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Hardware upgrades fuel 2007 spending

Midmarket firms put a good chunk of their budgets toward new hardware -- mostly network and storage. Next year? Experts predict it'll be blades and virtualization taking up the charge.

Hardware spending was up for midmarket firms in 2007, according to Forrester Research Inc., with most of that money going toward storage and network hardware.

Michael Speyer, senior analyst at the Cambridge, Mass., research firm, said 2007 hardware budgets for small and midmarket companies contained a lot of money for new equipment.

"Typically, if you look at how much goes to new stuff versus how much goes to maintaining existing systems, if you look at the overall IT budget, it's more of an 80% to 20% split new versus maintenance."

In 2008, Speyer said he expects continued growth in storage hardware purchase but with an increased emphasis on blade servers and server virtualization. He said he doesn't expect hardware categories to experience a drop-off in adoption rates next year unless the economy "turns sour."

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Forrester asked 569 executives who make hardware decisions to break down their hardware budgets by new investment and maintenance. On average, 38% went to new hardware and system software and 62% to existing operations and maintenance.

"That's a pretty significant change in that 38% of budgets are going to new investments," Speyer said. "This tells me that there is a fair amount of growth going on, or there is a fair amount of upgrade and replacement going on."

Speyer said spending on storage and network hardware is hot right now. He withheld exact numbers on how much small and medium-sized businesses (SMBs) are spending in these areas, citing such data as proprietary and available only to clients. But he said SMBs are clearly spending more in those two areas.

"The drivers behind storage spending are things like data growth, archiving data and disaster recovery," Speyer said. "And we're in the midst of a network upgrade right now, especially as companies prepare themselves for IP telephony. We're seeing people start to refresh their networks."

Nick Garbidakis, CIO and CTO of the American Bible Society, said his organization is replacing all of its network hardware this year. The $77 million New York-based nonprofit is sticking with Cisco Systems Inc. for its network refresh.

"Each year one-third of our PCs, laptops and servers are refreshed," Garbidakis said. "It just so happens that this year basically all of our networking is end-of-life. So it's time for the network also."

Garbidakis said he's also spending money on storage to keep up with his organization's data growth. His nonprofit is at 10TB of storage right now.

"Every year we make investments in storage," he said. "Like everybody else out there, our storage needs are exploding, so we keep on upgrading and expanding practically every year. We're looking to the second-tier vendors as a more cost-effective solution possibly this year, because the big ones are becoming quite expensive."

Forrester's research also found that midmarket firms are very interested in network-attached storage, IP storage area network (SAN) technology and iSCSI storage. Twenty-three percent of 145 SMB decision makers have implemented one of these technologies and 11% will implement one in the next 12 months. Another 25% said they are interested in the technology.

Steve Kraus, CIO of Olan Mills Inc., said his company has been reducing its server spending through consolidation via server virtualization. However, virtualization has forced the $157 million, Chattanooga, Tenn.-based portrait studio chain to invest in new storage.

"We recently purchased a new SAN from Pillar that we're very happy with," Kraus said. "That purchase was driven by the need to buy storage that was compatible with our virtualization strategy, and was justified based on the savings from the virtualization itself."

Michael Jones, vice president and CIO of Children's Hospital and Health System Inc. in Milwaukee, said storage has been the most critical area of his hardware budget this year. His organization, which earned $38.7 million in 2005, invested in SAN storage and associated Fibre Channel fabric devices this year.

Jones said his storage spending and associated investments in server virtualization have been aimed at accommodating "the infrastructure needs of our diverse software technology portfolio while attempting to keep costs down and improve service uptime."

The investments are also aimed at preparing for future disaster recovery initiatives, Jones said.

Let us know what you think about the story; email: Shamus McGillicuddy, News Writer

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