ChangeWave Research: 3Q / 4Q 2006 Corporate Sales
ChangeWave Research Report:
3Q/4Q 2006 Corporate Sales Survey
Looks Like a Soft Landing – But With Some Very Jagged Edges
Overview:
The latest ChangeWave Research quarterly sales survey, conducted August 29-September 6, shows the 3rd Quarter experiencing slightly slower growth than the previous quarter – but with noticeable gains in Defense Contracting and the Energy Utilities sector.
On the down side, capital spending is the flattest in over 3 years and there has been an increase in 3rd Quarter cancelled orders. A total of 2,639 ChangeWave Alliance members participated in the survey.
Highlights:
3Q Performance: Nearly one-third of respondents (32%) are now projecting that their company sales will come in "Above Plan" for 3rd Quarter 2006 – 1-pt less than the previous quarter. Another 21% report their company sales will come in "Below Plan" – 1-pt more than previously.
The Last 17 Quarterly Sales Surveys: As the following chart shows, the overall growth rate this quarter is slightly down from that of the previous quarter (June 2006) – and is slower than the growth rate of a year ago.
Other Key Findings:
· 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. A total of 60% report that their existing customers have a “Green Light” to spend (i.e., “spending is normal”) – a significant 5-pt drop from the previous quarter and the lowest level in nearly two years.
· Price Pressures Calming: Alliance member companies typically tend to see downward price pressures on their products, because many are in the IT sectors and related markets. But in recent quarters we have witnessed an increase in price pressures. Not so this quarter. Only 17% report prices are rising for their company's products – down 2-pts from last quarter. At the same time, the percentage reporting falling prices has risen 1-pt. This easing in price pressures is a reversal of the inflationary pressures found in our last survey.
· What’s in the Pipeline for 4th Quarter 2006: There is slightly reduced visibility going forward. Sales pipeline projections for 4th Quarter 2006 show 34% of Alliance members saying their company will come in "Above Plan" – 2-pts less than the previous quarter. At the same time, 14% say they’ll come in “Below Plan,” 2-pts more than previously.
· Achilles Heel? A Downturn in Capital Spending Growth Rate: In the most negative finding of the survey, capital spending is the flattest in more than 3 years. Only 15% of respondents expect an “increase” in their overall capital budget for the 4th Quarter – 2-pts less than previously. Another 15% think they'll see a "decrease" – 5-pts worse than the previous quarter.
· 3rd Quarter Cancelled Orders: In another bearish sign, 9% report that their company is experiencing an increase in cancelled orders – 2-pts more than in the previous quarter and the highest percentage in 2 years.
· Sectors Results: The Defense Contractor and Energy Utilities sectors showed the biggest quarter over quarter improvements of all the sectors surveyed. On the downside, the biggest quarter over quarter declines occurred in Semiconductors, Financial & Investing Services, and Natural Gas & Oil. Next week we will send you a full report on the sector results.
Bottom Line: The survey results show the 3rd Quarter experiencing slightly slower growth than the previous quarter – but with gains in Defense Contracting and the Energy Utilities sector. There was also an easing in price pressures – reversing the inflationary pressures seen in our last survey.
On the down side, capital spending is the flattest in over 3 years and there has been an increase in 3rd Quarter cancelled orders. Moreover, there are signs of a tightening labor market. At the sector level, the biggest quarter over quarter declines occurred in Semiconductors, Financial & Investing Services, and Natural Gas & Oil.
Overall, the survey results point to a soft landing for the 3rd Quarter – but with some very jagged edges. Next week we’ll be sending you a full report on leading and lagging sectors.
