No matter how long you plan on driving that old jalopy, circumstances have a way of forcing you to buy a new one -- even more so if you rely on it to make a living.
So it is with IT equipment, which is why many market watchers are predicting an uptick in demand for new hardware heading into next year. It seems that enterprises can only go so long without refreshing their data center infrastructure, especially since decreasing revenues apparently don't coincide with decreasing data loads.
Wall Street certainly seems ready for a turnaround, judging by the growing number of positive reports from leading market analysts. Barclays Capital just raised the entire IT hardware sector to "positive" from "neutral" and upped its target share prices on many top-tier vendors, including IBM and NetApp. The company cited pent-up demand as one of the key drivers of future sales of both servers and storage equipment, although it expects PC sales to remain flat for a while longer.
That report coincided with another from William Blair & Co. raising Cisco from "market perform" to "outperform," again saying pent-up demand for networking equipment will drive profits as the economy pulls out of recession. As evidence, Blair analyst Jason Ader points to an acceleration of orders in Cisco's supply chain.
All of this is translating into more positive outlooks for both Intel and AMD, even as expectations are less than stellar for their third-quarter financial reports due next week. Lazard Capital's Daniel Amir told the Wall Street Journal that with server shipments dropping some 20 percent in 2009, the industry is poised for a rebound as new chip technologies make aging machines ever harder to justify. Broadpoint AmTech's Doug Freedman adds that cloud computing requirements will also demand the very best silicon in new networking gear.
Virtualization is widely expected to be a drag on server sales in particular, but Processor.com is arguing that the technology will drive new spending in both servers and storage. On the server side, virtualization will drive demand for more powerful machines plus the means to manage and monitor them. Storage, meanwhile, will need to be both more scalable and more flexible as data centers transition from discrete silos of equipment to pools of available resources. On both accounts, however, networking will gain as it becomes the crucial element to tie it all together.
It must be remembered, however, that all of these good tidings are predicated on the general economy's return to good health, which is widely expected to take place early next year. But while the beginning of a recovery is likely, the fact is that the world economy suffered a serious heart attack last year and has only recently been moved out of ICU.
It could be a while before it's running marathons again.