As many companies exit the recession with strong balance sheets and cash on hand, management teams across a number of industries are now allocating some of their expanding budgets to IT infrastructure updates that may have been neglected during the difficult economic environment of the last two years.
“You can postpone your PC upgrade, you also can postpone maybe some of your software upgrades, but if you are running out of capacity in your storage, you have to buy more capacity,” said Kaushik Roy a senior vice president and senior analyst at Wedbush Securities, who recommends investors take close looks at data center companies with little to no exposure to consumer demand, which remains soft.
“Look at VMware (VMW) — what’s helping VMware are two things: It’s the data center refresh, and it’s the re-architecture of the data center. When you are doing a refresh, you’re re-architecting it, and when you are re-architecting it, you are incorporating virtualization, so that’s helping VMware. That’s why the stock has done so well this year,” said Roy, who also includes EMC (EMC) and Net-App (NTAP) on his short list of companies to keep an eye on.
“So what do we like here? We like companies which have an exposure to the enterprise, especially the storage systems market. We like the virtualization vendors that are participating in the data center refresh and the data center re-architecture,” he explained. “But where we are cautious is on tech companies that have large exposure to the consumer segment.”
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