Tech Spenders Turn Choosy

In flush times, corporate IT managers may not mind the price premium, finding comfort and safety in the established Cisco brand. But in a recessionary environment, value becomes more important.

Thus, many chipmakers who provide silicon for Cisco competitors (Cisco uses its own home-grown chips in much of its gear) have cited strength in networking-equipment chip sales, with BroadcomBRCM, LSILSI and PMC-SierraLSI all reporting better-than-expected quarterly results.

"We're seeing more infrastructure build-out than we had expected." Broadcom CEO Scott McGregor told analysts during a conference call last month.

Massive pre-Olympic Games investments in China -- where Cisco faces tougher competition -- may explain some of the discrepancy.

Gartner analyst Frank Marsala believes Cisco's comments on delays in corporate technology spending are probably an accurate gauge of what's occurring across the broader market. But he notes that lower-price competitors could benefit from a weak economy.

"The point is a good one that in a softer economic time, [a corporate customer] might be looking to save some cash," says Marsala.

Cost saving is already a key factor behind the popularity of virtualization software, which allows companies to pool their computer programs and files together on a smaller number of servers. Not surprisingly, the case for buying less hardware, and virtualizing more servers, becomes even more compelling in tight economic times.

To date, VMwareVMW has been the main beneficiary of this trend -- the stock is down sharply from its 52-week high of $125.25, but at $67.58, it's still up 130% from its August initial public offering of $29.