Changewave Research: 2Q 2006 Corporate IT Spending

ChangeWave Research: 2Q 2006 Corporate IT Spending

ChangeWave Research Report:

Corporate IT Spending Survey

Steady As She Goes – IT Spending Looks Strong for 2nd Quarter

Overview

The Alliance’s latest Corporate IT survey shows continued strong spending forthe 2nd Quarter, with a record high 66% of respondentsnow reporting their company has given a "Green Light" to IT expenditures. A total of967members involved with IT spendingin their organization participated in this survey, conducted February 14-17, 2006.

2Q 2006 IT Spending: Overall, 36% of Alliancemembers report their company will increase IT spending for the 2nd Quarter, unchanged from the bullish findings of the previous quarter. Another 12% report IT spending will decrease (or there will be no spending at all), a 1-point improvement from the previous survey.

Putting the Findings in Context: As the following chart shows, the current IT spending growth rate (36% Increase – 12% Decrease = +24) is up slightly from November 2005 (+23). Moreover, the growth rate has now risen three surveys in a row.

Future Spending:Focusing on the future, we asked respondents to rate the current willingness of their company to spend money on IT products and services. Two-in-three(66%) say their company has given a "Green Light" to IT spending (i.e., spending is normal) – the highest percentage since we began asking this question in 2002.

Another 25% say their company has given a “Yellow Light" (i.e., spending is downsized, though not completely stopped), while only 5% say their company has given a "Red Light" (i.e., spending is on hold). The combined “Yellow Light/Red Light” percentage (30%) is a 2-pt improvement from the previous survey and is at its lowest level in 4 yrs.

1Q 2006 IT Spending. Respondents were also asked if their corporate IT spending is on track thus far in the 1st Quarter. A total of 14% say they have spent “More than Planned” to date, down 4-points from the previous survey. Counterbalancing that, 18% say they have spent “Less than Planned,” – also 4-pts lower than previously.

Corporate PC Purchases. Plans for2nd Quarter corporate PC purchases are little changed from our November 2005 survey– Dell remains the clear leader (41% share in desktops; 39% share in laptops) withHewlett-Packard second (16% desktops; 13% laptops). Lenovo remains third, having gained 1-point for both desktops and laptops since our previous survey.

Smart Phones – Palm Has the Momentum.While RIM (57%) still holds the dominant share of the corporate smart phone market, it has lost 6-points since our previous survey in November. At the same time, Palm (25%) isshowing great momentum – havinggained 8-points since November.

Among those companies who plan to buy smart phones in the 2nd Quarter,RIM(50%) still leads but Palm (29%)again has all the momentum – having gained7-points since the previous survey.

Other Winners and Losers. At the individual IT subcategory level for the 2nd Quarter, other significant increases areoccurring in Data Storage & Management Software, Wireless Telecom and Laptops.

On the down side, the largest drop-offs are occurring in Enterprise/Network Security Software, and Backup/Recovery Software.

Bottom Line: The current survey findingspoint to continuedstrongCorporate IT Spending growth for2Q 2006. In a highly bullish finding, Corporate"Green Light" IT spending is registering at the highest levels since we began asking about this in 2002.

The ChangeWave Alliance is a group of 7,000 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 quantitative and qualitative reports.

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Table of Contents

Summary of Key Findings...... 4

• Chart One: 2ndQuarter 2006 IT Spending...... 4

Putting the Findings in Context...... 5

• Chart Two: Last 17 IT Spending Surveys...... 5
• Chart Two A: 1Q vs. 2Q – A Comparison ...... 5

Future Spending...... 6

• Chart Three: Willingness of Company to Spend on IT...... 6
• Chart Four: Willingness to Spend – A Comparison...... 6

A Closer Look at 2006...... 7

• Chart Five: IT Budget for 1stHalf 2006...... 7
• Chart Five A: IT Budget for Next Half – A Comparison ...... 7

Spending So Far in 1stQuarter...... 8

• Chart Six: Actual IT Spending Thus Far in 1Q...... 8
• Chart Seven: IT Spending Thus Far in Quarter – A Comparison...... 8

Corporate PCs and Servers...... 11

PC Purchasing...... 11

Server Purchasing ...... 13

Vista Operating System ...... 13

Corporate Smart Phones and "Hybrid" PDAs...... 15

IT Spending Subcategories for 2ndQuarter...... 19

ChangeWave Research Methodology...... 29

About ChangeWave Research...... 30

I. Summary of Key Findings

The Alliance’s latest Corporate IT survey shows continued strong spending for the 2nd Quarter, with a record high 66% of respondents now reporting their company has given a "Green Light" to IT expenditures. A total of967 members involved with IT spending in their organization participated in this survey, conducted February 14-17, 2006.

