 From theCUBE Studios in Palo Alto in Boston, connecting with thought leaders all around the world, this is a CUBE Conversation. Hi everybody, this is Dave Vellante and welcome to this week's CUBE Insights, powered by ETR. In this breaking analysis, we're going to bring in Sagar Kedakia, who's the director of research at ETR. He's been away for the last couple of weeks, really digging into the latest data set at ETR. Of course, it was in its quiet period. And today, what we want to do is give you three of the macro takeaways from that last two-week analysis and drill in to some of the sectors. So Sagar, thanks for coming on. Great to see you again. You know, let's get right into it. You've been crazy busy. We started the year at a plus 4% consensus IT spend. We reported for several weeks and then sort of ended up at minus 4%. We're now at minus 5% after you've gone through and done some additional analysis. So bring us up to date on the IT spend projection. Yeah, no problem. And that's our first kind of macro takeaway is we're seeing declines in IT budget of a decline of 5%. And remember, coming into the year, as you mentioned, consensus assessments are right around that kind of 4% number. And so we've kind of seen this kind of 900 basis point shift downward. So that's kind of where we are today. If we kind of look at that chart that we've been tracking for the last few weeks, and for those that have seen this chart before, you'll kind of see where we've been kind of going the last two, three weeks. And for those that haven't seen the chart, I'll kind of go through it now. So as many of you know, kind of launched this COVID-19 drill down survey to measure the impact that the virus was gonna have on kind of total spend this year. And so we kind of launched that drill down on March 11. And so if you kind of look at that blue line there, what you're looking at is we asked individuals, estimate what percentage impact you think the virus is gonna have on your budget versus your original expectations. And since we launched this on March 11th on that blue line that you're looking at, we got a lot of positivity in the beginning. And so if you look at the blue line all the way through, if we follow that, you get to about 0% growth. Now the issue is, as I just mentioned, is we launched on the 11th and there wasn't a tremendous amount of information available as to how severe the virus was. And so we kind of did this event analysis. We talked about this last time on the last breaking analysis where it's probably more appropriate to look at a start date closer to 317 or 323 when the market really understood the severity of COVID-19, right, NYC became the epicenter. And if we look at just those customers who indicated a spend impact after that date, you can see it's coming out to about 4% or 5% decline. And so that's kind of one of our big macro takeaways. And the other thing on this chart kind of focus on is, and even though we're not looking at, you know, some of the vendors here is when you think about declines, it's not across the full IP stack. And I think that's really important for the audience to understand. We're seeing focused declines among on-prem legacy, pure plays. You're still seeing CIO spend on cloud and SaaS. In fact, they're doubling down there. And so when you kind of think about how things are going to shape up the next three, six, nine months, there's going to be a lot of bifurcation. And we think cloud and SaaS are going to be well positioned with a lot of legacy and on-prem. That's where you're going to see a majority of those declines that you're seeing here kind of play out. Right. Yeah, you know, I've made the case of, you know, sort of the statement many times that cloud has been, or downturns have been good to cloud. We saw this in 2008, 2009, with the shift from CapEx to OpEx, we came out of 2009 into the decade of cloud. And very clearly we're seeing some similar things here as people shift to that work from home. We had one CIO on the recent Venns that I want to just delete my data centers now. Unfortunately, he's not going to be able to do that overnight. But I think as Eric Bradley pointed out last week, a lot of customers who weren't even thinking about cloud or really were sort of reticent to go all in, really have flipped and changed their tune. Let's talk about some of the industries that are impacted by this, you know, COVID-19 and the stay at home. And this slide really kind of underscores that. Why don't you take us through it? Yeah, no problem. So on the last slide you were looking at kind of our COVID-19 drill down study on this slide, what we're now going to focus on is a study that we did in tandem, which is called our Technology Spending Intention Survey. And specifically we conducted this in April. What we did is we asked CIOs to update their 2020 spending intentions versus how they spent in 19. So this survey was originally posed in January and then we're essentially asking for a three month update now. So we're trying to get an understanding of how much has changed in the last three months because of COVID-19. And when we asked these CIOs, we give them essentially a list of 400 vendors and they're able to then indicate which ones they're flattening on, decreasing on, maybe accelerating on. And so what you're looking at here is we've aggregated that data by industry. And if you look at the X axis here, you're going to look at spend intensity versus three months ago. And the Y axis will be spend intensity versus a year ago. And so what you're seeing here is over the last three months, look at how much verticals like retail, consumer, airlines, delivery services, financials, insurance, IT, telco, services, consulting, those have really seen some of the largest pullbacks in spend versus three months ago. And those are also some of the industries that have indicated the largest pullback in demand from consumers and businesses. And so this is where we think a lot of the