Changewave Research: Consumer Spending for Fall

ChangeWave Research: Consumer Spending for Fall

ChangeWave Research Report:

Consumer Spending for the Fall

Growth Rate Continues to Slow butNew Intel Mac is Hot Hot Hot

Overview

During the week of September 26 - October 2, we surveyed ChangeWave Alliance members on their consumer spending and shopping plans for the fall, including an updated look at PC and iPod sales. A total of 3,046 members participated.

Bottom Line:The consumer spending growth rate continues to slow. A total of 36% of respondents say they’ll spend more over the next 90 days compared to a year ago – down 2-pts from our August survey. Another 26% say they’ll spend less – 3-pts worse than previously. However, there is a monster ChangeQuake occurring in the Apple PC market – a huge and ever-growing pool of consumers interested in buying the new Intel Mac.

The Hardest Hit Group. The biggest declines are still occurring among respondent households earning Less than $50,000 per year. However, wealthier respondents – households earning more than $100,000 per year – also experienced a decline.

The Impact of Declining Energy Costs. While 17% say declining energy costs will have a positive impact on their overall spendingfor the next 90 days – only 1% say theirSpending Will Be Much Higher. Another 16% say it will beSomewhat Higher.

Household Repairs/Improvements. Spending on Household Repairs/Improvements remains the top category overall, with 42% saying they’ll spend more in the next 90 days and 18% less. This is 2–pts better than August, but still 6-pts below thehigh for the year reachedin March 2006.Moreover, in a match-up of US home repair/improvement giants, Home Depot (40%; up 3-pts) has slightly increased its lead over Lowes (27%; down 1-pt).

Seasonal Pickup in Consumer Electronics Spending. One-third (33%) of respondents say they’ll spend more on Consumer Electronics over the next 90 days and 28% less (Net Difference Score = +5) – a 15-pt increase since August. This is attributable to theexpected uptick in consumer spending that normally occursat the start ofthe holiday spending season.

(A)Consumer Shopping Preferences

• HDTV Leads All Other Home Entertainment Services. HDTV is registering another huge jump in the entertainment services market – with 23% of respondents saying they plan on adding it in the next 6 months – up 6-pts sinceJune.

• Shopping for Home Entertainment Computer/Networking. Best Buy (51%) is still the place respondents most prefer to shop for home entertainment and computer networking, but it’s fallen 3-pts since August. Similarly, number two CircuitCity has fallen 2-pts. For the first time all year, Amazon’s share (17%) has rebounded in the home entertainment market – up 3-pts. Apple (6%) is also showingmomentum – up 2-pts.

(B)PC Purchasing

• Apple: New Intel Mac Looks Hot Hot Hot. Apple has gained significantly in laptop purchases for the past 90 days –up 3-pts to a new all-time high of 12%. Since the initial rollout of the Intel Macs, Apple’s share has climbed steadily – from 4% in January 2006 to 12% currently. We do note that Apple’s share of desktop purchases over the past 90 days (7%) declined 4-pts.

Going forward, planned Apple purchases for the next 90 days show desktops (18%) up 4-pts and laptops (17%) down 2-pts. But the most astonishing finding is that 37% of respondents now say they’re more likely to buy an Apple PC because of the Intel chip. That’s double the 19% we found in June 2005 at the time of Steve Jobs’ initial Intel announcement.

The huge, ever-growing pool of consumers who report they’re more likely to buy a new Intel Mac looks like a monster ChangeQuake in the Consumer PC market.

• HP Improves. HP’s share of desktop purchases (26%) has jumped a whopping 6-pts since June 2006. Going forward, HP planned purchases for the next 90 days appear mixed, withlaptops (23%) up 5-pts anddesktops (22%) down 4-pts

• Dell Takes Another Big Hit. Dell’sshare of laptops purchased (33%) over the past 90 days fell 3-pts. Going forward, its share of planned desktops (40%) has plunged 6 pts to its lowest level in over a year, while planned laptop purchases (36%) are down 5-pts.

(C)iPods and Music Downloading

• iPod Ownership. Total iPod ownership is up very slightly since June 2006 – led by an increase in iPods with Video Capability (6%) – up 2-pts.Looking ahead 90 days, 8% say they plan on purchasing an iPod product, up 2-pts.

