>> From the Cube Studios in Palo Alto
in Boston bringing you data driven insights
from theCUBE and ETR,
this is Breaking Analysis with Dave Vellante.
>> Is the glass half full or half empty?
Well, it depends on how you want to look at it.
CIOs are tapping the breaks on spending, that's clear.
The latest macro survey data
from ETR quantifies what we already know to be true,
that IT spend is decelerating.
CIOs and IT buyers forecast
that their tech spend will grow by 5.5% this year.
That's a meaningful deceleration
from near year end 2021 expectations.
But these levels are still well above historical norms.
So while the feel good factor may be
in some jeopardy, overall things are pretty good,
at least for now.
Hello and welcome to this week's Wikibon Cube Insights
powered by ETR.
In this Breaking Analysis, we update you
in the latest macro tech spending data
from Enterprise Technology Research, including strategies
that organizations are employing to cut costs,
and which project categories continue
to see the most traction.
Now, CIOs were much more optimistic
at the end of last year than they are today.
Back then they thought their aggregates spend
would increase by more than 8%.
Of course, at that time the expectation was
that the economy was ready to make a semi ordered return
to normal,
and that didn't happen as you well know.
And you can see here the expectation
for spending this year is down to 5.5% growth, as we said,
and this is based on the most recent ETR CIO
and IT buyer survey,
which includes more than 1100 responses.
So we started the year above 8%
then made a meaningful decline
into the mid sixes and nine months into the year,
we're now in the mid fives,
but this is still two to 300 basis points
above historical norms for IT spending.
And looking ahead to next year,
CIOs are expecting accelerated growth
edging back up toward that 6% level.
Now as noted here, the visibility
on this is probably less clear
than pre COVID years of course,
but the bottom line is digital transformations
are continuing to push it spending above historical levels.
Now the problem as we know,
is earning estimates are coming down
and forecasts are being lowered every day.
I mean, as the saying goes
the first disappointment is rarely the last.
Even the semiconductor industry is seeing softness.
Just this past week we saw AMD lower
its quarterly revenue forecast
by more than a billion dollars,
as PC demand in the second half has significantly softened.
But again, that's relative to some pretty amazing PC growth
in the past couple of years thanks to the isolation economy.
So we do see CIOs tapping the brakes,
and these data points here tell an interesting story.
ETR asked respondents about various actions
that they're taking and these two stood out.
The top line is, "We're accelerating new IT projects,"
and the bottom line is, "We're freezing IT projects,"
and you can see the convergence of those two lines,
which of course signals the down.
But again, these are not alarming data points.
If you think about history.
If you go back to Q1 2020, for example,
just before the pandemic, that top line
that was at 12% versus where it is today at 25%.
And if you look at project freezes, they were at 22%
in Q1 of 2020, which is significantly higher than today.
So relatively speaking
the spending dynamic is still strong.
It just doesn't feel that way
because we're coming out of an historic anomaly.
Now, ETR asked a follow up question to respondents
that indicated that spending would be
down this quarter relative to the same quarter last year.
So they wanted to better understand the most common actions
that organizations would take to save money,
and that's what this chart shows.
The most common approach is still
to consolidate redundant vendors
across the lines of business.
That was over 30%,
as you can see here in the first set of bars.
So presumably CIOs now have the latitude to go
after so-called shadow projects, shadow IT,
and implement standards across the organization
via vendor consolidation.
As well, there's a big jump in the survey
from 14% to 20% of respondents saying
that they were going after the Cloud bill,
and that relates to the fourth set of bars
which is scrutinizing consumption based services.
So combined, 45% of respondents are looking
at reducing their on demand spend.
Now, some of that may be SaaS related,
but most of the SaaS spend is committed, so pre-committed,
but we do see organizations doing more audits
and trying to eliminate or reduce orphaned licenses.
Now the last data point that we want to focus
on is the technology sectors that are
of the highest priority.
You can see here on the set of bars on the left
while cybersecurity remains the top technology area,
even this sector is showing a little bit of softness.
What's really notable is the uptick in data related areas,
that second set of bars,
this category is now the second most cited,
taking over from Cloud, which as you can see, remain strong,
and of course Cloud continues to be a key component
of digital transformations.
As we've previously reported, machine learning, AI,
and RPA are somewhat more strategic and more discretionary,
and they've dropped below the 40% mark
in terms of net score in the overall survey.
We're not showing that data here, but we covered this
in our last Breaking Analysis ahead of our UI path event.
Now you have to remember these are the top seven sectors,
and there are dozens in the ETR taxonomy,
so making this list is goodness from a spending perspective.
So even though there's some softness
in most of these categories,
these are the ones CIOs are most focused on addressing.
So the big takeaways of this data
are spending targets are coming down to the mid 5% range,
but this is meaningfully higher than historical norms.
And while CIOs, they are pumping the brakes on projects,
they're still moving forward at rates faster
than pre COVID levels and they're freezing fewer projects.
Remember, this as well,
this could be a skill shortage in play,
but the slowdown is more likely related
to the economic uncertainty.
You know, we're seeing the two-sided coin
of pay by the drink consumption models, right?
You can dial it up as as you need to
but you can also dial it down,
and that's one of the alluring features of on demand.
And we're seeing firms give more scrutiny
to the Cloud bill, why wouldn't they?
And there's a bit of unsurprising backlash
to the flaws in today's SaaS pricing model
that locks you in for specified terms.
So people, when their term comes
up are really going to scrutinize whether
or not they have orphan licenses and try to reduce those.
And it appears that the real savings can come
from eliminating redundant vendors.
That seems to be the biggest, you know, number one strategy,
and that could favor some of the larger firms,
think Oracle, Dell, Salesforce
ServiceNow, IBM, HPE, Cisco, and others, you know,
they may benefit from having more
of larger footprint across the organization.
You know, having that one throat to choke, you know
one back to pat, as some like to say,
but they could benefit those larger companies
in least in the near term.
Now having said that, we do see an uptick
in data related areas as a priority for CIOs,
and that could mean companies like Snowflake are
in a strong position and can continue to thrive.
You know, even though as we reported a couple of weeks ago,
virtually all companies and sectors
in the ETR data set are showing some softness related
to spending a momentum from previous quarters.
ETR will have its... will release its results next week
and then we'll dig into the specific vendor action relative
to previous quarters.
So look, it feels like a meaningful slowdown
but the sky is by no means falling.
There are these kind of out
of our control factors like interest rates,
and Ukraine, and oil supply, and wages, et cetera,
that are creating this uncertainty
and causing firms to be more cautious.
But generally we remain optimistic
as leading tech companies are pretty well managed
and have a lot of runway on the balance sheets,
and can adjust costs to reflect the uncertain environment
and remain flexible in their business models in doing so.
Okay, that's it for today.
Thanks to Alex Myerson who's on production
and he also manages the podcast for Breaking Analysis.
Ken Schiffman is also out of our Boston studio as well.
Kristin Martin and Cheryl Knight, they help get the word
out on social media and in our newsletters,
and Rob Hof is our editor in chief
over at Silicon Angle who posts our Breaking Analysis
and does some great editing.
So thank you to all.
Remember all these episodes are available as podcasts.
Wherever you listen
all you got to do is search Breaking Analysis podcast.
I publish each week on wikibon.com and siliconangle.com,
and you can email me at david.vellante@siliconangle.com
or DM me @dvellante,
or feel free to comment on our LinkedIn posts.
And please do check out etr.ai
for the best survey data in the enterprise tech business.
This is Dave for the theCUBE Insights powered by ETR.
Thanks for watching and we'll see you next time
on Breaking Analysis.
(relaxing music)