Changewave Research: 4Q 2006/1Q 2007 Corporate Sales

ChangeWave Research: 4Q 2006/1Q 2007 Corporate Sales

ChangeWave Research Report:

4Q 2006 / 1Q 2007 Corporate Sales Survey

Latest Alliance Survey Shows a Modest Improvement in 4thQuarter Sales Coupled Witha Major Uptick in the Capital Spending Growth Rate

Overview:

The latest ChangeWave Alliance quarterly sales survey, conducted November 28-December6, shows a modest improvement in corporate sales for the 4th Quarter– led by noticeable gains in the Computer Hardware/Networking, Transportation/Aerospace and Telecom sectors. Other positivesinclude a major uptick in the capital spending growth rate and a further easing of inflationary pressures. A total of 2,786Alliance members participated in the survey.

Highlights:

4Q Performance: Just over a third of respondents (34%) now project that their company sales will come in "Above Plan" for 4th Quarter 2006 – 2-pts more than in the previous quarter. Another 21% report their company sales will come in "Below Plan"–unchangedfrom previously.

The Last 17 Quarterly Sales Surveys: As the following chart shows, the current increase in quarterly sales has come after 3 consecutive quarters of slower growth.

Other Key Findings:

Green Light on 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. In a highly positive sign, 65% report that their existing customers have a “Green Light” to spend (i.e., “spending is normal”) – a 5-pt improvement from previously.

Improvement in Capital Spending Growth Rate: For the first time in a year, respondents report an uptick in the capital spending growth rate. Currently 23% expect an “increase” in their overall capital budget for the 1st Quarter – 8-pts more than previously. Only 12% expect a "decrease" – down 3-pts from last quarter.

Easing of Inflationary Pressures: Alliance member companies typically tend to see downward price pressures on their products, because many are in the IT sectors and related markets. Importantly, the current survey shows an easing of inflationary pressures– with only 16% reporting prices are rising for their company's products – down 1-pt from last quarter. The percentage reporting falling prices remains unchanged at 15%.

A Potential Achilles Heel?Sales Pipeline Projections for 1st Quarter 2007:Sales pipeline projections for 1st Quarter 2007 show 33% of Alliance members saying their company will come in "Above Plan" – 1-pt less than previously. However, only11% say they’ll come in “Below Plan,” which is a3-pt improvement from previously.

Labor Market: Only 24% of respondents say there are “more” new hires in their company at this point in 4th Quarter 2006 vs. 3rd Quarter 2006, a 2-pt decline from the previous surveyand the lowest percentage recorded in more than two years. Another 16% say there are “less” new hires in their company– up 1-pt from previously.

Leading Sectors:The Computer Hardware/Networking, Transportation/Aerospace and Telecom sectors showed the biggest quarter over quarter improvements among all sectors surveyed. On the down side,the biggest declines occurred in Industrial Manufacturing and Natural GasOil.Next week we’ll provide you with a full report on leading and lagging sectors.

Bottom Line: The current survey results provide plenty of good news for the 4th quarter – including a modest improvement in sales growth, greater customer willingness to spend, and a major uptick in the capital spending growth rate.Moreover, the survey shows a continued easing of inflationary pressures.

Nonetheless, there are some warning signs for the coming quarter. Sales pipeline visibility remains relatively weak and the labor market also showsslight signs of weakening.

The ChangeWave Alliance is a group of 10,000 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.

Helping You Profit From A Rapidly Changing World ™

Table of Contents

Summary of Key Findings...... 4

Chart One: 4Q 2006 Sales Results...... 4
Chart Two: 3Q 2006 Sales vs. 4Q 2006 Sales...... 5
Chart Three: Last 17 Surveys Comparison...... 5

What’s in the Pipeline...... 6

Chart Four: 1Q 2007 Projected Sales Pipeline...... 6
Chart Five: Overall Sales Pipeline Projections – A Comparison...... 7

Putting the Findings in Context...... 7

Chart Six: 4Q 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

4th Quarter Cancelled Orders...... 12

Chart Twelve: 4Q 2006 Cancelled Orders...... 12
Chart Thirteen: 4Q 2006 Cancelled Orders – A Comparison...... 12