declines that we showed you earlier, it's really kind of focused on some of these verticals. And that's how, you know, when you kind of think about which organizations are going to be hurt, which ones might see the most impact, you know, three, six months around, this is a really good chart to view. Yeah, I mean, a couple of points that I would make on this data. I mean, retail and consumer, again, that even that's bifurcated. Obviously the physical stores, you know, getting crushed. You see Amazon now trading at all time highs, Target announced today, I think they set a 200% increase in online shopping, which of course is fulfilled, 85% of Target's demand is fulfilled by their store. So that's kind of mixed. You're going to see an accelerated, you know, move toward digital transformation there. Airlines, you know, it's really unclear what's going to happen there. IT Telco on one of the last vends, we talked about MPLS, people trying to get off of MPLS, really moving toward SD-WAN, you know, healthcare farmer, they, I mean, healthcare doesn't have time to do anything right now. I mean, it's just, you know, no time to take a breather. Financials is interesting. I mean, they're down right now, but they still have a lot of cash, liquidity is good. And in an energy, I mean, oil, I've just never seen anything like it. We're concerned obviously about credit risk there. And, you know, and oil companies being able to pay off their debt. So it's really not a pretty picture, is it? Yeah, and if you focus on energy, even though you're not seeing a huge pullback versus three months ago in energy, it's really important to understand when we did this survey in January, energy was all the way on the left side of that chart. And so it already looked really bad coming into the year. So it got worse, but because of the severity versus last year, like you're just not seeing that much more of a negative impact now. This was before, you know, this survey closed before everything happened in the last few days with oil prices. So it is very possible that that data is going to get worse. And we're not laughing a lot these days, but you know, if you haven't filled up your car in a while, anyway, let's go into the security piece. We talked about, you guys are really the first to report this work from home pivot. Others have sort of, you know, more recently, you know, come to the conclusion, but, and it wasn't just Zoom and WebEx and, you know, video collaboration, teams, et cetera. It really was all kinds of infrastructure, including security. So if we could bring up the next chart guys, love to sort of get into this. We're going to talk about the sector and some of the vendors in here, let's go. Yeah, no problem. So if we kind of step away from the macro and really start kind of getting into the sectors and vendors and here, if we start with security, what we're really saying is that look of remote workforce is really kind of revealing best and breed. And we think it's going to lead to permanent changes. So what you're looking at here is these are the net scores for each individual vendor. Currently versus three months ago, as well as a year ago levels, right? The yellow bars will be what's currently. And the way to think about net score is just kind of spend intensity, right? And so the higher your net score, the more spend intensity, the more spend velocity you're seeing from enterprise customers. And what we're really seeing here, if you kind of look at the vendors on the left, you're seeing a lot of acceleration amongst secure web gateway endpoint, mobile security, cloud SaaS application security, identity. And these make sense, right? As we mentioned earlier, as you really accelerate your cloud and SaaS spend, you're going to want to use vendors that best protect those areas. And so if you look to the left here, Okta and Zscaler, Cloudfare, Browstrike, some of these really look best position moving forward. Palo Alto looks good, longer term, Splunk two point also look good, longer term. And then the other thing to kind of hit on here is the other side, right? In terms of, we talked about the bifurcation that we expect, we're seeing significant declines in net scores among a lot of these legacy vendors, checkpoints come down quite a bit, Juniper, Trend Micro, Broadcom, Barracuda Network, Sonic Wall. And so, you can see the disparity here, it's pretty clear on the image, but we think there's some pretty clear winners and losers here. And I think we may see permanent changes moving forward. Yeah, so Twistlock of course is now owned by Palo Alto, CrowdStrike, the hot company in the sector. Okta, I have the Chief Product Officer coming on shortly here for part of my CXO series. We've talked about Palo Alto and how they sort of fell behind a little bit in the cloud, but you talk to customers, they really see Palo Alto as in there, in the mix. Zscaler came up in the Venn, to your point, securing gateways and doing a really good job in that space. And so, I think this fragmentation, that fragmentation probably continues, but there's also bifurcation, as you pointed out. Let's talk about cloud. As you've said, and I said that downturns have been good to cloud, people are obviously looking more toward cloud, whether it's SaaS or cloud type of consumption. Let's bring up the next slide, which looks at the big three, Azure, AWS, and GCP. First of all, all three have very strong net scores, up in the 60% plus range, but you have Azure pulling away. I'd love to hear your thoughts on that. Yeah, that's right. And we've kind of been using this analogy of kind of a horse race. Just kind of as context, coming into January, you see really GCP accelerating, and so one of the things we said in January was, it's becoming more of a three horse race, right? Even though GCP doesn't have the same type of market share as the other two, you are seeing the spend intensity increase. And now what you're seeing is Azure pulling away a little bit