 From theCUBE Studios in Palo Alto in Boston, connecting with thought leaders all around the world, this is a CUBE conversation. Hello everybody, welcome to this special CUBE conversation. You know, as the COVID-19 pandemic grips the world, our friends at Enterprise Technology Research have been hard at work to really try to understand and quantify the impact on IT spending. And with me is Sagar Kadakia, who was the director of research at ETR. Sagar, great to see you again. Thanks for coming on. Great to see you, Dave. Yeah, great to see you, Dave. Thanks so much for having me on. So you guys just dropped your first look at the latest survey, and you specifically went out and asked about the impact of coronavirus on spending. Can you share with our audience your working thesis? Yeah, no problem. And just to give some context, there was so much internal interest, so much interest from clients, not to just understand, you know, how many organizations were being impacted, but what are gonna be the budget impacts, you know, on 2020, when you think about IT? And so that's kind of really how we structure the drill down that, and really getting to the bottom of why are these budgets changing? And so kind of our thesis right now, and what we're seeing based on the data is that budgets have come down to about 0% or flat for 2020. I think coming into the year, incentives was right around 4%. So you've seen a retraction from that. And if the environment continues to kind of go south, if we continue to see actions taken at the federal and state level, where more people are gonna be quarantined working from home, I think technology spend will inevitably continue to come down. But there is some positives that we are seeing, but right now we're right around 0%. And we should explain. So this is currently a little over 1,000 respondents and you'll continue to collect data for the next several days or even weeks, correct? That's right exactly. So we launched a survey on Wednesday, and right now we've got about 1,100 CIOs, IT executives. It's a really global sample. The goal was across different job titles, across different regions, across different verticals, ones that are being impacted significantly, ones that are being impacted less. Let's try to gauge overall what's going on with IT budgets and why people are making the decisions they are making right now. And so that was really the focus of this study. Okay, so there's obviously some negatives in the data and there's a high degree of uncertainty, but there are some bright spots that we see, particularly the shift to work from home. And I want to ask you about a chart that you guys put out. It shows large portion of the survey, about 40% of the respondents indicated really no impact to spending and another 20% are actually accelerating their spend as a result of COVID-19. Can you add some color to that? 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, they're trying to avoid a catastrophe in productivity. They are ramping up all this work from home infrastructure, not just collaboration tools, virtualization infrastructure, increasing VPN networking bandwidth, mobile devices, laptop, security, desktop support, 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 spending, acceleration being offset by spending a little bit more on kind of what we're calling this kind of work from home infrastructure. Yeah, so in the chart you put out, there's a lot of red, but there's also quite a bit of green and then a big midpoint of no change. Sis, the midpoint average is a negative 3.8%. Can you explain what that means? How we should interpret that? Yeah, I think the easiest way I think about it is, consensus expectations coming into the year were that there was going to be a growth of roughly 4% in global IT spend. What we're seeing at the midpoint average right now is roughly a 4% pullback. And so that's kind of how we're getting back to effectively flat or 0% growth. And I think a lot of organizations, a lot of clients that we've been talking to, their expectations were, it was going to be a lot worse, just if you're following what's going on in the news, the markets and stuff like that, and rightfully so. But I think a lot of people are missing the fact that there is some of this offset that is occurring from people who are not changing their spend because even though on one side, they are reducing IT budgets and they're having to accelerate their work-from-home infrastructure. And then of course, the bucket of organizations where, look, I'm not being as impacted by the broken supply chains or the demand, but because I have so many employees working from home, I need to be able to allow them to be productive. Sorry guys, you know, we've been working with ETR now for the better part of six or seven months. And what I look for in the data is I try to identify some of the macro trends that I see when we talk to the Cube guests and try to see if your data confirms that. And the other data point you put out was the anticipated IT budget growth rate. And this chart to me was amazing because it started in early to mid-March, early March 12th, sort of the starting point. And then you can see the sentiment, it just declines. It's almost exactly the way in which just daily, you saw coronavirus news just really impact the markets. And so can you just explain kind of what you're seeing here in terms of the growth rate of that IT spend in terms of how people were responding over the course of March? Yeah, one of the things we knew going into, before we launched this drill down was, this is going to be a very dynamic environment. Even before we launched a study last Wednesday, every single day another shoe was dropping in terms of government actions being taken, what people were doing. And so we made the decision upfront