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IT Infrastructure Companies Lead The Recovery

There's an old adage in IT that customers don't buy infrastructure--they buy applications, which drag along sales of servers, networking equipment, storage gear and other things. Funny thing about this IT economy, though: It's the infrastructure companies that are enjoying a big boom right now and seeing some of the quickest recoveries since things turned sour in 2000.

Consider Cisco. The company, whose Catalyst 3750 product was a finalist in our 2004 Technology Innovators Awards, recently announced sales for the first fiscal quarter of 2004 that beat analysts' expectations. Sales jumped 5.3 percent to $5.1 billion during the quarter ended Oct. 25, 2003. The news sent Cisco shares--along with the rest of the broad stock market--soaring.

Other infrastructure companies have seen even more dramatic results of late. Take Citrix. The Fort Lauderdale, Fla.-based developer of thin-client application access and deployment solutions saw sales in the September quarter jump a whopping 21 percent over the previous year to $144 million. The company closed a number of big infrastructure-related deals during the period, including one with Bankdata, a supplier of banking information technology in Denmark.

Just about everywhere you look, customers are beginning to increase their infrastructure spending. According to a recent Forrester report, more than one-third of customers expect to spend more money next year than this year in key infrastructure areas including networking equipment, servers and storage hardware. Infrastructure software, too, is expected to grow handsomely. According to Dataquest, customer spending on security software is expected to grow to $6.7 billion in 2005 from $5 billion this year. Likewise, spending on network systems and management software is expected to grow to $10.7 billion by 2005 from $9.9 billion this year.

Why the sudden surge in infrastructure spending at a time when there's widespread belief that customers are sitting on too much underutilized IT capacity? Several reasons, according to leading IT experts.

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