March 25, 2008

During turbulent economic times, certain industries thrive while others languish. So which bucket does the software industry fall into?

To find out, we surveyed 525 respondents working within the software industry - and the results weren't good.

Only 19% project their company's sales will come in Above Plan for the 1st Quarter - a 9-pt dive compared to our December survey and the lowest reading in years.

We also asked respondents to rate the willingness of their customers to spend, and only 33% now report their existing customers have a Green Light (i.e., spending is normal) - a 19-point freefall over the last three months.

Conversely, 60% say their customers have either a Yellow Light to spend (i.e., spending is downsized, though not completely stopped) or a Red Light (i.e., spending is virtually on hold) - an enormous 17-pt jump from previously.

Looking ahead to the 2nd Quarter, just 20% believe their company will come in Above Plan while 22% say Below Plan - a net 17-pts worse than in December.

Finally, in another extremely bearish sign, only 10% say their company's capital budget is increasing for next quarter (2Q) and 26% say its decreasing - a net 14-pts worse than three months ago.

So what does this all mean? Plain and simple, the software industry is experiencing the pains of a severely depressed spending environment.

It doesn't seem like there will be many upside surprises when earnings season arrives.