because of, we think COVID-19. When you look at Azure's dataset, it really looks robust and healthy across all verticals, across most regions. And that is what you're seeing here, where it's continuing to kind of accelerate. It looks good. AWS, GCP, it also looks good here, but you're not seeing the same uniform shrank, right? There's a couple of verticals for AWS, where we're seeing a little bit of a pullback and spend like retail and industrials. For GCP, we're seeing a pullback in mid-size and small enterprises. So that's causing a couple of cracks here and there, even though they look overall healthy, but we did want to kind of indicate here on cloud where one vendor looks like they're pulling away when it comes to spend velocity. It's going to be interesting to see. I mean, we've reported on the sort of deltas between Azure and AWS and the cloud, the quality of the cloud. I mean, we're going to carefully watch the quarterly reports. You always have to kind of squint through the Azure numbers to see what's in there, but there's no question that Microsoft across the board is really very, very strong. All right, let's talk about collaboration, productivity, video conferencing. I mean, we've certainly seen upticks, but as shown on this slide, you guys, if you could bring the next slide up, it's not all rosy. Talk about this a little bit. Yeah, I think, look, there's been a lot of coverage around which vendors look best. And so I kind of wanted to take the opposite view on this chart, you know, for the audience say, look, which vendors are not benefiting? And this is kind of like a hodge podge sector of productivity and collaboration, video conferencing. You know, what we're saying is, you know, it's now or never, so to speak, and you're looking at replacement rates, right? So if you look at it, if you see something on this chart that says 20% replacement, that means one out of five customers that indicated for that vendor in our survey indicated a replacement for them, right? Which is not good. And so you're seeing vendors here like Dropbox, Box and Slack having elevated or accelerating replacement levels. And these vendors, you know, pitch themselves as collaboration pools. And if they're not doing well now and they're seeing elevated replacements, especially as everyone is working from home, you know, that doesn't bode well, you know, for the future. Yeah, you know, I mean, I think people who know me know I'm not a huge fan of Box and Slack. They drive me crazy. And so this is interesting to see. I mean, we're a Zoom shop. So obviously you Zoom, you like Zoom. I had my first experience very recently with Microsoft Teams, I was quite impressed. I thought it was easy to use. I mean, you know, Skype hell was just terrible. And so much, much improved. Very interesting cut on that one. So again, it's a bifurcated story. Let's drill into Teams a little bit. Guys, if you bring up the next slide, we've been reporting and you guys really, again, first on this, how strong Microsoft is across the board, but really going after it in collaboration. Yeah, so, you know, on that previous slide, you saw that box, Dropbox and Slack, we're all seeing replacements. So again, a lot of customers like, well, does that spend going? Well, it's going to Microsoft Teams. It's going to OneDrive. This is a Slack drill down, or sorry, a Slack and Teams drill down that we did earlier this year. And what we were trying to do is measure how these products are going to do in the next 12 months. And so what you're looking at here is Fortune 500 organizations. What we did is we asked them, how much of your organization is using Microsoft Teams today? And what percentage of your organization is going to be using Microsoft Teams 12 months from now, right? That's going to be in the yellow bars. And you can see the big upticks in 12 months and we took some midpoint averages. Look at how much Microsoft Teams is going to grow within Fortune 500 accounts in the next 12 months. And if we look at Slack on the next slide, you're really now seeing the exact opposite. Same question. How many folks in your Fortune 500 organization are using Slack today? And what does that look like in 12 months? And the midpoint average is actually coming down. And so, you know, Slack is a seed-based model. And so when you have less users, that's going to generate less revenue. And so again, this is amongst existing Fortune 500 customers. It doesn't include new Fortune 500, but you know, this spells problems, you know, for Slack when you kind of think about the next six or 12 months ahead. Well, it's one thing if you're competing with Microsoft and you're AWS, I'm not really not worried about Microsoft taking out AWS. But if you're one of these collaboration platforms, Microsoft, you know, we've seen over the years, first of all, they got great developer affinity. They know how to bundle different products together. Now they get the cloud working. So they got the flywheel effect in the cloud. There's just not a ton of room. And the thing is, they have such a huge software estate and such a giant customer install base. And it just makes it easy for them. The products are good enough, or in some cases really good. So that's going to be something to watch because there's a lot of high valuations going on right now in that collaboration space. That's right. And I think, you know, it really hits on, on the previous slide or the previous slides on collaboration that we saw was when you think again about the declines, a lot of that is impacting some of these peer plays, right? So in security, you saw a lot of the legacy names getting hit on the collaboration side. You saw a lot of these peer plays getting hit. And so this is kind of when you again, when you think about where budgets are going and which vendors are being impacted, it's really concentrated into some specific areas. So now one of the hardest hit areas, and you guys reported on this earlier is the IT consulting