 From theCUBE Studios in Palo Alto in Boston, bringing you data-driven insights from theCUBE and ETR. This is Breaking Analysis with Dave Vellante. CIOs in the most recent September ETR spending survey tell us that they expect a slight sequential improvement in Q4 spending relative to Q3, but still down 4% from Q4 2019. So this picture is still not pretty, but it's not bleak either to wit. Firms are adjusting to the new abnormal and are taking positive actions that can be described as a slow thawing of the deep freeze. Hello everyone, this is Dave Vellante and welcome to this week's Wikibon Cube Insights, powered by ETR. In this Breaking Analysis, we're going to review fresh survey data from ETR and provide our outlook for both Q4 of 2020 and into 2021. Now we're still holding at our 4% to 5% decline in tech spending for 2020, but we do see light at the end of the tunnel with some cautions. Specifically, more than 1,000 CIOs and IT buyers have, we've surveyed, expect tech spending to show a slight upward trend of roughly 2% in 2021. This is off of a Q4 decline of 4% relative to Q4 2019, but I would put it this way, a slightly less worse decline sequentially from Q3. Last quarter, we saw a 5% decline in spending. So generally more of the same, but things seem to be improving, again with caveats. Now in particular, we'll show data that suggests technology project freezes are slowly coming back and we see remote workers returning at a fairly significant rate. However, executives expect nearly double the percentage of employees working remotely in the midterm and even longterm than they did pre COVID. That suggests that the work from home trend is not cyclical but showing signs of permanence. And why not? CIOs report that on balance productivity has been maintained or even improved during COVID. Now of course, this all has to be framed in the context of the unknowns, like the fall and even winter surge. What about fiscal policy? There's uncertainty in the election, social unrest. All right, so let's dig into some of the specifics of the ETR data. Now I mentioned the number of respondents at over 1,000. I have to say this was predominantly a US based survey. So it's 80% sort of biased to the US. But it's also weighted to the big spenders in larger organizations with a nice representation across industries. So it's good data here. Now you can see here the slow progression of improvement relative to Q3, which as I said was down 5% year on year with a 4% decline expected in Q4. Now ETR is calling for roughly 4% decline for the year. And I've been consistently in the 4% to 5% decline range and agree with that outlook. And you can see CIOs are planning for a 2% uptick in 2021 as we said at the open. Now in our view, this represents some prudent caution. And I think there's probably some upside, but it's a good planning assumption for the market overall in my view. Now let's look at some of the actions that organizations are taking and how that's changed over time. You can see here that organizations, they're slowly releasing that grip on tech spending overall. You know, still no material change in employees working from home or traveling. But you can see that hiring freezes are down. That's positive in the green as our new IT deployment freezes. And a slight uptick in acceleration of new deployments. Now as well, you see fewer companies are planning layoffs and while small, the percent of companies adding headcount has doubled from last quarter's minimal number. All right, so this is based on survey data at the end of the summer. So it reflects that end of summer scent of it. So we got to be a little bit cautious here. And I think CIOs are by nature cautious on their projections of 2% up in 2021. Now importantly, remember this does not get us back to 2019 spending levels. So we may be seeing a kind of a long, slow climb out of this, you know, tepid market. Maybe 2022 gets back over 2019 before we start to see sustained growth again. And remember, these recoveries are rarely smooth. They're not straight line. So you got to expect some choppiness with, you know, some pockets of opportunity which we'll discuss here. In this slide, we're showing the top areas that respondents cited as spending priorities for Q4 and into 2021. So the chart shows the ratings based on a seven point scale. And these are the top spending initiatives heading into the year end. Now, as we've been saying for the better part of a decade, cyber security is a do-over. And I've joked, you know, if it ain't broke, don't fix it, well COVID broke everything. And cyber is an area that's seeing long-term change, in my opinion. End point security, identity access management, cloud security, security as a service. These are all trends that we're seeing as really major waves as a result of COVID. Now it's coming at the expense of large install bases of things like traditional hardware-based firewalls. And we've talked about this a lot in previous segments. Cloud migration is interesting. And I really think it needs some interpretation. I mean, nobody likes to do migrations. So I would suggest this includes things like, I have a bunch of people answering phones and offices or I had and then overnight, boom, the offices are closed. So I needed a cloud-based solution. I didn't just lift and shift my entire phone routing system from the office into the cloud, but I probably pivoted to a cloud solution to support those work-from-home employees. Now, my guess is I