that when we launched this drill down, we need to be able to track the daily impact over the next three to four weeks because we don't frankly know how it's going to change. And so in that chart, what you're seeing is when we launched a survey just last Wednesday, you did see a little bit of a retraction. I think maybe five or 600 CIOs had taken it just in the first day or so. You saw about a 2% retraction in annual budget growth. And just over a few days, by last Thursday, Friday, where they really, everyone was working from home, they put a lot of different mandates in place, again, at the state and federal level, you can see that that was dropping almost daily. And so I think our thesis again is look right now, we're at 0% and again, some of that, the reason we're not more negative is because there is some offset occurring from the ramp and work from home infrastructure. But ultimately, if the environment continues to sour, we expect growth rates to continue coming down and ultimately be a decline in spend versus last year. And you made the point that is somewhat counterintuitive, but like you said, before I've not seen any other research on this, certainly not as fresh as the ETR data. The other thing that I really like about your data set is you can drill into the industries and try to identify what's going on within sectors, within industries, you can drill down at the specific vendors within those industries. But what are you seeing in terms of industries that are being affected? Obviously, those that are exposed to supply chain are susceptible, but can you share with our audience what your findings are there? 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 going to 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. Now, one of the things that struck me, and if you think about the post-911 world, I mean, we've seen permanent changes as a result of 9-11, and many people are thinking that COVID-19 will also cause some permanent changes. Perhaps people find that work from home actually drives some additional benefits and it really kind of reframes their thinking. Do you have any thoughts on that? I think based on the data that we're seeing so far, a lot of CIOs did indicate, I think it was right around 70% of the 1000 CIOs that took the survey, did indicate that the budget changes that they indicated were going to be temporary. And I think that's actually a pretty positive takeaway. Again, I think everything is very dynamic right now. Organizations are scaling their work from home infrastructure, right? That is priority number one, that's taking away from other IT projects. So we do expect emerging and next generation vendors to get impacted, right? We're moving towards a keep the lights on strategy right now. And so when we look at it, I think the changes that are being made are temporary, but if things continue to worsen, I think you may see organizations start going into that and those contingency plans and making some of these budget reductions permanent. So yes, there are some parallels to 9-11, but this one, we don't quite know how things are going to end up because every week we find something different out in the news or we don't really know how this virus is going to impact us moving forward. And there's a lot of lack of testing and things of that nature. So I think in the next few weeks, we should get a better idea of whether or not these budgets productions are going to become permanent more so than we're seeing right now. Yeah, I think you're right. I mean, the watch word is uncertainty which makes it all that much more important that you keep a pulse on the market and thank goodness you guys are doing that. I'm interested in if you have any data on the focus on productivity, how organizations are finding their ability to adapt. And really, of course they want to drive that productivity but are they able to scale it? I think that's one of the other big issues that the media hasn't addressed yet. Imagine again, you're a Fortune 100, Fortune 500 organization. You're not used to having 50, 60, 100,000 employees working from home. Forget the infrastructure component, just the productivity, the collaboration. A lot of the commentary that we got from CIOs was we're not ready to scale an entire workforce from home. You're seeing a lot of IT companies that rely on very large conferences to generate revenue, that rely on client meetings to generate revenue. You're seeing a lot of business trips getting canceled. I think something around 70 or 80% of organizations out of the 1,000 indicated that they are canceling business trips. So the productivity is coming down because organizations are just, they're just not capable, many of them of scaling a work from home type of infrastructure. And so you are going to see productivity come down. And I think that probably has the most relevant impact when you think about GDP growth. Organizations are coming forward and saying, we're not going to be able to produce or service as much. And we're not going to be able to prospect or maintain client relationships as much because of travel. And so I think those are going to be some of the bigger impacts that we end up seeing. Some businesses can work from home. And look, if you're in manufacturing or you have employees that work on a rig, there's no work from home option for that. And so I think in the next few months we are going to start seeing some of the declines on those ends. You noted in your analysis that things, would likely worsen over the next three months. That's not surprising. Financial experts are, we're seeing a variety of scenarios. Some are saying it's a self-fulfilling recession. Others are actually calling for a V-shaped recovery, but nobody really knows it. So just to sort of make sure we understand ETR's thinking, you're calling