• Music Downloading and Demand for iTunes.One-in-ten (10%) say they’re downloading More Music than six months ago, while 13% say Less Music.

iTunes has made gains as the top music download service – 24% currently use it, up 4-pts since June 2006. Musicmatch (5%) remains a distant second, up 1-pt.

Summary of Key Findings

The ChangeWave Alliance is a group of 9,000 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...... 3

The Findings...... 5

(A) Overall Consumer Spending...... 5

(B) Consumer Shopping Preferences ...... 9

(C) PC Purchasing...... 13

(D) iPods and Music Downloading ...... 18

ChangeWave Research Methodology...... 22

About ChangeWave Research...... 23

I. The Findings

Introduction

During the week of September 26 - October 2, we surveyed ChangeWave Alliance members on their consumer spending and shopping plans for the fall, including an updated look at PC and iPod sales.

Total Respondents (n=3,046)

(A) Overall Consumer Spending

(1) Question Asked: What about compared to this time a year ago? Would you say your overall spending over the next 90 days will be more than last year, less than last year, or the same as last year?

Current
Survey
Sep ‘06 / Previous
Survey
Aug ‘06 / Previous
Survey
Jun ‘06 / Previous
Survey
Mar ‘06 / Previous Survey
Jan ‘06 / Previous Survey
Oct ‘05 / Previous Survey
Aug ‘05
More Spending Than Last Year / 36% / 38% / 42% / 44% / 35% / 27% / 44%
Less Spending Than Last Year / 26% / 23% / 25% / 22% / 21% / 28% / 19%
Spending Will Remain the Same as Last Year / 38% / 38% / 31% / 33% / 41% / 44% / 35%
Don't Know / 1% / 1% / 1% / 1% / 2% / 1% / 2%

Current Survey (September 2006) – Breakdown by Income Levels

Total / Less
Than
$50,000 / $50,001-$100,000 / $100,001-
$150,000 / Greater
Than
$150,000
More Spending Than Last Year / 36% / 23% / 37% / 34% / 37%
Less Spending Than Last Year / 26% / 33% / 24% / 28% / 24%
Spending Will Remain the Same as Last Year / 38% / 38% / 38% / 37% / 39%

Previous Survey (August 2006) – Breakdown by Income Levels

Total / Less
Than
$50,000 / $50,001-$100,000 / $100,001-
$150,000 / Greater
Than
$150,000
More Spending Than Last Year / 38% / 32% / 36% / 38% / 40%
Less Spending Than Last Year / 23% / 29% / 25% / 25% / 19%
Spending Will Remain the Same as Last Year / 38% / 37% / 38% / 37% / 39%

Slight Dip in Consumer Spending Growth Rate. A total of 36% of respondents say they’ll spend more over the next 90 days compared to a year ago – down 2-pts from our August survey. Another 26% say they’ll spend less – 3-pts worse than previously.

The biggest declines are still occurring among respondent households earning Less than $50,000 per year. However, wealthier respondents – households earning more than $100,000 per year – also experienced a decline.

(2A) Question Asked: Which of the following consumer items will you be spending more money on over the next 90 days than last year? (Check All That Apply)

Current
Survey
Sep ‘06 / Previous
Survey
Aug ‘06 / Previous
Survey
Jun ‘06 / Previous
Survey
Mar ‘06 / Previous Survey
Jan ‘06 / Previous Survey
Oct ‘05 / Previous Survey
Aug ‘05
Household Repairs/Improvements / 42% / 40% / 48% / 48% / 40% / 38% / 45%
Travel/Vacation / 34% / 35% / 44% / 39% / 31% / 33% / 34%
Consumer Electronics / 33% / 23% / 24% / 29% / 30% / 43% / 31%
Durable Goods for the Home / 21% / 18% / 20% / 23% / 22% / 25% / 24%
Restaurants/Everyday Entertainment / 18% / 16% / 17% / 18% / 16% / 22% / 16%
Children's Services (e.g. camp, education, lessons, other activities) / 13% / 18% / 15% / 14% / 11% / 10% / 18%
Automobile Purchase / 9% / 9% / 9% / 10% / 9% / 7% / 10%
Other Services (e.g. adult education, health and fitness activities) / 8% / 10% / 9% / 10% / 9% / 7% / 10%

