The purpose of this paper is to explore the antecedents of innovation capability and firm performance of ICT SMEs within clusters in Jakarta and Bandung in Indonesia. A causal model was proposed and tested by using Partial Least Squares (PLS-SEM). Findings reveal that intellectual capital is a major contributor of innovation capability. Surprisingly, being spatially close in a specific location does not trigger firms to have innovation capability. Instead, firm performance is marginally and directly improved by gathering ICT firms in a spatial proximity and nurturing learning capability. In practice, owners and managers of ICT firms must cultivate talented employees and equip them with training in order to update technological advances. Placing firms together in a specific location does not create innovation capability unless both firms and governments collaborate to improve current infrastructure and eliminate inefficient policies