think that would be included in these responses. I mean, I do know an example of an insurance company that did migrate its claims application to the cloud during COVID, but this was something that they were, you know, planning to do pre-COVID. And I guess the point here is twofold. Again, as I said, migrations are hairy, nobody wants to do them. And I think this category really means I'm increasing my use of the cloud. So I'm kind of migrating my operations over time to the cloud. All right, look at collaboration, no shocker here. We've pounded, you know, Zoom and WebEx to death. Analytics is really interesting. We have talked extensively and have been covering Snowflake and we pointed out that there's a new workload that has emerged in the cloud. It's not just Snowflake, you know, there are others, AWS Redshift, Google with BigQuery and others, but Snowflake is the off-the-charts hot IPO and so we talk a lot about it, but it relates to this easy setup and access to a data layer with having, you know, requisite security and governance. And this market is exploding, adding AI on top and really doing this in the cloud so you can scale it up or down and really only pay for what you need. That's a real benefit to people. Compare that to the traditional EDW, snakes swallowing a basketball. I got to get every new Intel chip. You're not dialing up, dialing down. You're over provisioning and half the time you're not using half. Most of the time you're not utilizing what you paid for. All right, look at networking. You know, traffic patterns changed overnight with COVID. DDoS attacks are up 25 to 40% since COVID. Cyber attacks overall are up 400% this year. So these all have impacts on the network. Machine learning and AI, I talked about a little bit earlier about that, but organizations are realizing that infusing AI into the application portfolio is becoming really an imperative, much more important as the automation mandate that we've talked about becomes more acute people. You can't scale humans at the pace of technology. So automation becomes much more important. That of course leads us to RPA. Now you might think RPA should be a higher priority, but I think what's happening here is IT organizations, you know, they were scrambling to plug holes in a dike, whereas RPA is somewhat more strategic and planful. Our data suggests that RPA remains one of the most elevated spending categories in terms of net score, ETR's measure of spending momentum. So this means way more people are spending more than spending less in the RPA category. So it really has a lot of legs. In fact, with the exception of container orchestration, I think RPA is a sector that has the highest net score. I think you'll see that in the upcoming surveys. It's as high or even higher than AI. I think it's higher than cloud. It's just that IT, and remember this is an IT survey and a lot of the RPA stuff is going on at the business level, but IT had to keep the ship afloat when COVID hit, which somewhat shifted priorities, but RPA remains strong. Let's go back to the work from home trend for a moment. I know it's been played out and kind of beat on, really heavily covered, but I got to tell you, ETR was the very first on this trend. It was way back in March, and the data here is instructive. It shows that the percentage of employees working from home prior to COVID, currently working from home, the percent expected in six months, and then those expected essentially permanently. And this is primarily work from home versus I don't work a day or two per week. It's really the five day of weekers. I work remotely. As you can see, only 16% of employees were working from home pre-pandemic, whereas more than 70% are at home today. And CIOs, they actually see a meaningful decline in that number over the next six months. We'll see based on how COVID comes back. And this fall and winter surge and how that'll affect these plans. But look what it does long-term. It settles in at like 34%. That's double pre-COVID. So really a meaningful and permanent impact is expected from the isolation economy that we're in today. And again, why not? Look at this data. It shows the distribution of productivity improvements so that while 23% of respondents said work from home productivity impacts were neutral, nearly half, I think it was 48%, if you add up those bars on the right, nearly half are seeing productivity improvements. Well, less than 30% see a decline in productivity. And you can see the ETR quants, they peg the average gain at between three and 5%. That's pretty significant. Now, of course, not everyone can work from home. If you're working at a restaurant, you really, unless you're in finance, you really can't work from home. But we're seeing in this digital economy with cloud and other technologies that we actually can work from pretty much anywhere in the world. And many employees are going to look at work from home options as a benefit. It was just a couple of years ago, remember that we were talking about companies like IBM and Yahoo mandated coming into the office. I mean, that was like 2017, 2018 timeframe. Well, that trend is over. Now, let me give you a quick preview with some of the other things that we're seeing and what the ETR data shows. Now, let me also say, I'm just scratching the surface here. ETR has deep, deep data cuts. They have the SaaS platform allows you to look at the data all different ways. And if you're not working with them, you should be because