2Q 2006 IT Spending: Overall, 36% of Alliancemembers report their company will increase IT spending for the 2nd Quarter, unchanged from the bullish findings of the previous quarter. Another 12% report IT spending will decrease (or there will be no spending at all), a 1-point improvement from the previous survey.

Putting the Findings in Context: As the following chart shows, the current IT spending growth rate (36% Increase – 12% Decrease = +24) is up slightly from November 2005 (+23). Moreover, the growth rate has now risen three surveys in a row.

Chart 2A below compares the current survey results (February 2006) with those of the previous survey (November 2005) – and also looks at the same time periods from one year ago and two years ago.

Note that in the earlier years, the November survey has normally been our most bullish (occurring during the peak of the IT spending cycle), followed by a February decline.

In the current cycle, however, theFebruary 2006results are slightlystronger than those of November 2005 – an unusually bullish sign.

Future Spending:Focusing on the future, we asked respondents to rate the current willingness of their company to spend money on IT products and services. Two-in-three(66%) say their company has given a "Green Light" to IT spending (i.e., spending is normal) – the highest percentage since we began asking this question in 2002.

Another 25% say their company has given a “Yellow Light" (i.e., spending is downsized, though not completely stopped), while only 5% say their company has given a "Red Light" (i.e., spending is on hold). The combined “Yellow Light/Red Light” percentage (30%) is a 2-point improvement from the previous survey, and is at its lowest level in 4 years.

A Closer Look at1st Half 2006. Looking at the entire first half of 2006 (Jan-Jun), 40% think their company's overall IT budget will be greater than second half 2005 – a 5-point improvement over our previous survey results.

Spending So Far in the 1st Quarter

We asked respondents several questions on planned vs. actual 1Q IT Spending to date:

(1) Question Asked: We’re halfway through the 1st Quarter. Based upon your IT Spending plans of three months ago, have you spent more than planned, less than planned, or the same as planned on IT products/services thus far in 1Q?

1Q 2006 IT Spending. Respondents were also asked if their corporate IT spending is on track thus far in the 1st Quarter. A total of 14% say they have spent “More than Planned” to date, down 4-points from the previous survey. Counterbalancing that, 18% say they have spent “Less than Planned,” – also 4-points lower than previously.

(2) Question Asked: For which of the following main IT Spending categories - if any - have you spent more than planned thus far in the 1st Quarter? (Check All That Apply)

Current
Survey Feb’06 / PreviousSurvey Nov’05 / Previous Survey Aug ‘05 / Previous Survey May ‘05
Security / 11% / 13% / 15% / 14%
Software: Application Development / 10% / 10% / 9% / 8%
PCs / 9% / 8% / 11% / 12%
Servers / 8% / 9% / 11% / 8%
Software: Enterprise Applications / 8% / 8% / 9% / 7%
Networking / 7% / 8% / 9% / 8%
Outsourced Services / 6% / 8% / 9% / 5%
Storage / 6% / 7% / 8% / 7%
Communications / 4% / 4% / 4% / 5%
Software: Platforms / 4% / 4% / 5% / 5%
Don't Know / 20% / 19% / 17% / 19%
Other / 3% / 4% / 2% / 2%

(3) Question Asked: And for which of the following main IT Spending categories – if any – have you spent less than planned thus far in the 1st Quarter? (Check All That Apply)

Current
Survey Feb’06 / Previous Survey Nov ’05 / Previous Survey Aug ‘05 / Previous Survey May ‘05
PCs / 12% / 15% / 12% / 15%
Outsourced Services / 8% / 9% / 9% / 10%
Software: Application Development / 7% / 8% / 7% / 6%
Software: Enterprise Applications / 6% / 8% / 5% / 7%
Storage / 6% / 7% / 6% / 5%
Networking / 5% / 6% / 5% / 7%
Security / 5% / 4% / 4% / 5%
Servers / 5% / 7% / 8% / 8%
Communications / 4% / 5% / 4% / 3%
Software: Platforms / 4% / 5% / 5% / 6%
Don’t Know / 25% / 23% / 22% / 23%
Other / 2% / 2% / 1% / 1%

Net Difference Score – Current Survey (February 2006)

