making lower lows and higher, sorry,
lower highs and lower lows since then, right?
The trend is not their friend.
Investors I talk to are being much more cautious
about buying the dip.
They're raising cash and being a little bit more patient.
You know, traders can trade in this environment
but unless you can pay attention to in a minute by minute
you're going to get whipsawed.
Investors tell me that they're still eyeing big tech
even though Apple has been on a recent tear
and has some exposure with supply change challenges,
they're looking for maybe entry points in, within that chop
for Apple, Amazon, Microsoft, and Alphabet.
And look, as I've been stressing,
6% spending growth is still very solid.
It's a case of resetting the outlook
relative to previous expectations.
So when you zoom out and look at the growth in data,
getting digital right, security investments,
automation, cloud, AI containers,
all the fundamentals are really strong
and they have not changed.
They're all powering this new digital economy
and we believe it's just prudence
versus a shift in the importance of IT.
Now, one point of caution
is there's a lot of discussion around a shift
in global economies.
Supply chain uncertainty, persistent semiconductor shortages
especially in areas like, you know
driver ICs and boring things like parts for displays
and analog and micro controllers and power regulators.
Stuff that's, you know, just not playing nice these days
and wreaking havoc.
And this creates uncertainty,
which sometimes can pick up momentum
in a snowballing effect.
And that's something that we're watching closely
and we're going to be vigilant reporting to you
when we see changes in the data and in our forecast
even when we think our forecast are wrong.
Okay, that's it for today.
Thanks to Alex Merson who does the production
and podcasts for Breaking Analysis
and Stephanie Chan who provides background research.
Kristen Martin and Cheryl Knight, and all theCUBE writers
they help get the word out,
and thanks to Rob Hof, our EIC over at SiliconANGLE.
Remember I publish weekly on wikibon.com
and siliconangle.com.
These episodes are all available as podcasts
wherever you listen.
All you got to do is search Breaking Analysis podcasts.
etr.ai that's where you can get access
to all this survey data and make your own cuts.
It's awesome, check that out.
Keep in touch with me.
You can email me at dave.vellante@siliconangle.com.
You can hit me up on LinkedIn.
This is Dave Vellante for theCUBE insights powered by ETR.
Be safe, stay well, and we'll see you next time.
(gentle music)