IT buyers so far in 2007 have been putting more budget dollars down for software, network communications equipment and outsourced services than they did late last year, and industry watchers expect that trend to continue in the coming months.

A strong first quarter in certain sectors reveals a positive outlook for continued growth throughout 2007, a Forrester Research report released this week says. The firm compares data from the U.S. Department of Commerce with the U.S. revenues of 40 large IT vendors to forecast the potential for growth going forward. With companies such as Cisco reporting sales increases of some 19% for the first quarter 2007, Forrester says, the spending pace is expected to grow.

"The Q1 2007 IT investment and purchases data showed a distinct slowdown in growth from the first half of 2006. However, the weakness was not as pronounced as in the fourth quarter of 2006, indicating that the worst of the slump has already happened," writes Andrew Bartels, a vice president at Forrester and lead author of the " U.S. IT spending update: Q2 2007" report. "Growth in the second quarter of 2007 should show signs of improvement … and IT purchases should strengthen in the second half of the year."

Forrester says while the increases in the first quarter are up just 3% to 4% over the same quarter last year, it is a significant jump from the decline that occurred in the last quarter of 2006.

For instance, vendors EMC, Oracle and SAP reported U.S. software revenue growth of 25%, 24% and 15% for the first quarter 2007, respectively. Microsoft reported 6% year-over-year increases in its software sales to U.S. businesses, while IBM and CA reported software sales increases of about 4% and 5%, respectively. Software represents the area of biggest growth, Forrester reports, continuing to be "the bright spot in the U.S. tech market with 7% to 8% growth rates."

Network communications equipment makers had mixed reports, with the likes of Cisco seeing nearly 20% increases in the first quarter but others such as Alcatel-Lucent, Ericsson and Nokia seeing "double-digit rates of decline" from the year before in equipment sales. Nortel Networks also saw good numbers with a reported 7% increase in sales.

Another area that experienced some growth in the first quarter was IT services and outsourcing purchases. IT spending in this market increased about 6%, which is consistent with the last quarter in 2006. Companies such as Infosys, Tata Consultancy Services and Wipro reported growth of 31% or more from the same quarter in 2005 while Capgemini and Getronics reported 41% and 18% increases, respectively. Accenture saw U.S. revenue grow some 16% over last year and CGI Group reported 15% growth. Affiliated Computer Services and Unisys experienced single-digit growth of 9% and 7%, respectively, while EDS reported 3% growth. CSC, HP Services and IBM Global Services each reported flat growth, Forrester says.