right now for 0% IT budget growth this year. Declines offset by some of the investment in work from home, right? That's kind of the summary on the outlook today and we know that can change. That's right. And I think it's important to state the work from home infrastructure, it is not a one-for-one offset on IT budget declines. That rate is definitely going down faster, which is why we went from 4% to what we're forecasting now at 0%. If things continue to worsen, which based on the data that we collected the next three months, we don't see a recovery in the next three months because more organizations indicated more broken supply change, less demand on the consumer or the business side. And so it's tough to say what's going to happen six to 12 months from now, but at the very least we do know for the next three months, things are going to continue worsening. And if we continue taking very strict actions just across the board, we would expect that 0% number to go into a decline. And so that's really what we're looking for now is because this model is dynamic, because we do continue, we do want to continue pulling individuals for the next four to six to eight weeks as to how their budgets are changing. We should have a better idea because I think right now everyone's watching, right? Are we going back to work in the next week or two? Are we working from home? And the longer we are quarantined, the less meetings, the less that we're getting on flights, the more that's going to add to technology spend coming down. And eventually, as I mentioned earlier, organizations will go into, they're going to go into contingency plans, those temporary changes that they're making right now, those are going to become permanent changes because now they're going to have issues where they're just not generating enough revenue because of productivity. There's a downturn, layoffs, and then you kind of see everything spiral out of control. You know, I meant to ask you, would you talk about infrastructure and we were talking about work from home? Cyber security was another area that is showing some momentum. Is that because people are trying to adjust their work from home infrastructure and secure that? That's exactly it. You're an organization. Let's take again, same example, Fortune 100, Fortune 500 organization, the number of endpoints you now have. All of these employees are accessing data, emails, applications from home, mobile devices, laptops, right? iPads, things that they may have not used historically. And so yes, organizations are more exposed. And I think a lot of organizations are worried about employees working from home just from a security perspective. So you are going to see, and we're already seeing this in the data as we're looking at some individual companies and things of that nature. Endpoints, access points, you know, those areas are critical and you are going to see more spend in those areas. No question. So let's share with our audience what they can expect in the coming weeks and months. So folks, just so you understand, so ETR has a data set based on a panel of about 4,500 CIOs and IT buyers, about 1,000, more than 1,000, every quarter answer, ETR very consistent survey so you can do time series analysis. And what happens is ETR clients get access to the data, early access, and then ETR drops a webcast each quarter where it updates its clients on the results. So where are we at in that process? You guys go into a self-imposed quiet period and then you release to the markets. Can you explain that a little bit and what we can expect over the next couple of weeks? Yeah, sure. So we launched a survey last Wednesday, we're already about 1,100 CIOs and IT executives. Now it's interesting, we're actually doing this kind of this COVID drill down as well as our technology spending and pension survey. That survey captures spending intent on about 350 vendors across about 28 or 29 different technology sectors. So security, networking, storage. So all that data is coming through in the next few days we're actually going to release what we call thoughts in the field. It's a kind of short narrative, it's like a sentence or two on each vendor, how they're trending. And what we're doing uniquely this time is stating which vendors are being impacted the most positively and negatively by COVID-19. And so expect that in the next few days. And then around probably around April 1st or so, we will close the survey. Again, we're expecting like you said, 13, 14, 1500 CIOs, IT executives globally to take the survey. We'll really kind of go into the trenches at that point, the entire team. We'll spend a solid week going through all the data. And then mid-April before companies or a large number of companies start reporting on the IT side, we will kind of release a large amount of research. We'll have some final COVID takeaways though that will continue being dynamic for the next three to six months, but at least we'll try to take a balance sheet type of look at it and say, look, here's where we are, here's where the impact is, whether we're at a decline or growth or whatever it is. So we'll have a better picture in a few weeks on that as well. And then we'll really be able to dive into the sectors and vendors that we think are best positioned for the rest of 2020. Yeah, we're barely scratching the surface here. As I said, this is the first look. So check out, it's ETR.plus is where you can get updates on what's going on here. And we'll obviously keep you updated as well. Sagar, thanks so much for coming on theCUBE and sharing this very important information. Yeah, thanks, Dave. I really appreciate you having me on. All right, stay safe, my friend. We'll talk to you. And thank you for watching, everybody. This is Dave Vellante for theCUBE and we will see you next time.