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Part 3: 2H’20 Enterprise Tech Macro Trends + COVID-19 Impact on Tech

It’s a Recovery, Not a Rebound

ETR Research 

| August 07, 2020

Every quarter, ETR releases a short brief discussing near- and long-term IT trends. Here's part 1 and part 2 of our 2H'20 macro trends if you need to catch up; here's our concluding thoughts:

In May, we asked CIOs and high-level IT decision makers to provide insight as to the type of recovery their organization expects due to COVID-19. Specifically, we gauged whether their organization is expecting a V-shaped, U-shaped, or L-shaped recovery due to COVID-19.

V-shaped: Sharp, brief decline in revenue, followed by a strong recovery in 2H 2020

U-shaped: Decline in revenue for 2-3 quarters, followed by growth in 2021

L-shaped: Decline in revenue for 3+ quarters, followed by moderate growth for many quarters thereafter

None of the above: Organization is seeing and will continue experiencing an acceleration in revenue due to COVID-19

[a] 44% of CIOs currently expect a U-shaped recovery due to COVID-19; 15% anticipate a L-shaped recovery, 14% expect a V-shaped recovery, and 16% indicated ‘none of the above’ (i.e., these organizations are seeing and will continue experiencing an acceleration in revenue due to COVID-19).

[b] Further, we asked CIOs in both our first COVID-19 drill down study (Mar/Apr) and our most recent COVID-19 drill down study (Jun/Jul) to indicate whether they were experiencing less demand from consumers and/or businesses. In Mar/Apr, 26% indicated they were experiencing less demand, and 33% indicated they anticipated less demand in the next 3 months. Our most recent COVID-19 drill down, conducted 3 months later from the first study, asked the same question. A staggering 54% of respondents indicated they were experiencing less demand (vs 33% anticipating three months ago). Further, 43% of respondents indicated that they anticipated less demand in the next 3 months. On the bright side, demand conditions are expected to improve in three months. On the negative side, and more importantly, the percentages captured in the most recent survey are significantly higher vs. 3 months ago. That, and nearly 1 in 2 organizations will be experiencing less demand come this fall.

[c] If that isn’t enough evidence that a V-shaped rebound isn't in the cards, we’re seeing notable upticks in organizations planning to freeze hiring and layoff employees. 59% of organizations indicated a freeze in hiring in the next three months, up from 26% in Mar/Apr, while 24% of organizations indicated they plan on laying off employees in the next three months, up from 4% in Mar/Apr.

[d] As we head into the fall, the data is pointing towards a deteriorating macro environment. In the near-term, we expect the byproduct of this to be a bifurcated earnings environment, as explained in part 2 of our high level takeaways. As for our long-term outlook, an extended period of less demand, coupled with high unemployment, may put some serious cracks into the proverbial notion that a “floor” for IT spend exists.

Quite frankly, the shift from a positive asymmetric risk/reward, one in which tech benefits from the current environment, to a negative asymmetric risk/reward, one in which less demand and rampant unemployment cause organizations to rethink their budgets, may very well be happening before our eyes.

-SK