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Tech's 2011 Spending Winners


NEW YORK ( TheStreet) -- IBM's (IBM) stellar fourth-quarter results and strong numbers from Intel (INTC) have raised expectations that 2011 will be a good year for technology stocks such as VMware (VMW), Citrix (CTXS) and Qualcomm (QCOM), set against the backdrop of an improving economy.

With consumer confidence rising, jobless claims falling and analysts raising their U.S. GDP estimates, there are signs that the American economy is slowly getting back onto its feet, albeit somewhat groggily.

"IT spending correlates most directly with overall economic indicators such as GDP and consumer confidence," Roger Kay, an analyst at Endpoint Technologies, told TheStreet. "Both of those indicators are mildly positive at this point -- nobody is celebrating with champagne, but things are moving along."

Brian Marshall, an analyst at Gleacher & Company, adds that IBM's results could pave the way for other tech stocks. "IBM usually grows its revenue by about 16% year-over-year in the December quarter and this year it was a robust 20%," he explained in an email, adding that the data center is particularly hot. "The biggest growth cycles include virtualization and adoption of NAND Flash in the enterprise."

This spells good news for companies such as virtualization market leader VMware, which blew past analysts' fourth-quarter estimates on Monday, as well as storage maker SanDisk, which posts its own fourth-quarter numbers on Thursday.

VMware's stock has risen more than 110% over the last 12 months, buoyed by strong demand for its products, which looks set to continue. In a statement released after market close, the company noted a fourth-quarter spending uptick and offered robust guidance, albeit with a flat operating margin.

Tech research firm Gartner recently raised its 2011 global IT spending forecast to 5.1% from its previous prediction of 3.5% growth, citing a healthier economic environment. Rival research shop Forrester is even more bullish on the prospects for IT spending, predicting a 7.1% rise in global IT purchases, boosted by accelerating demand for software. Further evidence of the tech sector's health came on Monday, when data from consulting firm Challenger, Gray & Christmas revealed that IT job cuts plummeted in 2010, with 73% fewer redundancies than 2009.

"We're seeing good trends in the corporate data center and hearing about demand for servers, storage and traditional networking equipment," added Jayson Noland, an analyst at Robert W. Baird. "I would expect that could boost EMC (EMC) and NetApp (NTAP) -- the hardware component of Hewlett-Packard (HPQ) also -- looks like it is very healthy."

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