Overall IT Spending Categories / Spent
More Than Planned in 1Q / Spent Less Than Planned in 1Q / Net Difference Score
Security / 11% / 5% / +6
Software: Application Development / 10% / 7% / +3
Servers / 8% / 5% / +3
Software: Enterprise Applications / 8% / 6% / +2
Networking / 7% / 5% / +2
Storage / 6% / 6% / 0
Communications / 4% / 4% / 0
Software: Platforms / 4% / 4% / 0
Outsourced Services / 6% / 8% / -2
PCs / 9% / 12% / -3

Change in Net Difference Score – Current Survey (February 2006) vs. Previous Survey (November 2005)

Overall IT Spending Categories / Current
Survey
Net Difference Score
(Feb ’06) / Previous
Survey
Net Difference Score
(Nov ’05) / Change
in Net
Difference
Score
Networking / +2 / -2 / +4
PCs / -3 / -7 / +4
Software: Enterprise Applications / +2 / 0 / +2
Software: Application Development / +3 / +2 / +1
Servers / +3 / +2 / +1
Communications / 0 / -1 / +1
Software: Platforms / 0 / -1 / +1
Storage / 0 / 0 / 0
Outsourced Services / -2 / -1 / -1
Security / +6 / +9 / -3

PCs and Networking Looking Up.Alliance memberssay their companieshave spentmore than planned on Networking (Change in Net Difference Score = +4) and PCs (+4)thus far in the 1st Quarter.

Security Spending Slows.On the down side, members report spending less than planned on Security (-3) thus far in the 1st quarter.

II. Corporate PCs and Servers

(A) PCs

(1) Question Asked: (FOR THOSE COMPANIES BUYING COMPUTERS IN 2nd QUARTER 2006) Who is the manufacturer and what computer type(s) is your company planning on buying? (Check All That Apply)

Desktops

Current
SurveyFeb’06 / Previous Survey Nov ’05 / Previous Survey Aug ‘05 / Previous Survey May ‘05
Dell - Desktop Computer / 41% / 42% / 45% / 39%
Hewlett-Packard (including Compaq) - Desktop Computer / 16% / 15% / 14% / 12%
Lenovo (formerly IBM) - Desktop Computer / 6% / 5% / N/A / N/A
Apple - Desktop Computer / 4% / 3% / 3% / 2%
Gateway/eMachines - Desktop Computer / 2% / 1% / N/A / N/A
Sony - Desktop Computer / 0% / 1% / 1% / 0%
Other - Desktop Computer / 3% / 5% / 8% / 8%
Don't Know / 5% / 8% / 6% / 9%
Not Buying Desktops in 2nd Quarter / 18% / 17% / 18% / 16%

Laptops

Current
Survey Feb’06 / Previous Survey Nov’05 / Previous Survey Aug ‘05 / Previous Survey May ‘05
Dell - Laptop Computer / 39% / 37% / 40% / 37%
Hewlett-Packard (including Compaq) - Desktop Computer / 13% / 13% / 10% / 10%
Lenovo (formerly IBM)- Laptop Computer / 11% / 10% / 10% / 13%
Toshiba - Laptop Computer / 6% / 6% / 6% / 5%
Apple - Laptop Computer / 4% / 4% / 4% / 2%
Sony - Laptop Computer / 2% / 3% / 3% / 3%
Gateway/eMachines - Laptop Computer / 2% / 1% / N/A / N/A
Other - Laptop Computer / 2% / 3% / 4% / 2%
Don't Know / 6% / 7% / 6% / 8%
Not Buying Laptops in 2nd Quarter / 16% / 16% / 18% / 12%

Corporate PC Purchases. Plans for2nd Quarter corporate PC purchases are little changed since our November 2005 survey -- Dell remains the clear leader (41% share in desktops; 39% share in laptops) with HP second (16% desktops; 13% laptops). Lenovo remains third, having gained 1-point for both desktops and laptops since our previous survey.

(2A) Question Asked: (FOR COMPANIES PURCHASING APPLE COMPUTERS IN 2ND QUARTER) Has your company purchased any Apple computers in the past, or are you purchasing Apple computers for the first time?

(n=45)

Current
Survey Feb’06 / Previous Survey Nov’05 / Previous Survey Aug ‘05 / Previous Survey May ‘05
We have purchased Apple computers in the past / NA / NA / 78% / 87%
We have purchased Apple computers within the past 10 years / 78% / 79% / NA / NA
We have purchased Apple computers, but more than 10 years ago / 4% / 5% / NA / NA
We are purchasing Apple computers for the first time / 18% / 16% / 22% / 13%

Apple Computer Purchasers.Among the relatively small group of companies buying Apple computers in the 2nd Quarter, 18% say they are purchasing Apple for the first time, up 2-pointts from our November 2005 survey.