(2) Question Asked: And which of the following consumer items will you be spending less money on over the next 90 days than last year? (Check All That Apply)

Current
Survey
Sep ‘06 / Previous
Survey
Aug ‘06 / Previous
Survey
Jun ‘06 / Previous
Survey
Mar ‘06 / Previous Survey
Jan ‘06 / Previous Survey
Oct ‘05 / Previous Survey
Aug ‘05
Consumer Electronics / 28% / 33% / 34% / 31% / 26% / 29% / 30%
Automobile Purchase / 27% / 24% / 29% / 28% / 25% / 28% / 28%
Travel/Vacation / 27% / 27% / 23% / 22% / 24% / 30% / 28%
Durable Goods for the Home / 26% / 25% / 24% / 25% / 25% / 25% / 26%
Restaurants/Everyday Entertainment / 26% / 28% / 25% / 23% / 25% / 28% / 28%
Household Repairs/Improvements / 18% / 18% / 17% / 15% / 17% / 18% / 15%
Other Services (e.g. adult education, health and fitness activities) / 11% / 11% / 11% / 11% / 10% / 12% / 11%
Children's Services (e.g. camp, education, lessons, other activities) / 9% / 9% / 10% / 10% / 9% / 13% / 9%

Net Difference Score – Current Survey (September 2006)

Spending
More Next
90 Days / Spending
Less Next
90 Days / Net
Difference
Score
Household Repairs/Improvements / 42% / 18% / +24
Travel/Vacation / 34% / 27% / +7
Consumer Electronics / 33% / 28% / +5
Children's Services (e.g. camp, education, lessons, other activities) / 13% / 9% / +4
Other Services (e.g. adult education, health and fitness activities) / 8% / 11% / -3
Durable Goods for the Home / 21% / 26% / -5
Restaurants/Everyday Entertainment / 18% / 26% / -8
Automobile Purchase / 9% / 27% / -18

Change in Net Difference Score – Current Consumer Spending Survey (September 2006) vs. Previous Consumer Spending Survey (August 2006)

Net
Difference
Score
Current
Survey
(Sep ‘06) / Net
Difference
Score
Previous
Survey
(Aug ‘06) / Change in
Net
Difference
Score
Consumer Electronics / +5 / -10 / +15
Restaurants/Everyday Entertainment / -8 / -12 / +4
Household Repairs/Improvements / +24 / +22 / +2
Durable Goods for the Home / -5 / -7 / +2
Travel/Vacation / +7 / +8 / -1
Other Services (e.g. adult education, health and fitness activities) / -3 / -1 / -2
Automobile Purchase / -18 / -15 / -3
Children's Services (e.g. camp, education, lessons, other activities) / +4 / +9 / -5

Household Repairs/Improvements. Spending on Household Repairs/Improvements remains the top category overall, with 42% saying they’ll spend more in the next 90 days and 18% less. This is 2-pts better than August, but still 6-pts below the high for the year reached in March 2006.

Seasonal Pickup in Consumer Electronics Spending. One-third (33%) of respondents say they’ll spend more on Consumer Electronics over the next 90 days and 28% less (Net Difference Score = +5) – a 15-pt increase since August. This is attributable to the expected uptick in consumer spending that normally occurs at the start of the holiday spending season.

Auto and Restaurant Spending. Auto Spending (-18) remains the weakest category, down 3-pts from August. Importantly, while Restaurant Spending (-8) still looks relatively weak, we note that it has improved 4-pts since the August survey.

(3) Question Asked: Let's focus on two of the biggest U.S. home improvement retailers – Home Depot and Lowes. Which of these two stores – if any – do you and your family most prefer to shop at for your household repair/improvement items?

Current
Survey
Sep ‘06 / Previous
Survey
Jun ‘06
Prefer Home Depot / 40% / 37%
Prefer Lowes / 27% / 28%
No Preference / 23% / 24%
Do Not Shop at Either Store / 8% / 8%
Don't Know / 2% / 2%

Home Depot Gains in Head-to-Head Match With Lowes. Ina match-up of US home repair/improvement giants, Home Depot (40%; up 3-pts) has slightly increased its lead over Lowes (27%; down 1-pt).

