 Hello everyone and welcome to this week's Wikibon Cube Insights, powered by ETR. In this breaking analysis, we're going to share fresh data from ETR's latest spending survey. In particular, ETR added a drill down question on the impact of coronavirus. Now yesterday, I had the pleasure of hosting ETR's director of research, Sagar Kadakia, who took us through the details of that survey and we're going to bring his comments into this discussion. So today I want to accomplish three things. First, I want to summarize the macro. Where are we at this point on the second day of spring in Massachusetts? Second, I want to assess the impact from COVID-19 on IT spend for 2020. And the third thing I want to do is drill down into the findings from ETR's latest survey. After we do this, I'll summarize and talk about what the outlook looks like. So where are we today? We've gone from the fear of missing out in the stock market to basically fall out fear. Now, as you well know, the economic impact is not pretty. I got to say, this is the first time I've ever seen a government-imposed recession. And rightly so, to save lives. But I've also never seen such an as-cross-the-board double downward shift in both supply and demand. This creates uncertainty and ambiguity and pricing, which makes forecasting anything really, really difficult. The liquidity shock and the credit risks are really of primary concern right now. The price of oil is a huge issue. Why? It's because energy companies account for a very sizable portion of the high-yield credit market, over 10%. So as prices fall, it's going to be harder for oil companies to repay loans. This creates default risk. So this is the markets freaked out in functioning very, very poorly. Now, a poorly functioning market signals that we are not at the bottom. Everybody wants to know where the bottom is. I'm not a stock picker, and I'm not a market technician, but I've seen a lot of downturns. I'll share a quick story. When I was at IDC, we had an exclusive deal with Goldman Sachs. Two of the Goldman analysts were embedded into our Framingham offices. Now, in 1987, on Black Monday, in the following weeks, I would stand at their real-time terminal. There was no internet back then, kids. Nobody had access to real-time trades, but I did. And I would watch the market in free fall, and I would see it bounce back, and then I would see it free fall again. What I will tell you is this. Bottoms are impossible to predict. Everybody says that. Why? Because bottoms are not technical. They're psychological. They're emotional. And in 1987, and then after the dot-com bust, and after the financial crisis, each time you saw the S&P would rally, sometimes it would rally as high as 10%, it would suck people back into the market, and then pull back. And that's going to happen here. The market's not just going to be fine any day now. Now, if you're looking for some positives, there is some silver linings that the canals in Venice are running clear, which is amazing to see. Nitrous oxide levels over China are way, way down. Okay, let's shift and take a look at what this all means for IT spending. What are the industries that are being most affected right now? Now, as I show here, there are some obvious sectors, like energy and transportation, retail, et cetera. But let's listen to Sagar from ETR, what he told me yesterday. Now, pay particular attention to what he says about supply chains. Roll the clip. Yeah, industrials, materials, manufacturing, retail, consumer, the healthcare pharma, those are the verticals from a supply chain perspective that are indicating elevated levels of broken supply chains. And what's actually interesting is we, in this survey, we actually asked not only whether your supply chains were broken today, but do you anticipate or do you continue experiencing broken supply chains in three months from now? And those percentages were up. And I think that really tells us that this is not a one or two month type of recovery. We're gonna see supply chains and demand continuing to be broken, continuing to come down over the next three, four months. That I think is probably one of the biggest takeaways from the drill down study. So, you see in the ETR survey, it really underscores that we are not likely to see a quick snapback. It's not a one or a two month fix. Now, in my own research, I go out to the field, I talk to people on theCUBE, within our network, I can add some, excuse me, some comments and some color here. What we see is that healthcare right now is so swamped that they're not buying anything. I mean, they just don't have any cycles. Most customers are taking their skunk works, putting them on hold, they're narrowing the capital spend and really focusing only on mission critical items. Banks, even though the banks are down, they have capital and they're still buying. They got cash, banks, they're smart and they're negotiating very hard for big discounts. The other thing is a lot of customers have no choice but to buy. Many are on an ARR, annual recurring revenue or annual current contract and have compliance edicts like we got to send out monthly statements. If they don't renew, they can't use their software to do that. It's different but somewhat similar with maintenance contracts. So you're seeing that sales teams are clearly bringing down their forecasts, but they're not cutting them in half. Not yet anyway. All right, but here's what's somewhat counterintuitive and you really, you can really only quantify this with data. Some companies actually believe they're not, they're spending more. Why? Because they're trying to preserve productivity with their work from home solutions. They need infrastructure to do that. So they're pivoting their budget to work from home. They also have to secure that infrastructure. So that means that cyber, cybersecurity is seeing a little bit of momentum. Now let's take a look at the ETR data. This is from more than 1,000 CIOs and IT buyers. It's fresh data right from March. 