But Virtualization Shows an Uptick

May 13, 2008

When the going gets tough, the tough get going, according to the old axiom. But that's not the case with U.S. corporate software spending, which continues to trend downward.

An April 8-15 ChangeWave corporate spending trends survey shows a deterioration in 2nd Quarter software purchases with little relief in sight. But there's good news on the Virtualization front - with strikingly upbeat findings for VMware (VMW) and good indications of momentum for Citrix (CTXS).

A total of 1,956 respondents involved with software spending in their company participated in the survey.

How Tough Is Tough?

First, the bad news. A total of one-in-four respondents (25%) say their company will spend less for software over the next 90 days - 3-pts worse than our previous survey in January.

A miniscule 12% say their company will spend more - down 4-pts from previously.

What's behind the continued pullback? A total of 13% cite "a general slowdown in business conditions and capital budgets" as responsible for curtailing their company's software spending - 4-pts higher than in January and double the percentage of six months ago.

In a further sign the downturn isn't over, we asked respondents if there were any recent changes to their 2nd Quarter capital spending budgets, and more than one-in-four (26%) said they had been adjusted lower over the past 90 days. That's 4-pts worse than just three months ago, and more than triple the percentage who say their quarterly capital budgets have increased (8%).

Which business software categories are bearing the brunt of this? Enterprise Resource Planning (ERP; Net Score = -11), Document and Enterprise Content Management (ECM; -9), and Customer Relationship Management Software (CRM; -6) have all been hard hit.

But on the bright side, the survey does show increased corporate spending for Virtualization Software (Net Score = +5), with VMware strengthening its domination over this market. So far this year, VMware's share has risen 12-percentage points in our ChangeWave surveys (from 58% in January to 70% currently).

None of the other major competitors have exhibited anything like this explosive growth, although Citrix (26%; up 5-pts) has also shown a jump in current share.

Looking at planned corporate software purchases over the next 6 months, VMware (73%; down 3-pts) towers over the rest of the market, with better than a four-fold lead over its closest competitors. But once again, Citrix (15%; up 8-pts) is showing momentum going forward.

Thus, in a depressed corporate spending environment, Virtualization is one of the only software spaces showing an increase in purchasing going forward. We will be keeping a close eye on VMware, Citrix, and the overall virtualization software market in the weeks ahead.

So should you. After a precipitous fall in the 1st Quarter, VMware's stock price has rebounded as much as 66% in the past few weeks.

Jim Woods co-wrote this article.


Related ChangeWave Articles
-- Tech Alert: No Soft Landing for Software Industry (3/25/08)
-- Virtualization Trends (2/18/08)


In the News
-- Study: U.S. corporate software spending slowing (5/13/08 - Infoworld)
-- Tech Spending Gets Bleaker (5/13/08 - WSJ)