and outsourcing IT. Guys, if you bring up that chart, it's pretty ugly. Maybe you can explain what you're seeing here and why you think that is. Yeah, no problem. So again, this is from our technology spending intention survey. We're measuring spend velocity here, right? Spend intensity. And you can see across, you know, these are just a handful of IT consulting firms. If you look at the blue bar to the yellow bar, right? So the blue bar is 2020 spending intent that we captured in January. And now we're asking for updated 2020 spending intentions, right? You can see the deceleration in just the last three months. And if you, you know, if you look at our COVID-19 drill downside that we conducted, one of the questions in there we asked was, you know, are you freezing new IT projects or deployments almost a quarter of a percentage of customers said they are. And so, you know, that is going to spell problems, you know, for this space. That add, you know, when you think about, you know, look, if you're going into uncertain times, an easy way to reduce your budget is by, you know, spending less with consulting vendors since, you know, you can just lessen the number of deliverables, right? These individuals get paid based on how many deliverables they complete. So this is another area that, you know, when you kind of think about where the declines are coming from, this is certainly an area to look at. Yeah, a lot of the customers we've talked to have said we've basically shut down spending on some of the large projects. You know, we're still focusing on some digital transformation but that's maybe a longer term priority. And then the IBM piece of this chart guys, if you could bring it back is interesting to me because look, they paid 34 billion for Red Hat. I've always said a key to the Red Hat acquisition was being able to point it at the large consulting base and modernize those applications. IBM actually had a pretty good quarter in services, although they did mention that, you know, especially in software that in the last month of the quarter, software spending shut down. Well, I don't think we got visibility that this piece of the business, but this could be, you know, somewhat of a concern, you know, going forward. I think that's going to be one of the areas that gets slow rolled coming back, Sagar. I don't think it's going to come back, you know, tomorrow. Okay, so please, your thoughts. Yeah, so just to kind of quickly wrap up IBM. So yeah, one of the things we kind of saw on the data was not only eroding spending intention data on a lot of their SaaS portfolio, but also eroding market share. And, you know, we saw a big downticks on Red Hat products and IT services. And, you know, even in cloud, and I know they, you know, they indicated pretty healthy numbers on Red Hat and cloud. But again, we're asking about 2020, you know, forward-looking spending intentions. And of course, you know, they pulled their guidance. So we don't know how that's going to look, but, you know, and our data things were really coming down versus three months ago. And so, you know, I think just overall, you know, that is a data set that we're quite negative on. Yeah, I mean, I think IBM has that sense. Like I say, the March was not good for software and that's when a lot of big deals come through. You're right. Red Hat, I think grew 20% in the quarter and is now, you know, accreted from a cash flow basis, which is one of their targets. I think they beat their target there. Still good cash flow. But I think there's just so much uncertainty. And IBM is, you know, going to be, have to be prepared for that and I'm sure will. Okay, so that we're at minus 5% now. We're seeing cloud, SaaS, we're seeing a bifurcation. We talked about some of the areas that are in trouble. That's kind of part one. Next week, we're going to be talking about part two. What can we expect? Yeah, we'll start going through networking, CDN, ITSM, IT workflows, database, data warehousing, and we'll kind of go through that as well. But again, you're going to see a lot of what we talked about today, just the bifurcation spend where, you know, vendors that are more next-gen, more work from home friendly, right, the cloud, all the SaaS guys, they're doing really well. And on the on-prem and the legacy, you're just seeing elevated replacements, elevated decrease rates. And so it's, you know, this is the most bifurcated. I've seen this data set and I've been doing this at ETR for, you know, almost seven, probably going on eight years now. So I think that kind of says something about the environment that we're in and what to kind of expect, you know, in the next three to six months. I mean, it's kind of like the stock market is right now. You're actually seeing, you know, some great momentum in certain stocks and terrible and others, you know, those with great balance sheets and maybe COVID is a tailwind for them. Others, tons of uncertainty, you know, a lot of concern I know in poking around the data set, like you said, some of the analytics, the data warehouses, you see Snowflake, UI path, automation anywhere, a lot of the automation, RPA, you know, momentum is there, security, we talked about that. There's some real bright spots there, but a lot of the on-prem stuff, you know, we'll see if product cycles affect that, you know, in the second half of 2020, but you know, we'll continue to report on this, Sagar. Thank you so much for coming on and we'll definitely see you next week. Thanks for having me again, Dave, looking forward. All right, and thank you for watching this Cube Insights powered by ETR. We will see you next time, don't forget, all these episodes are available as podcasts, wherever you listen, go to ETR.plus and check out what's happening there, siliconangle.com. Has all the news I've published there weekly, also published on wikibon.com. Thanks for watching this breaking analysis. This is Dave Vellante for Sagar-Kadakya. We'll see you next time.