40% of the survey said they see no current impact on their IT budget. That is surprisingly high. And look at all the green to the right hand side. You know, most are showing five to 10% increase, but more than 20% of the respondents are actually expecting to increase budget in 2020 for things like work from home infrastructure. Let's take a listen to Sagar Kadakia who explains this further. Roll the clip. Yeah, I think that's, I think the positive spend or the no change in spend, I think that is what a lot of the market right now is missing. And I haven't seen a lot of research on that because no one else has really been able to quantify how budgets are changing. And so as you noted, we're actually seeing people accelerate spend because of COVID-19. And the reason is, you know, they're trying to avoid a catastrophe in productivity. They are ramping up all this work from home infrastructure, right? Not just collaboration pools, virtualization infrastructure, increasing VPN networking bandwidth, mobile devices, laptops, security, desktop support, right? You're a Fortune 500 organization and you have 40, 50, 60,000 employees working from home all of a sudden, you have to be able to support those employees. And as a result, you're actually seeing a large number of organizations accelerating spend. And even the ones that are being hurt by the broken supply chains, the demand coming down, you're seeing some of their spendy acceleration being offset by spending a little bit more on kind of what we're calling this kind of work from home infrastructure. So Saga went on to explain that consensus expectations for global IT spend, they were roughly at 4% before coronavirus. And the pullback takes us now to flat of 0%. But what's not been reported is really the offset to the declines, particularly from the work from home infrastructure. Now obviously this could all change and it likely will, but this next chart really underscores that uncertainty and really the dynamic nature of the risk here. What this track charts is the daily impact of the expected retraction. So earlier this month in the ETR survey, you saw about a 2% retraction. And you can see by March 17th it's down to flat. So as we heard from Sagar, the ETR thesis is currently at 0% IT spend for growth in 2020 because of some of the offset. Now, if the news continues to worsen, the outlook is going to follow. I want to wrap up by summarizing and talking about what's next and what you can expect. So the current call, as I said, is for flat IT spend in 2020. It would be worse if not for the uptick in work from home and corollary security infrastructure. Now it's not just collaboration and video tools, it's virtualization solutions, it's VPNs, network upgrades, mobile devices, laptops, and the software to secure all this stuff and make it work. Now despite the work from home offset, we fully expect this picture to worsen over the next three months. You got to watch for the duration of the remote work at home mandates, the travel bans, the no meeting policies. There's little doubt that productivity is going to be hurt. As we discussed yesterday with Sagar, you can't just flick a switch and scale remote worker productivity. That's a real challenge. Now, having said that, the expectation from CIOs is that this spending decline is going to be temporary. What's unclear is the shape of the recovery. Is it going to be a V shaped or a slow slog? You can see the distant rim on the other side of the canyon. It's there. We just don't know how far away it is and we don't know how deep the canyon really is. Now there will be changes in our opinion that are going to be permanent. As we said in our last breaking analysis, over the next several months, organizations, they're going to learn new things and that is going to shape their thinking in the future. I personally expect accelerated digital transformations and a sustained viability of the work from home options. You're going to see new capabilities from distant learning with all the college shutdowns. You're also going to see new risk mitigation paradigms. You know, the list goes on and on and on in terms of what we're going to see here. As I said earlier, there seem to be some environmental benefits. You know, if you're looking for some positives here, I think this next generation is much more in tune with that. And you have my word and my promise and our teams promise that the cube and ETR is going to be here to keep you up to date. ETR survey data keeps rolling in. You can check that out at ETR.plus. They are vigilant on this issue as are we from our remote studios. Look, this is the new normal. Our skeleton crews are in studio and we're keeping the content flowing as many folks on our team, they're working from home and they're on the grid. Currently, our Palo Alto studio is fully operational four days a week, each week and we're capturing remote guests on camera and Boston is open as well. So get in touch if you need anything. We are here to help and we're here to serve you. Okay, this is Dave Vellante for Wikibon's Cube Insights powered by ETR. Thanks for watching this breaking analysis. Remember, these episodes, they're available on podcasts wherever you listen, please connect with me. My email's david.vellante at siliconangle.com. Comment on my LinkedIn post. I always appreciate that from the community. Thanks for watching everybody. Wishing good health and safety for you and your families. We'll see you next time.