The small and medium-size business (SMB) IT spending outlook for 2006 is positive, with IT budgets expected to increase by 7.2%, up from 4.8% going into 2005. The top IT initiatives for 2006 include upgrading applications, which will contribute to server spending; upgrading the security environment (a perennial hot issue); and Internet and eCommerce activities. The strong budget increase combined with the top priorities for IT will further manifest through increases in spending on the major hardware categories of PCs (55% of companies), networking equipment (51%), servers (48%), and storage (45%). For software, 50% will increase spending on security and 42% on Web applications. For outsourced services, the most demanded service for 2006 will be maintenance, development and support of applications (29% of companies), which was also the most demanded service in 2005. SMBs will turn to local and regional consulting firms and value-added resellers (VARs) for their managed services needs, Forrester reports.