The ChangeWave Alliance is a group of 8,500 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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www.ChangeWave.com
Table of Contents
Summary of Key Findings 4
· Chart One: 3Q 2006 Sales Results 4
· Chart Two: 2Q 2006 Sales vs. 3Q 2006 Sales 5
· Chart Three: Last 17 Surveys Comparison 5
What’s in the Pipeline 6
· Chart Four: 4Q 2006 Projected Sales Pipeline 6
· Chart Five: Overall Sales Pipeline Projections – A Comparison 7
Putting the Findings in Context 7
· Chart Six: 3Q 2006 “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 9
· Chart Nine: Price Pressures in the Current Marketplace 9
Capital Spending Growth Rate 10
· Chart Ten: Overall 4Q Capital Budgets 10
· Chart Eleven: Overall 4Q Capital Budgets – A Comparison 10
· Chart Eleven A: Capital Budgets – 2nd Half 2006 vs. 1st Half 2007 11
· Chart Eleven B: Capital Budgets – A Comparison 11
3rd Quarter Cancelled Orders 12
· Chart Twelve: 3Q 2006 Cancelled Orders 12
· Chart Thirteen: 3Q 2006 Cancelled Orders – A Comparison 12
Sectors With the Most Momentum 13
· Defense 13
· Energy Utilities 13
Survey Methodology 14
Additional Findings and Highlights 15
Company Sales for Final 2 Weeks of 2nd Quarter 15
· Chart Fourteen: Company Sales for Final 2 Weeks of 3rd Quarter 15
· Chart Fifteen: Company Sales – A Comparison 15
Hiring Trends in the 3rd Quarter 16
· Chart Sixteen: 3Q 2006 Hiring Trends – A Comparison 16
Layoff Trends in the 3rd Quarter 17
· Chart Seventeen: 3Q 2006 Layoff Trends – A Comparison 17
Customer Visibility into Next Quarter 18
· Chart Eighteen: Customer Visibility into Next Quarter 18
· Chart Nineteen: Customer Visibility – A Comparison 18
Product Inventories for the 3rd Quarter 19
· Chart Twenty: Product Inventories during the 3rd Quarter 19
· Chart Twenty-One: Product Inventories – A Comparison 19
Backlog of Orders for the 3rd Quarter 20
· Chart Twenty-Two: Backlog of Orders for the 3rd Quarter 20
· Chart Twenty-Three: Backlog of Orders – A Comparison 20
Effect of Energy Prices on Capital Spending Plans 21
· Chart Twenty-Four: Effect of Energy Costs on 1st Half 2007 Plans 21
· Chart Twenty-Five: Effect of Energy Costs – A Comparison 21
Effect of Geopolitical Tensions on Capital Spending Plans 22
· Chart Twenty-Six: Effect of Geopolitical Tensions on 1st Half 2007 22
ChangeWave Research Methodology 25
About ChangeWave Research 26
I. Summary of Key Findings
The latest ChangeWave Alliance quarterly sales survey, conducted August 29-September 6, shows the 3rd Quarter experiencing slightly slower growth than the previous quarter – but with noticeable gains in Defense Contracting and the Energy Utilities sector. A total of 2,639 Alliance members participated in the survey.
3Q Performance: Nearly one-third of respondents (32%) are now projecting that their company sales will come in "Above Plan" for 3rd Quarter 2006. Another 21% report their company sales will come in "Below Plan."
A Comparison: The 32% "Above Plan" finding for the 3rd Quarter is 1-pt lower than the previous quarter. Similarly, the 21% reporting their company sales will come in “Below Plan” for the quarter is 1-pt higher than in our previous quarterly survey.
The Last 17 Quarterly Sales Surveys: As the following chart shows, the overall growth rate this quarter is slightly less than that of the previous quarter (June 2006) – and is slower than the growth rate of one year ago.
What's in the Pipeline for 4th Quarter 2006?
There is slightly reduced visibility going forward. Sales pipeline projections for 4th Quarter 2006 show 34% of Alliance members saying their company will come in "Above Plan" – 2-pts less than the previous quarter. At the same time, 14% say they’ll come in “Below Plan,” 2-pts more than previously.
Putting the Findings in Context
The following chart reflects the relationship since March 2002 between our Alliance “Above Plan” Quarterly Survey results and the movement of the Nasdaq 100 Index (QQQQ).