(4) Question Asked: What effect – if any – is the recent decrease in energy costs having on your spending plans for the next 90 days?

Significant Effect - My Spending Will Be Much Higher Because of Decreased Energy Costs / 1%
Modest Effect - My Spending Will Be Somewhat Higher Because of Decreased Energy Costs / 16%
No Effect on My Spending Plans / 82%
Don't Know /No Answer / 2%

Current Survey (September 2006) – Breakdown by Income Levels

Total / Less
Than
$50,000 / $50,001-$100,000 / $100,001-
$150,000 / Greater
Than
$150,000
Significant Effect / 1% / 2% / 1% / 1% / 0%
Modest Effect / 16% / 15% / 21% / 15% / 12%
No Effect / 82% / 78% / 76% / 83% / 86%

The Impact of Declining Energy Costs. While 17% say declining energy costs will have a positive impact on their overall spending for the next 90 days – only 1% say their Spending Will Be Much Higher. Another 16% say it will be Somewhat Higher.

(B) Consumer Shopping Preferences

(5) Question Asked: Currently, when my family and I shop for home entertainment and computer/ networking products, we prefer to buy them at: (Check All That Apply)

Current
Survey
Sep ‘06 / Previous
Survey
Aug ‘06 / Previous
Survey
Jun ‘06 / Previous
Survey
Mar ‘06 / Previous Survey
Jan ‘06 / Previous Survey
Oct ‘05
Big Box Specialty Stores (e.g., Staples, Best Buy, Office Max) / 58% / 64% / 63% / 61% / 62% / 65%
Online / 39% / 47% / 44% / 46% / 44% / 40%
Discount Store (e.g., Sam's Club, Target, BJ's Wholesale Club) / 30% / 37% / 38% / 34% / 33% / 35%
Local Specialty Store / 11% / 10% / 12% / 12% / 10% / 10%
Specialty Stores (e.g., Sharper Image, Brookstone, Tweeters) / 3% / 5% / 6% / 5% / 6% / 7%
None of the Above / 2% / 1% / 1% / 1% / 2% / 1%
Other / 4% / 4% / 4% / 4% / 3% / 3%

Home Entertainment and Computer/Networking Shopping.Big Box Specialty Stores (58%) are still the favorite place to shop for home entertainment and computer/networking products, but that’s down 6-pts from August. Discount Store (30%) andOnline shopping (39%) alsoregistered declines.

(5A) Question Asked: Which of the following stores do you and your family most prefer to shop at for home entertainment and computer/networking products? (Choose No More Than Three)

Current
Survey
Sep ‘06 / Previous
Survey
Aug ‘06 / Previous
Survey
Jun ‘06 / Previous
Survey
Mar ‘06 / Previous Survey
Jan ‘06 / Previous Survey
Oct ‘05 / Previous Survey
Aug ‘05
Best Buy / 51% / 54% / 55% / 53% / 54% / 48% / 46%
CircuitCity / 22% / 24% / 25% / 23% / 21% / 16% / 14%
Costco / 20% / 24% / 22% / 21% / 19% / 16% / 14%
Amazon / 17% / 14% / 16% / 18% / 20% / 14% / 14%
Dell Online / 17% / 16% / 15% / 17% / 13% / 9% / 13%
Fry's Electronics / 13% / 14% / 14% / 13% / 13% / 11% / 12%
CompUSA / 12% / 12% / 13% / 12% / 10% / 8% / 9%
Wal-Mart / 11% / 11% / 11% / 11% / 9% / 9% / 7%
eBay / 10% / 10% / 11% / 10% / 11% / 8% / 8%
Staples / 9% / 8% / 9% / 7% / 8% / 4% / 6%
Office Depot / 9% / 9% / 8% / 7% / 4% / 4% / 5%
Sam's Club / 9% / 10% / 9% / 9% / 8% / 6% / 5%
Apple / 6% / 4% / 5% / 4% / 4% / NA / NA
Newegg / 6% / 6% / 5% / 5% / 5% / NA / NA
Buy.com / 5% / 7% / 6% / 6% / 6% / 5% / 4%
Target / 5% / 5% / 4% / 4% / 3% / 4% / 3%
TigerDirect / 4% / 6% / 6% / 5% / 5% / NA / NA
Radio Shack / 3% / 2% / 2% / 3% / 2% / 2% / 2%
CDW / 2% / 1% / 1% / 2% / 1% / 1% / 1%
Overstock.com / 2% / 2% / 2% / 2% / 2% / 2% / 2%
BJ's Wholesale Club / 2% / 3% / 3% / 3% / 2% / NA / NA
Tweeter / 1% / 1% / 2% / 1% / 1% / 1% / 1%
Ultimate Electronics / 0% / 1% / 1% / 1% / 1% / 1% / 1%
Other / 7% / 9% / 10% / 9% / 7% / 9% / 10%