SectorsWith the Most Momentum...... 13

Computer Hardware/Networking ...... 13
Transportation/Aerospace...... 13
Telecom ...... 14

Survey Methodology...... 14

Additional Findings and Highlights...... 15

Company Sales for Final 2 Weeks of 4th Quarter...... 15

Chart Fourteen: Company Sales for Final 2 Weeks of 4th Quarter...... 15
Chart Fifteen: Company Sales – A Comparison...... 15

Hiring Trends in the 4th Quarter...... 16

Chart Sixteen: 4Q 2006 Hiring Trends – A Comparison...... 16

Layoff Trends in the 4th Quarter...... 17

Chart Seventeen: 4Q 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 4th Quarter...... 19

Chart Twenty: Product Inventories during the 4th Quarter...... 19
Chart Twenty-One: Product Inventories – A Comparison...... 19

Backlog of Orders for the 4th Quarter...... 20

Chart Twenty-Two: Backlog of Orders for the 4th Quarter...... 20
Chart Twenty-Three: Backlog of Orders – A Comparison...... 20

ChangeWave Research Methodology...... 22

About ChangeWave Research...... 23

I. Summary of Key Findings

The latest ChangeWave Alliance quarterly sales survey, conducted November 28-December6, shows a modest improvement in corporate sales for the 4th Quarter – led by noticeable gains in the Computer Hardware/Networking, Transportation/Aerospace and Telecom sectors. Other positives include an uptick in the capital spending growth rate and a further easing of inflationary pressures. A total of2,786ChangeWave Alliance members participated in the survey.

4Q Performance: Just over a third of respondents (34%) now project that their company sales will come in "Above Plan" for 4th Quarter 2006 – 2-pts more than in the previous quarter. Another 21% report their company sales will come in "Below Plan"–unchanged from previously.

A Comparison: The 34% "Above Plan" finding for the 4th Quarter represents a 2-ptimprovement over the previous quarter. And the 21% reporting their company sales will come in “Below Plan” for the quarter is unchanged frompreviously.

The Last 17 Quarterly Sales Surveys: As the following chart shows, the current increase in quarterly sales comes after 3 consecutive quarters of slower growth.

What's in the Pipeline for 1st Quarter 2007?

Sales Pipeline Projections for 1st Quarter 2007:Sales pipeline projections for 1st Quarter 2007 show 33% of Alliance members saying their company will come in "Above Plan" – 1-pt less than previously. However, only 11% say they’ll come in “Below Plan,” which is a 3-pt improvement from 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 on 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. In a highly positive sign, 65% report that their existing customers have a “Green Light” to spend (i.e., “spending is normal”) – a 5-pt improvement from previously.

Another28% 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). Thisrepresentsa 6-pt improvement from the previous quarter.

Inflationary Pressures

Easing of Inflationary Pressures: Alliance member companies typically tend to see downward price pressures on their products, because many are in the IT sectors and related markets.

Importantly, the current survey shows an easing of inflationary pressures– with only 16% reporting prices are rising for their company's products – down 1-pt from last quarter. The percentage reporting falling prices remains unchanged at 15%.

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

Improvement in Capital Spending Growth Rate: For the first time in a year, respondents report an uptick in the capital spending growth rate. Currently 23% expect an “increase” in their overall capital budget for the 1st Quarter – 8-pts more than previously. Only 12% expect a "decrease" – down 3-pts from last quarter.

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 1st Quarter (Jan-Mar) 2007 vs. the current quarter?”

Looking ahead to the first half of 2007, 30% think their Capital spending will be greater than the second half of 2006 – up 3-pts over the previous survey. Only 16% think it will be less, down 1-pt from previously.

4th Quarter Cancelled Orders

A total of9% report that their company is experiencing an increase in cancelled orders – unchanged since the previous quarter.

Only 5% reported their companies are experiencing a decrease in cancelled orders, up 1-ptfrom previously.