Current Willingness of Customers to Buy Products
Green Light Spending: 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. A total of 60% report that their existing customers have a “Green Light” to spend (i.e., “spending is normal”) – a significant 5-pt drop from the previous quarter and the lowest level in nearly two years.
Another 34% 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 5-pt increase from the previous quarter.
Inflationary Pressures
Price Pressures Calming: Alliance member companies typically tend to see downward price pressures on their products, because many are in the IT sectors and related markets. But in recent quarters we have witnessed an increase in price pressures.
Not so this quarter. Only 17% report prices are rising for their company's products – down 2-pts from last quarter. At the same time, the percentage reporting falling prices has risen 1-pt. This easing in price pressures is a reversal of the inflationary pressures found in our previous survey.
Question Asked: “With regard to your own company, how are the prices for your products doing in the current marketplace?”
*Note that a total of 61% report their company’s prices are holding firm in the marketplace.
Capital Spending Growth Rate
Question Asked: “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) 2006 vs. the current quarter?”
The Achilles Heel? A Downturn in Capital Spending Growth Rate: In the most negative finding of the survey, capital spending is the flattest in more than 3 years. Only 15% of respondents expect an “increase” in their overall capital budget for 4th Quarter – 2-pts less than previously. Another 15% think they'll see a "decrease" – 5-pts worse than the previous quarter.
Looking ahead to the first half of 2007, the outlook appears somewhat improved – 27% think their Capital spending will be greater than the second half of 2006, up 1-pt over the previous survey. Only 17% think it will be less, 1-pt improved from previously.
3rd Quarter Cancelled Orders
In a bearish sign, 9% report that their company is experiencing an increase in cancelled orders – 2-pts more than in the previous quarter and the highest percentage in 2 years.
Sectors Showing Most Momentum
The Defense Contractors and Energy & Utilities sectors showed the biggest quarter over quarter improvements of all the sectors surveyed. The following charts show the most recent (3Q) Quarterly sales plan results for each, along with comparative data from previous surveys. Next week we’ll be providing you a full report on leading and lagging sectors.
A. Defense
B. Energy & Utilities
II. Survey Methodology
This report is based on a survey of ChangeWave Alliance members conducted online between August 29 – September 6, 2006. 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 2006. A total of 2,639 accredited Alliance members participated in the survey.
III. Additional Findings and Highlights
Company Sales For Final Two Weeks of 3rd Quarter
We asked members to characterize their company’s prospects with regards to meeting sales for the final two weeks of the 3rd Quarter – normally the make-or-break period for meeting a sales plan. A total of 18% said sales would be above expectations – 2-pts more than previously.
A total of 15% said sales would be below expectations during the final two weeks of the 3rd Quarter, also 1-pt more than previously.
Hiring Trends
We asked respondents about hiring trends in their company for the quarter.
Question Asked: We are two-thirds through 3rd Quarter 2006. How would you characterize the number of new hires (full or part-time payroll employees) in your company at this point in 3Q 2006 compared with the same point in the previous quarter (2Q 2006)?
Hiring Trends / CurrentQuarter
3Q 2006 / Previous
Quarter
2Q 2006 / Previous
Quarter
1Q 2006 / Previous
Quarter
4Q 2005 / Previous
Quarter
3Q 2005
More new hires at this point in
3Q 2006 compared to 2Q 2006 / 26% / 28% / 28% / 27% / 27%
Equal amount of new hires in
3Q 2006 compared to 2Q 2006 / 25% / 24% / 22% / 22% / 22%
Less new hires at this point in
3Q 2006 compared to 2Q 2006 / 15% / 14% / 13% / 14% / 13%
No new hires at this point in either 3Q 2006 or 2Q 2006 / 28% / 27% / 30% / 31% / 29%
Don’t Know / No Answer / 7% / 7% / 6% / 6% / 8%
One-in-four (26%) say there are more new hires in their company at this point in 3rd Quarter 2006 vs. 2nd Quarter 2006, a 2-pt decline from the previous survey. Another 15% say there are less new hires in their company at this point in 3rd Quarter vs. 2nd Quarter, up 1-pt from previously.