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This study examines the moderator function of inter-firm knowledge-sharing on absorption capacity and innovative capabilities in small and medium enterprises in the Information Technology and Communication (ITC) sector. We propose a two-mode inter-firm knowledge sharing model to classify firms into the stages of development or maturity. We used structural equations modeling by partial least squares (PLS) and PLS multi-group analysis (PLS-MGA). The empirical field used to test the model was a group of small and medium enterprises (SMEs) in the ITC sector in Brazil. Data were collected from 300 SMEs, using self-reporting measures were used. The analysis confirmed a positive moderator effect of inter-firm knowledge sharing on the relationship between absorption capacity and innovative capabilities. The effect of absorption capacity on innovative capabilities was found to be stronger for those firms in the maturity stage of inter-firm knowledge sharing. The findings of this study have implications for research and practice, shedding new light on managerial and strategic actions for generating innovations in SMEs. [ABSTRACT FROM AUTHOR]