Sectors Showing Most Momentum

The Computer Hardware/Networking,Transportation/Aerospace, and Telecomsectors show the biggest quarter over quarter improvements of all the sectors surveyed. The following charts show the most recent (4Q) Quarterly sales plan results for each, along with comparative data from previous surveys. Next week we’ll provide a full report on leading and lagging sectors.

Computer Hardware and Networking

Transportation/Aerospace

Telecom

II. Survey Methodology

This report is based on a survey of ChangeWave Alliance members conducted online between November 28–December6, 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 4th Quarter of 2006. A total of2,786 accreditedAlliance members participated in the survey.

III. Additional Findings and Highlights

Company Sales For Final Two Weeks of 4th Quarter

We asked members to characterize their company’s prospects with regards to meeting sales for the final two weeks of the 4thQuarter – normally the make-or-break period for meeting a sales plan.A total of 18% said sales would be above expectations –unchanged frompreviously.

Fourteen percent(14%)said sales would be below expectations during the final two weeks of the 4th Quarter, down 1-pt from previously.

Hiring Trends

We then asked respondentsabout hiring trends in their company for the quarter.

Question Asked: We are two-thirds through 4th Quarter 2006. How would you characterize the number of new hires (full or part-time payroll employees) in your company at this point in 4Q 2006 compared with the same point in the previous quarter (3Q 2006)?

Hiring Trends / Current
Quarter
4Q 2006 / Previous
Quarter
3Q 2006 / Previous
Quarter
2Q 2006 / Previous
Quarter
1Q 2006 / Previous
Quarter
4Q 2005
More new hires at this point in
4Q 2006 compared to 3Q 2006 / 24% / 26% / 28% / 28% / 27%
Equal amount of new hires in
4Q 2006 compared to 3Q 2006 / 22% / 25% / 24% / 22% / 22%
Less new hires at this point in
4Q 2006 compared to 3Q 2006 / 16% / 15% / 14% / 13% / 14%
No new hires at this point in either 4Q 2006 or 3Q 2006 / 31% / 28% / 27% / 30% / 31%
Don’t Know / No Answer / 7% / 7% / 7% / 6% / 6%

Only 24% of respondents say there are More new hires in their company at this point in 4th Quarter 2006 vs. 3rd Quarter 2006, a 2-pt decline from the previous surveyand the lowest percentage recorded in more than two years. Another 16% say there are Less new hires in their company – up 1-pt from previously.

Layoff Trends

We also asked about layoff trends in their company for the quarter.

Question Asked: And, how would you characterize the number of layoffs of full or part-time payroll employees in your company at this point in 4Q 2006 compared with the same point in the previous quarter (3Q 2006)?

Layoff Trends / Current
Quarter
4Q 2006 / Previous
Quarter
3Q 2006 / Previous
Quarter
2Q 2006 / Previous
Quarter
1Q 2006 / Previous
Quarter
4Q 2005
More layoffs at this point in
4Q 2006 compared to 3Q 2006 / 9% / 9% / 8% / 9% / 8%
Equal amount of layoffs in
4Q 2006 compared to 3Q 2006 / 11% / 12% / 13% / 10% / 12%
Less layoffs at this point in
4Q 2006 compared to 3Q 2006 / 8% / 7% / 9% / 10% / 10%
No layoffs at this point in either 4Q 2006 or 3Q 2006 / 66% / 63% / 64% / 65% / 65%
Don’t Know / No Answer / 6% / 8% / 7% / 6% / 6%

A total of9% say there are More layoffs at this point in 4th Quarter 2006 vs. 3rd Quarter 2006, unchangedfrom the previous quarter. Another 8% say there are Less layoffs – 1-pt more than previously.

Customer Visibility into Next Quarter

Customer visibility trends strengthened, as can be seen in the charts below. Twenty-two percent (22%) of respondents report their customers see an uptick for 1st Quarter 2007 sales – 1-pt more than last quarter. Another 18% report their customers do not see an uptick for 1st Quarter sales – 1-pt less than three months ago.

Product Inventories for the 4th Quarter

Inventories Down: We asked respondents to describe their product inventories for the current quarter. The results show a decrease in inventories for the 4th Quarter, with 13% reporting their product inventories have decreased, and only 10% reporting they’ve increased.