the data gets updated so frequently every quarter there's new data, there's drill down surveys and it's forward looking. So, you know, a lot of the survey data or a lot of the data that we use, market share data and other data are sort of looking back. You know, you use your sales data, your sales forecast, that's obviously forward looking, but the ETR survey data can actually give an observation space outside of your sales force. And no, I'm not getting paid by ETR, but it's been such a valuable resource. I wanna make it available and make the community aware of it. All right, so let's do a little speed round on some of the vendors of interest that we've talked about in the last several segments, last couple of years, actually, many years, decade. Anyway, start with AWS. AWS continues to be strong, but they have less momentum than Microsoft. This is sort of a recurring pattern here, but AWS churn is low, low, low. Not a lot of people leaving the AWS platform, despite what we hear about this repatriation trend. Data warehousing is a little bit soft, whereas we see snowflake very, very strong, but AWS's share is really strong inside of large companies. So cloud and teams and security are strong from Microsoft, whereas data warehouse and AI aren't as robust as we've seen before, but Microsoft Azure cloud continues to see a little bit more momentum than AWS. So we'll watch that next quarter for AWS earnings call. Now, Google has good momentum and they're steady, especially in cloud, database, AI and analytics. We've talked a lot about our Googles behind the big two, but nonetheless, they're showing good momentum. Service now, very low churn, but they're kind of hitting the law of large numbers, still super strong in large accounts, but not the same red hot momentum as we've seen in the past. Okta is showing continued momentum. They're holding close to number one of that top spot in security that we talked about last time. No surprise, given the increased importance of identity access management that we've been talking about so much. CrowdStrike last survey in July, they showed some softness, despite a good quarter, and we're seeing continued deceleration in the survey. Now, that's from extremely out of elevated levels, but it's significantly down from where CrowdStrike was at the height of the lockdown. I mean, we like the sector of endpoint security and CrowdStrike is definitely a leader there and well managed company, but maybe they got hit with a quick COVID injection with a step up function that's maybe moderating somewhat. Maybe there's some competition, VMware freezing the market with carbon black. I really don't see that. I think it's, maybe there's some survey data isn't reflective of what CrowdStrike is seeing. We're going to see in the upcoming earnings release, but it's something that we're watching very closely. Two survey snapshots with CrowdStrike being a little bit softer, doesn't make a sustained trend, but we would have liked to seen a little bit stronger this quarter. The data is still coming in, so we'll see. Sale point is one we focused on recently and we see very little negative in their numbers so they're holding solid. Zscaler showing pretty strong momentum and while there was some concern, last survey within large organizations and see that might have been a survey anomaly because Zscaler, they had a strong quarter, they had a good outlook and we're seeing a strong recovery in the most recent data. So also looks like Zscaler is pressuring some Palo Alto networks dominance and momentum heading into the quarter. So we'll pay close attention to that. We've said we like Palo Alto networks but they're so big they've got some exposures but they can offset those and they're doing a better job in cloud with their pricing models and sort of leaning into some of the market waves. Sale point appears to be holding serve, you know, heading into the fourth quarter. Snowflake, I mean, what can we say? It continues to show some of the strongest spending momentum going into Q4 and into 2021. No signs of slowing down. They're going to have their first earnings reports coming up, you know, in a few months so I got to believe they got it together and they're going to be strong reports. UiPath and momentum is slowing down a bit but existing customers keep spending with UiPath and there's very few defections so it looks like their land and expand is working pretty well. Automation anywhere continues to be strong despite comments about the sector earlier which showed, you know, maybe it wasn't as high a priority some other sectors but as I said, you know, it's still really, really strong in terms of momentum. And Automation anywhere in UiPath they continue to battle it out for the top spot within the data set, within the automation data set. But I should say within RPA, I mean, companies like Pegasystems have a broader automation agenda and we really like their strategy and their execution. Databricks, you know, hot company, once a hot company, still hot but we're seeing a little bit of a deceleration in the survey even though new customer acquisition is quite strong, put it this way. Databricks is strong but not the off the charts outperformer that it used to be. This is how ETR framed that, their analysis. So I want to obviously credit that to them. Datadog showing the most strength in the application performance management or monitoring sector, whichever you prefer. But generally the net scores in that