Shopping for Home Entertainment Computer/Networking. Best Buy (51%) is still the place respondents most prefer to shop for home entertainment and computer networking, but it’s fallen 3-pts since August. Similarly, number two CircuitCity has fallen 2-pts. For the first time all year, Amazon’s share (17%) has rebounded in the home entertainment market – up 3-pts. Apple (6%) is also showing momentum – up 2-pts.

(5B) Question Asked: Looking ahead to the next 90 days, which of the following stores do you think you and your family will shop at for home entertainment and computer/ networking products? (Choose No More Than Three)

Current
Survey
Sep ‘06 / Previous
Survey
Aug ‘06 / Previous
Survey
Jun ‘06
Best Buy / 41% / 42% / 44%
Costco / 18% / 19% / 21%
CircuitCity / 17% / 17% / 17%
Amazon / 15% / 13% / 15%
Fry's Electronics / 11% / 11% / 11%
Wal-Mart / 10% / 10% / 10%
Sam's Club / 9% / 8% / 8%
CompUSA / 8% / 8% / 10%
Dell Online / 8% / 8% / 10%
eBay / 8% / 9% / 10%
Office Depot / 7% / 6% / 6%
Staples / 6% / 7% / 7%
Apple / 5% / 5% / 5%
Target / 4% / 3% / 5%
Newegg / 4% / 4% / 4%
Buy.com / 4% / 5% / 5%
TigerDirect / 4% / 5% / 5%
BJ's Wholesale Club / 2% / 2% / 2%
Overstock.com / 2% / 2% / 1%
Radio Shack / 2% / 2% / 1%
CDW / 1% / 1% / 1%
Tweeter / 0% / 0% / 0%
Ultimate Electronics / 0% / 0% / 0%
Other / 8% / 9% / 7%

Shopping Next 90 Days. Looking at where they’ll be shopping over the next 90 days, once again Amazon (15%) shows the biggest gains – up 2-pts since August.

(5C) Question Asked: Let's focus on two of the biggest U.S. electronics retailers – Best Buy and CircuitCity. Which of these two stores – if any – do you and your family most prefer to shop at for your electronics items?

Current
Survey
Sep ‘06 / Previous
Survey
Aug ‘06 / Previous
Survey
Jun ‘06
Prefer Best Buy / 54% / 53% / 55%
Prefer CircuitCity / 13% / 16% / 13%
No Preference / 17% / 17% / 18%
Do Not Shop at Either Store / 13% / 12% / 10%
Don't Know /No Answer / 2% / 3% / 3%

Best Buy vs. CircuitCity. In a one-on-one match-up for favorite electronics retailer, Best Buy (54%) has gained 1-pt since August, while CircuitCity (13%) is down 3-pts.

(6) Question Asked: Focusing specifically on personal gadgets and home entertainment, which of the following services do you plan on adding over the next six months? (Check All That Apply)

