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Corporate software spending under pressure, according to latest RBC IQ survey

Survey of corporate decision-makers shows hope for year-end improvement

SAN FRANCISCO, August 7, 2008 — Corporate software spending is still subdued, as purchasing decision-makers who expect their companies to spend less over the next 90 days continue to outnumber those who expect to spend more by a two-to-one margin. However, for the first time since last fall, there are signs that the rate of decline in spending is leveling off, according to the latest RBC IQ Survey of corporate software purchasing decision-makers, released by RBC Capital Markets at its annual North American Technology, Media and Communications Conference being held August 6-7 in San Francisco.

"Corporate software purchasing sentiment continues to be flat, consistent with continued year-over-year deceleration in IT spending metrics," said Marc Harris, RBC Capital Markets' co-head of Global Research. "The poor business climate, capital spending constraints and reduced need for new software are all taking their toll on the industry, continuing a slowdown that began last year and accelerated in 2008."

The quarterly national survey of 1,902 executives involved with their companies' software procurement decisions found that 25 per cent of respondents expect their companies to spend less over the next 90 days than in the previous 90 days, and only 12 per cent expect their companies to spend more. Nearly half of all respondents (44 per cent) said their company has no plans at all to purchase software over the next 90 days, continuing a year-long downward trend.

Security and Virtualization are the only two software categories that appear to be weathering the storm, with both showing signs of increased spending over the next 90 days.

Security software remains a staple for corporate IT budgets, driven by compliance and regulation as well as by the ever-increasing shift to conducting business via e-mail and the Internet, as companies try to avoid the downtime and reputational risk of security breaches.

Virtualization is a relatively young industry that is catching the mindshare of IT departments, as a way to centralize data that traditionally reside on the desktop, thereby improving security, increasing utilization and lowering maintenance costs.

Among other sectors, Business Intelligence software is being pressured by the overall slowdown, and planned Customer Relationship Management (CRM) software spending also appears to be weak. Enterprise Resource Planning software is the weakest category of all going forward, slightly lower than Document & Enterprise Content Management Software.

The tough software environment is attributed to several factors. Three in 10 respondents (30 per cent) say their company does not need to purchase any new software, double the 14 per cent who say that their corporate purchasing decisions are being driven by the general slowdown in business and capital budgets. In another clear sign of a challenging environment, more than a quarter of respondents (28 per cent) say their company's overall capital budget for the current quarter has been adjusted downward in the past 90 days, compared to only 9 per cent who say the budget was increased.

"While the results of this survey reflect a spending environment consistent with last quarter, this does not necessarily mean we are at the bottom. The next 90 days look challenging for software manufacturers hoping to sell to corporate customers," said RBC Capital Markets analyst Robert Breza. "There are some signs of a possible rebound; however, this could be threatened by both the degrading macro environment in Europe and Asia and uncertainties associated with the upcoming U.S. elections."

The RBC IQ survey was conducted July 15- 31, 2008, and included 1,902 respondents. ChangeWave Research assisted RBC Capital Markets in the survey. The margin of error was ±2 per cent.

About RBC Capital Markets
RBC Capital Markets is the corporate and investment banking arm of RBC and is active globally in debt origination, sales and trading, foreign exchange, infrastructure finance, structured products, metals and mining, and energy. Its North American platform includes a significant U.S. middle market investment banking franchise and leading equity, underwriting, sales, trading and research businesses. Bloomberg ranks the firm as the 12th-largest investment bank globally.

- 30 -

For further information, please contact:

Kevin Foster,
RBC, (212) 428-6902, kevin.foster@rbccm.com

Loretta Healy,
The Hubbell Group, Inc. (781) 878-8882, lhealy@hubbellgroup.com


 



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08/11/2008 07:56:23