sector as we talked about last week, they're not great as a sector when you compare it to other leading sectors like cloud or automation, RPA as an example, container orchestration. You know, APM is kind of significantly lower. It's not as low as some of the on-prem infrastructure or some of the on-prem software but given Datadog's high valuation, it's somewhat of a concern so we keep an eye on that. MongoDB, they got virtually no customer churn but they're losing some momentum in terms of net score in the survey which is something we're keeping an eye on. And a big downtick in large organization acquisition within the data. So in other words, they had a lot of new acquisitions within large companies but that's down. Now again, that could be anomalies in the data. I don't want to go to the bank on that necessarily but that's something to watch. Zoom, they keep growing but ETR data sites a churn of actually up to 7% due to some security concerns. So that was widely reported in the press. And somewhere slower velocity for Zoom overall due to a possible competition from Microsoft Teams. But I tell you, it has an amazing stat that ETR threw out. Pre-COVID Zoom penetration in the education vertical was 15%. Today, it's over 80%. Wowza. Cisco, Cisco's core is weak. As we've said, you've seen that in their earnings numbers. It's their softness there but security, Maraki, those are two areas that remain strong. Same kind of similar story to last quarter survey. Pure storage, the high flyer, they're like the one eyed man in the land of the storage blind. So storage, not a great market, we've talked about that. We've seen some softness in the dataset from in pure storage and really often sympathy with the generally back burner storage market. Again, they still outperforming their peers but we've seen slower growth rates there in the survey and that's been reflected in their earnings. So we've been talking about that for a while, really keeping an eye on pure. They've made some acquisitions, trying to expand their market, enough said about that. Rubric, Rubric's interesting. They kind of were off the charts a couple of surveys ago and they really come off of those highs. Anecdotally, we're hearing some concerns in the market. It's hard to tell, the private company, Cohesity has overtaken Rubric in spending momentum now for the second quarter in a row. They're still not as prevalent in the dataset. We'd like to see more ends from Cohesity. Remember, this is sort of a random sample across multiple industries. We let the, or ETR lets the respondents tell them what they're buying and what they're spending on. But Cohesity has the highest net score relative to compares like Rubric, like Veeam. I even threw in when I looked at Nutanix, Pure, Dell EMC's, VxRail. Those are not direct competitors, but they're kind of quasi-compares, if you will. New Relic, they're showing some concerning trends on churn and the company is way off its 2018 momentum highs in the survey and we talked about this last week, some of the challenges New Relic is facing. But we like their tech, NRDB is purpose built for monitoring and performance management. And we feel like they can retain their leadership if they can pull it together. We talked about Elliott management being in there, so that's something that we're watching. Red Hat is showing strength and open shift, really, really strong IBM services exposure. It's not the greatest business in the world right now. At the same time, I mean, there's crosswinds there. At the same time, people need some services and they need some help there, but certainly the outsourcing business, so there's countervailing crosswinds within IBM. But open shift, bright spot. I think when I look at the Red Hat acquisition, yeah, 34 billion, but it's pretty obvious why IBM made that move. But anyway, IBM's core business continues to be under pressure. That's why Red Hat is such an important component, which brings me to VMware. VMware has been an execution machine at VMworld this past week. We talked last month about the strength of VMware Cloud on AWS and it's still strong and VMware Cloud portfolio with VMware Cloud Foundation and other offerings, but other than Tanzu, VMware is in this October survey, the first look shows some deceleration really across the board. One potential saving grace ETR shared with me is that the Fortune 500 spending for VMware is stronger. So maybe on a spend basis, when I say stronger, stronger than the mean, so maybe on a spend basis, VMware is okay. But there seems to be some potential exposure there. We won't know for sure until late next year how the Dell reshuffle is going to affect them. But it's going to be interesting to see how Dell restructures VMware's balance sheet to get its own house in order. And remember, Dell wants to get to investment grade for its own balance sheet, yet at the same time it wants to keep VMware at investment grade. But the interesting thing to watch is what impact that's going to have on VMware's ability to fund its future. And we're not going to know that for a long, long time, but we'll keep an eye on those developments. Now Dell for its part showing strength and work from home and also strengthen giant public and privates, which is a bellwether in the ETR data set. These are huge private companies, for example, Coke Industries would be one, massive private companies, Mars would be another example, necessarily that they're the ones responding, although my guess