(3) Question Asked: How satisfied is your company with the following PC manufacturers? (Please rate only those that your company has previously purchased products from or had experiences with.)

Current Survey – February 2006

Very
Satisfied / Somewhat
Satisfied / Somewhat
Unsatisfied / Very
Unsatisfied
Apple / 48% / 39% / 6% / 7%
Dell / 44% / 42% / 9% / 5%
Toshiba / 33% / 43% / 17% / 7%
Lenovo (formerly IBM) / 33% / 48% / 11% / 7%
Hewlett-Packard / 27% / 53% / 14% / 6%
Sony / 25% / 44% / 18% / 13%
Gateway/eMachines / 16% / 40% / 25% / 19%

Previous Survey – November 2005

Very
Satisfied / Somewhat
Satisfied / Somewhat
Unsatisfied / Very
Unsatisfied
Apple / 52% / 37% / 7% / 5%
Dell / 46% / 42% / 8% / 4%
Hewlett-Packard / 26% / 56% / 14% / 4%
Lenovo (formerly IBM) / 33% / 48% / 14% / 5%
Sony / 33% / 38% / 20% / 9%
Gateway/eMachines / 15% / 39% / 22% / 25%

Apple and Dell Lead in PC Satisfaction. Apple (87% Very/Somewhat Satisfied) still leads in terms of satisfaction ratings among the PC manufacturers in this survey, down 2-points from previously. Dell (86%)also garnered a high satisfaction rating, although it’s 2-points lower than previously.

(B) Servers

This next question is on corporate server purchasing.

(4B) Question Asked: (FOR THOSE COMPANIES PURCHASING SERVERS IN 2ND QUARTER 2006) From which of the following vendors is your company purchasing servers from in 2nd Quarter 2006?(Check All That Apply)

Current
Survey Feb’06 / Previous Survey Nov’05
Dell / 25% / 20%
Hewlett-Packard / 16% / 14%
IBM / 11% / 10%
Sun Microsystems / 8% / 8%
Generic White Box / 3% / 2%
Gateway / 0% / 0%
Not Buying Servers in 2nd Quarter 2006 / 20% / 19%
Don’t Know / 14% / 17%
Other / 1% / 1%

Dell Gains in Corporate Server Purchases. Dell (25%) also leads the pack in terms of planned server purchases – up 5-points since November. HP (16%) is in second place, up 2-points.

(C) Vista Operating System

(10) Question Asked: Microsoft's new Vista Operating system is scheduled to be released by the end of 2006. Within your own company, are any planned PC or server purchases being deferred to wait for Vista's release?

Current
Survey Feb ’06 / Previous Survey May’05*
Yes, we are currently deferring most of our planned PC/Server purchases to wait for Vista / 2% / 2%
Yes, we are currently deferring some of our planned PC/Server purchases to wait for Vista / 5% / 3%
No, we are not currently deferring any PC/Server purchases to wait for Vista / 71% / 71%
No, we are currently accelerating PC/Server purchases / 2% / 2%
Don't Know / 16% / 19%
Other / 1% / 1%

*Note: In the previous May 2005 survey the question asked about “Microsoft's new Longhorn Operating system.” The name of the new operating system was changed to ‘Vista’ in July 2005.

Impact of Impending Vista Release. A total of 7% of respondents say they are currently deferring PC/Server purchases in anticipation of the Microsoft Vista release –up only 2-points from when we last asked this question back in May 2005. Note that 71% still say they aren’t deferring any PC/Server purchases to wait for Vista.

(10A) Question Asked: In the future, as we approach the end of 2006 release date, do you believe your company will defer any planned PC or server purchases to wait for Vista's release?

Current
Survey Feb ’06 / Previous Survey May’05*
Yes, we will defer most of our planned PC/Server purchases to wait for Vista / 4% / 3%
Yes, we will defer some of our planned PC/Server purchases to wait for Vista / 9% / 9%
No, we will not defer any PC/Server purchases to wait for Vista / 63% / 60%
No, we will accelerate PC/Server purchases / 1% / 1%
Don't Know / 22% / 24%
Other / 1% / 1%

*Note: In the previous May 2005 survey the question askedabout “Microsoft's new Longhorn Operating system.” The name of the new operating system was changed to ‘Vista’ in July 2005.

What Will Happen as Release Date Draws Near? As the Vista release (scheduled for the end of 2006) draws closer, 4% say they’ll defer most of their planned PC/Server purchases and 9% say some of their planned purchases. We note that these results are virtually unchanged from last May. Moreover,63% say their company will not defer any PC/Server purchases – up 3 points since May 2005.

