Spending Bounce Eludes Big Tech Firms

After overspending on a wave of innovative, cutting-edge products, Lin says companies have now shifted money toward technology integration. Business-services outsourcing firms led by IBM (IBM Quote) are getting a much bigger slice of the tech budget as they're called in to make all the new gear compatible with other systems.

Also, says Lin, you have big businesses getting smaller and small businesses growing, which alters the market for IT gear. Big businesses are still consolidating operations, reducing jobs, closing branches and subsequently not shopping for new hardware. Meanwhile, small and midsize businesses have been expanding. But Lin says as tech buyers, the smaller shops tend to fly fairly low to the ground.

The shifting buying trends don't bode well for high margin players like Cisco, say analysts.

Lin, who has a buy rating on rivals Juniper (JNPR Quote) and Nortel (NT Quote), a hold on Lucent (LU Quote) and no rating on Cisco, says one reason is there is "less of a push toward new edgy stuff is that the price of older stuff is falling so fast."

Supplies of existing technologies are available far more cheaply from Asia, say Lin. It makes much more sense to go with the proven equipment, rather than ripping it out, and installing new gear with new headaches, says Lin.

So with no new Internet to build, and cheaper rivals invading its turf, Cisco and the other members of the fading Net era vanguard must address problems of maturity.

"I think it is telling that you have Cisco, the poster child of the networking revolution a decade ago, now talking about share buybacks and dividends because they don't see any growth ahead," says Lin.