Current
Survey
Sep ‘06 / Previous
Survey
Jun ‘06 / Previous
Survey
Jan ‘06 / Previous
Survey
Aug ‘05
HD Television / 23% / 17% / 11% / 12%
Satellite Television / 5% / 5% / 5% / 5%
Digital Cable Television / 5% / 5% / 5% / 6%
Pay-Per-View / 2% / 1% / 1% / 1%
Fiber Optic Television (e.g., FiOS-TV) / 1% / 1% / 1% / NA
Video-on-Demand / 1% / 1% / 1% / 2%
DSL Internet Service / 4% / 5% / 6% / 6%
Cable Internet Service / 3% / 3% / 4% / 6%
Fiber Optic Internet Service (e.g., FiOS) / 2% / 2% / 1% / NA
Satellite Internet Service / 1% / 1% / 1% / 1%
Satellite Radio Service (For Home, Car or a Portable Device) / 5% / 5% / 4% / 4%
Digital Video Recorder Service (DVR) Through Cable Provider / 5% / 4% / 3% / 3%
Digital Video Recorder Service (DVR) Through Satellite Provider / 3% / 3% / 2% / 2%
TiVo Digital Video Recorder Service** / 3% / 3% / 2% / 3%
Other TiVo-Like Digital Video Recorder Service / 3% / 3% / 1% / 3%
Music Download Service (e.g., iTunes, Rhapsody) / 6% / 6% / 9% / 5%
Photo Upload Service (e.g., Webshots, Snapfish) / 3% / 3% / 3% / 3%
Other / 10% / 8% / NA / NA

*Note: In the previous Aug ‘05 survey, the choice was “Satellite Radio Service (For Home or Car).”

**Note: In the previousAug ’05 survey the choice was “TiVo – Replay TV/Digital Video Recorder Service”.

HDTV Leads All Other Home Entertainment Services. HDTV (23%) is registering another huge jump in the entertainment services market – with 23% of respondents saying they plan on adding it in the next 6 months – up 6-pts sinceJune.

(C) PC Purchasing

These next few questions focus on desktops and laptops.

(7) Question Asked: Did you buy a computer within the last 90 days?

Current
Survey
Sep ‘06 / Previous
Survey
Jun ‘06 / Previous
Survey
Mar ‘06 / Previous
Survey
Jan ‘06 / Previous
Survey
Oct ‘05
Yes / 20% / 18% / 16% / 20% / 21%
No / 79% / 81% / 83% / 79% / 77%

PC Buying Up – Past 90 Days. One-in-five (20%) say they bought a computer within the last 90 days, 2-pts more than in our June 2006 survey.

(7A) Question Asked: Who is the manufacturer and what computer type did you buy? (Check All That Apply)

Desktops (n=265)

Current
Survey
Sep ‘06 / Previous
Survey
Jun ‘06 / Previous
Survey
Mar ‘06 / Previous
Survey
Jan ‘06 / Previous
Survey
Oct ‘05
Dell - Desktop Computer / 41% / 41% / 36% / 43% / 39%
Hewlett-Packard (including Compaq) - Desktop Computer / 26% / 20% / 23% / 23% / 24%
Apple - Desktop Computer / 7% / 11% / 8% / 4% / 5%
Gateway (including eMachines) - Desktop Computer / 6% / 8% / 7% / NA / NA
Sony - Desktop Computer / 2% / 2% / 2% / 2% / 4%
Lenovo (formerly IBM) - Desktop Computer / 1% / 2% / 1% / 4% / 2%
Other - Desktop Computer / 20% / 21% / 20% / 28% / 26%
Don't Know / 1% / 0% / 3% / 1% / 0%

Laptops (n=392)

Current
Survey
Sep ‘06 / Previous
Survey
Jun ‘06 / Previous
Survey
Mar ‘06 / Previous
Survey
Jan ‘06 / Previous
Survey
Oct ‘05
Dell - Laptop Computer / 33% / 36% / 41% / 44% / 42%
Hewlett-Packard (including Compaq) – Laptop Computer / 20% / 21% / 22% / 19% / 17%
Apple - Laptop Computer / 12% / 9% / 6% / 4% / 5%
Toshiba - Laptop Computer / 11% / 11% / 17% / 13% / 14%
Lenovo (formerly IBM) - Laptop Computer / 7% / 7% / 5% / 3% / 8%
Sony - Laptop Computer / 5% / 6% / 4% / 7% / 8%
Gateway (including eMachines) - Laptop Computer / 3% / 3% / 3% / NA / NA
Other - Laptop Computer / 11% / 10% / 6% / 13% / 9%
Don't Know / 0% / 0% / 0% / 0% / 0%

Past 90 Days:

HP. HP’s share of desktop purchases (26%) has jumped a whopping 6-pts since June 2006, whileits share of laptops (20%) has remained stable, down 1-pt.