 From theCUBE Studios in Palo Alto in Boston, bringing you data-driven insights from theCUBE and ETR. This is Breaking Analysis with Dave Vellante. New data from ETR's soon-to-be-released April survey shows a clear deceleration in spending and a more cautious posture from technology buyers. Just this week, we saw sell-side downgrades in hardware companies like Dell and HP and revised the guidance from High Flyer UiPath, citing exposures to Russia, Europe and certain sales execution challenges. But these headlines, we think, are a canary in the coal mine. According to ETR analysis and channel checks in theCUBE, the real story is these issues are not isolated. Rather, we're seeing signs of caution from buyers across the board in enterprise tech. Hello and welcome to this week's Wikibon Cube Insights powered by ETR. In this Breaking Analysis, we are the bearers of bad news. Don't shoot the messenger. We'll share a first look at fresh data that suggests a tightening in tech spending, calling for 6% growth this year, which is below our January prediction of 8% for 2022. Now, unfortunately, the party may be coming to an end at least for a while. You know, it's really not surprising, right? We've had a two-year record run in tech spending in meteoric rises in high-flying technology stocks, hybrid work, equipping and securing remote workers, the forced march to digital that we talk about sometimes. These were all significant tailwinds for tech companies. The NASDAQ peaked late last year, and then as you can see in this chart, bottomed in mid-March of 2022, and it made a nice run up through the 29th of last month. But the mini rally appears to be in jeopardy with Fed rate hikes, Russia supply chain challenges. There's a lot of uncertainty. So we should expect the C-suite to be saying, hey, wait, slow down. Now, we don't think the concerns are confined to companies with exposure to Russia and Europe. We think it's more broad-based than that. And we're seeing caution from technology companies and tech buyers that we think is prudent given the conditions. You know, it looks like the two-year party has ended, and as my ETR colleague Eric Bradley said, a little hangover shouldn't be a surprise to anybody. So let's get right to the new spending data. I'm limited on what I can share with you today because ETR is in its quiet period and hasn't released full results yet outside of its client base. But they did put out an alert today, and I can share this slide. It shows the expectation on spending growth from more than 1,000 CIOs and IT buyers who responded in the most recent survey. It measures their expectations for spending. The key focus areas that I want you to pay attention to in this data are the yellow bars. The most recent survey is the yellow compared to the blue and the gray bars, which are the December and September 21 surveys, respectively. And you can see a steep drop from last year in Q1, lowered expectations for Q2 in the far right, a drop from nearly 9% last September to around 6% today. Now you may think a 200 basis point downgrade from our prediction in January of 8% seems somewhat benign, but in a $4 trillion IT market, that's 80 billion coming off the income statements of some tech companies. Now the good news is that 6% growth is still very healthy and higher than pre-pandemic spending levels. The buyers we've talked to this week are saying, look, we're still spending money. We just have to be more circumspect about where and how fast. Now there were a few other callouts in the ETR data and in my discussions today with Eric Bradley on this. First, it looks like in response to expected supply chain constraints that buyers pulled forward their orders late last year and earlier this year. You remember when we couldn't buy toilet paper? People started the stockpile and it created this rubber banding effect. So we see clear signs of receding momentum in the PC and laptop market. But as we said, this is not isolated to PCs. UiPath's earning guidance confirmed this, but the story doesn't end there. This isn't isolated to UiPath in our view. Rather, it's a more broad based slowdown. The other big sign is spending in outsourced IT, which is showing a meaningful deceleration in the last survey. Showing a net score drop from 13% in January to 6% today. Net score, it remembers a measure of the net percentage of customers in the survey that on balance are spending more than last survey. It's derived by subtracting the percent of customers spending less from those spending more. And that's a 700 basis point drop in three months. This isn't a market where you can't hire enough people. The percent of companies hiring has gone from 10% during the pandemic to 50% today, according to recent data from ETR. And we know there's still an acute skills shortage. So you would expect more IT outsourcing, but you don't see that in the data, it's down. And as this quote from Eric Bradley explains, historically when outsourced IT drops like this, especially in a tight labor market, it's not good news for IT spending. All right, now the other interesting call-out from ETR were some specific company names that appear to be seeing the biggest change in spending momentum. Here's the list of those companies that all have meaningful exposure to Europe. That's really where the focus was. SAP has big exposure to on-premises installations. And of course, Europe as well, ServiceNow has European exposure and also broad-based exposure in IT across the globe, especially in the U.S. Zoom didn't go to the moon, no surprise there, given the quasi-return to work and Zoom fatigue. McAfee is a bit of a concern because security seemed to be one of those areas when you look at some of the other data that is partially insulated from all the spending caution. Now, of course, we saw the OCTA hack and we're going to cover that next week with hopefully some new data from ETR, but generally security has been holding up pretty well. You look at CrowdStrike, you look at Zscaler in particular. Adobe's another company that's had a nice bounce in the last couple of weeks. Accenture, again, speaks to that outsourcing headwinds that we mentioned earlier. And now the Google Cloud platform is a bit of a concern. It's still elevated overall, but down and well down in Europe. Under that magic, we often show that magic 40% dotted line, that red dotted line, a net score, anything above that, we cite as elevated. Well, some important call-outs here. You see companies that have Euro exposure and again, we see this as just not confined to Europe and this is something we're going to pay close attention to and continue to report on in the next several weeks and months. All right, so what should we expect from here? The ARC investment stocks of Cathie Wood fame have been tracking on a downward trend since last November. Meaning these high PE stocks are making lower lows and higher, sorry, lower highs and lower lows since then. Right, the trend is not their friend. Investors I talk to are being much more cautious about buying the dip. They're raising cash and being a little bit more patient. You know, traders can trade in this environment, but unless you can pay attention to them in a minute by minute, you're going to get whipsod. Investors tell me that they're still eyeing big tech, even though Apple has been on a recent tear and has some exposure with supply chain challenges. They're looking for maybe entry points within that chop for Apple, Amazon, Microsoft and Alphabet. And look, as I've been stressing, 6% spending growth is still very solid. It's a case of resetting the outlook relative to previous expectations. So when you zoom out and look at the growth in data, getting digital right, security investments, automation, cloud, AI, containers, all the fundamentals are really strong and they have not changed. They're all powering this new digital economy and we believe it's just prudence versus a shift in the importance of IT. Now, one point of caution is there's a lot of discussion around a shift in global economies. Supply chain uncertainty, persistent semiconductor shortages, especially in areas like driver ICs and boring things like parts for displays and analog and microcontrollers and power regulated, stuff that's just not playing nice these days and wreaking havoc. And this creates uncertainty which sometimes can pick up momentum in a snowballing effect. And that's something that we're watching closely and we're going to be vigilant reporting to you when we see changes in the data and in our forecast even when we think our forecasts are wrong. Okay, that's it for today. Thanks to Alex Meyerson who does the production and podcast for breaking analysis and Stephanie Chan who provides background research, Kristen Martin and Cheryl Knight and all the cube writers they helped get the word out and thanks to Rob Hoth our EIC over at Silicon Angle. Remember I publish weekly on wikibon.com and siliconangle.com. These episodes are all available as podcasts wherever you listen. All you got to do is search breaking analysis podcasts etr.ai, that's where you can get access to all the survey data and make your own cuts. It's awesome, check that out. Keep in touch with me, you can email me at david.volante at siliconangle.com You can hit me up on LinkedIn. This is Dave Vellante for theCUBE Insights powered by ETR. Be safe, stay well and we'll see you next time.