is they are, it's anonymous, but actually ETR actually knows and they can identify who those bellwethers are. And it's been a predictor of performance for the last, better part of a decade. So we'll see. VxRail is strong, service and storage, they're still muted relative to last year, but not really down from July. So, you know, holding on, Dell holding on to a tepid spending outlook, they had such huge exposure on-prem. You know, so on balance I wouldn't expect, you know, a barn burner out of Dell, you know, but they got a big portfolio and they've got a lot of options there. And remember, they still have the, still have, they have a PC business unlike HPE, which I'll talk about in a moment, I'll talk about now. Aruba is the bright spot for HPE, but servers and storage, those seem to be off, you know, similar to Dell, but maybe even down further. I think, you know, Dell is kind of holding relative to last quarter survey, you know, down from earlier this year and certainly down from last year, but HPE seems to be on a steeper downward trajectory in storage and service from the survey. We'll see, again, you know, one snapshot quarter does not a trend to make, but again, storage looks particularly soft, which is a bit of a concern and we saw that, you know, in HPE's numbers, you know, last quarter. Customer acquisition is strong for Nutanix, but overall spending is decelerating versus a year ago levels. We know about the $750 million injection from Bain Capital. Basically, you know, in talking to Bain, what essentially they're doing is they're betting on upside in the hyper-converged marketplace. It's true that from a penetration standpoint, there's a long, long way to go. And it's also true that Nutanix is shifting from a, you know, perpetual model, you know, boom by the CapEx to an annual recurring revenue model and they kind of need a bridge of cash to sort of soften that blow. We've seen companies like Tableau make that transition and Adobe successfully made that transition. Splunk is in that transition now and it's, you know, kind of funky for them. But anyway, you know, within that infrastructure software and virtualization sectors, you know, Nutanix is showing some softness, but in things like storage, actually Nutanix looking pretty strong, very strong actually. So again, this theme of these crosswinds supporting some companies, whereas they're exposed in other areas. You certainly see that with large companies and Nutanix looks like it's got some momentum in some areas and, you know, challenges and others. Okay, so that's just a quick speed dating round with some of the vendor previews for the upcoming survey. So I just want to summarize now and we'll wrap. So we see overall tech spending off four to 5% in 2020 with a slightly less bad, slightly less bad Q4 sequentially relative to Q3. All this is relative to last year. So we see continued headwinds coming into 2021 and expect low single digit spending growth next year. Let's call it 2%. And there are some clear pockets of growth taking advantage of what we see as a more secular work from home trend, particularly in security, although we're watching some of the leadership positions. Cloud, despite the commentary earlier, remains very, very strong. AWS, Azure, Google, Red Hat OpenShift, serverless, Kubernetes, analytic cloud databases, all very, very strong. Automation also stands out as a priority in what we think is the coming decade with an automation mandate. And some of the themes we've talked about for a long time, particularly the impact of cloud relative to on-prem. You know, we don't see this so-called repatriation as much of a trend as it is a bunch of fud from on-prem vendors that don't own a public cloud. So you just don't see it. I mean, I'm sure there are examples of, oh, we did something in the cloud. We lifted and shifted. It didn't work out. We didn't change our operating model. Okay, but the number of successes in cloud is like many orders of magnitude, you know, greater than the numbers of failures. On the plus side, however, for the on-prem guys, the hybrid and multi-cloud spaces are increasingly becoming strategic for customers. So that's something that I've said for a long time, particularly with multi-cloud, we've kind of been waiting. It's been a lot of vendor PowerPoints, but that really, we talk to customers now, they're hedging their bets in cloud. They're putting horses for courses in terms of workloads. They're not betting their business necessarily on a single cloud. And as a result, they need security and governance and performance and management across clouds that's consistent. So that's actually a really reasonable and significant opportunity for a lot of the on-prem vendors. And as we've said before, they're probably not necessarily going to trust the cloud players, the public cloud players, to deliver that. They're going to want somebody that's cloud agnostic. Okay, that's it for this week. Remember, all these episodes are available as podcasts wherever you listen, so please subscribe. I publish weekly on wikibon.com and siliconangle.com and don't forget to check out etr.plus for all the survey action and the analytics. These guys are amazing. I always appreciate the comments on my LinkedIn posts. Thank you very much. You can DM me at dvalante or email me at david.valante at siliconangle.com and this is Dave Vellante. Thanks for watching this episode of Cube Insights powered by ETR. Be well and we'll see you next time.