Backlog of Orders for the 4th Quarter

Order Backlog: We also asked respondents if they have noticed any change in their backlog of orders for the current quarter. A total of 30% report an increase in their Order Backlog during the 4th Quarter, unchanged from last survey. Sixteen percent (16%) report a decrease in Order Backlogs, 2-ptsless than last survey. Another 54% report no change in their Order Backlog.

Members who reported an increase then estimated the actual number of days in their Order Backlog for the current 4th Quarter (Oct-Dec). Column One shows the results for the current quarter. (n = 230)

Order Backlog
# of Days / Column
One
Current
Quarter
4Q 2006 / Column
Two
Previous
Quarter
3Q 2006 / Column
Three
Previous
Quarter
2Q 2006 / Column
Four
Previous
Quarter
1Q 2006 / Column
Five
Previous
Quarter
4Q 2005
1-10 Days / 11% / 8% / 9% / 7% / 16%
11-20 Days / 17% / 17% / 17% / 11% / 11%
21-30 Days / 16% / 18% / 14% / 15% / 17%
31-60 Days / 19% / 18% / 16% / 21% / 18%
61-120 Days / 14% / 15% / 16% / 17% / 9%
More Than 120 Days / 17% / 17% / 20% / 20% / 19%
Don't Know / 6% / 8% / 8% / 11% / 9%

This information is from ChangeWave Research, LLC and contains confidential business information.

ChangeWave Research: 4Q 2006 / 1Q 2007 Corporate Sales

IV. ChangeWave Research Methodology

This report is based on a survey of ChangeWave Alliance members conducted online between November 28 – December6, 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 4th Quarter of 2006. Atotal of 2,786accredited Alliancemembers participated in the survey.

The Alliance’s proprietary research and business intelligence gathering system is based upon the systematic gathering of valuable business and investment information directly over the Internet from accredited members.

ChangeWave surveys its Alliance members on a range of business and investment research and intelligence topics, collects feedback from them electronically, interprets and reconciles the information in a cohesive manner and converts the information into valuable quantitative and qualitative reports.

The Alliance has assembled its membership team from senior technology and business executives in leading companies of select industries. Nearly 3 out of every 5 members (56%) have advanced degrees (e.g., Master’s or Ph.D.) and 93% have at least a four-year bachelor’s degree.

The business and investment intelligence provided by the Alliance provides a real-time view of companies, technologies and business trends in key market sectors, along with an in-depth perspective of the macro economy – well in advance of other available sources.

V. About ChangeWave Research

ChangeWave Research, a subsidiary of Phillips Investment Resources, LLC, identifies and quantifies "change" in industries and companies through surveying a network of thousands of business executives and professionals working in more than 20 industries.

ChangeWave has a very unique asset in its 10,000-member Alliance. We have assembled our membership team from a broad cross section of more than 20 vertical markets such as telecom, semiconductors, data storage, and biotechnology, along with a wide range of professional disciplines including CIOs, IT managers and programmers, executive management, scientists, engineers and sales personnel.

The ChangeWave Alliance is composed of senior technology and business executives in leading companies - credentialed professionals who spend their everyday lives working on the frontline of technological change.

This proprietary research and business intelligence gathering system provides a real-time view of companies, technologies and business trends in key market sectors along with an in-depth perspective of the macro economy - well in advance of other available sources. ChangeWave surveys its 10,000Alliance members on a wide range of investment research topics and converts the findings into valuable investment and business intelligence reports. ChangeWave delivers its products and services on the Web at

ChangeWave Research does not make any warranties, express or implied, as to results to be obtained from using the information in this report. Investors should obtain individual financial advice based on their own particular circumstances before making any investment decisions based upon information in this report.

For More Information:

ChangeWave ResearchTelephone: 301-279-4200

9420 Key West AvenueFax: 301-610-5206

Rockville, MD20850

Helping You Profit From A Rapidly Changing World ™

This information is from ChangeWave Research, LLC and contains confidential business information.