(10B) Question Asked: When do you believe your company will begin deferring planned PC or server purchases to wait for Vista release?

Current
Survey
Feb ’06 / Previous
Survey
May’05*
We have already begun deferring planned PC or server purchases to wait for Vista / 4% / NA
3Q 2005 / NA / 1%
4Q 2005 / NA / 2%
1Q 2006 / NA / 3%
2Q 2006 / 2% / 5%
3Q 2006 / 4% / 4%
4Q 2006 or Later / 11% / 6%
We will not be deferring any planned PC or server purchases to wait for Vista / 53% / 43%
Don't Know / No Answer / 26% / 37%

*Note: In the previous May 2005 survey the question asked about “Microsoft's new Longhorn Operating system.” The name of the new operating system was changed to ‘Vista’ in July 2005.

When Will Planned PC Deferments Begin? A total of 4% say their company has already begun deferring planned PC or server purchases and6% believe their company will begin deferments by 3Q 2006. Another 11% think deferments will begin in 4Q 2006 or later.

(10C) Question Asked: Is your company testing or planning to test a beta version of Vista?

Current
Survey
Feb ’06 / Previous
Survey
May’05*
Yes, Currently Testing / 5% / NA
Yes, Planning to Test / 14% / 17%
No / 59% / 54%
Don't Know / No Answer / 22% / 29%

*Note: In the previous survey the question asked about “Microsoft's new Longhorn Operating system.” The name of the new operating system was changed to ‘Vista’ in July 2005.

Vista Beta Testing Plans. Five percent (5%) of respondents say their company is currently testing a beta version of Vista. Another 14% say they plan to testVista.

III. Corporate Smart Phones and "Hybrid" PDAs

(A) Current Ownership

(1) Question Asked: Does your company currently provide employees with Smart Phones or "Hybrid" PDAs?

Current
Survey Feb’06 / Previous Survey Nov’05 / Previous Survey Aug ‘05
Yes – Smart Phone / 24.8% / 21.7% / 19.6%
Yes – “Hybrid” PDAs / 11.6% / 10.0% / 9.5%

Company Smart Phones / “Hybrid” PDAs. One-in-four respondents (24.8%)say their company provides employees with Smart Phones, up 3-pts fromNovember 2005. Another 11.6% says their company provides “Hybrid” PDAs, up from 10% previously.

(1A) Question Asked: Who is the manufacturer of the current “Hybrid" PDAs or Smart Phones your company provides?

Smart Phones(n=240)

Current
Survey Feb’06 / Previous
Survey
Nov’05 / Previous Survey Aug ‘05
Research In Motion (RIM/Blackberry) / 57% / 63% / 58%
Palm (Treo) / 25% / 17% / 19%
Motorola (MPx) / 5% / 5% / 4%
Nokia (6600) / 3% / 4% / 2%
Samsung (SPH) / 2% / 2% / 4%
T-Mobile (Sidekick) / 2% / 1% / 2%
Audiovox (XV) / 1% / 2% / 1%
Kyocera (7135) / 0% / 1% / 1%
Sierra Wireless (Voq) / 0% / 1% / 1%
Other Smart Phones / 4% / 5% / 5%
Don't Know / 2% / 1% / 4%

Smart Phones – Palm Has the Momentum.While RIM (57%) still holds the dominant share of the corporate smart phone market, it has lost 6-points since the previous survey in November. At the same time, Palm (25%) shows tremendous momentum – havinggained 8-points since November.

“Hybrid” PDA's (Without Cell Phone)(n=112)

Current
Survey Feb’06 / Previous
Survey
Nov’05 / Previous Survey Aug ‘05
Research In Motion (RIM/Blackberry) / 59% / 51% / 55%
Palm (Zire/Tungsten/LifeDrive)* / 16% / 18% / 22%
HP (iPaq) / 14% / 20% / 7%
Dell (Axim) / 7% / 4% / 12%
Panasonic (Toughbook) / 1% / 1% / 0%
NEC (MobilePro) / 0% / 0% / 0%
Sharp (Zaurus) / 0% / 0% / 0%
Garmin (iQue) / 0% / 0% / 0%
Symbol (MC50) / 0% / 1% / 0%
Other "Hybrid" PDA's / 1% / 4% / 1%
Don't Know / 2% / 1% / 2%

Corporate “Hybrid” PDAs. RIM (59%) has made gains among companies who provide “Hybrid” PDAs – up 8-points. Palm (16%) and HP (14%) battle for a distant second place.