Why own when you can lease?

Vendors like HP and IBM say leasing assets from them instead of pure financing firms ensure customers have flexibility and the latest technology.
Written by Vivian Yeo, Contributor

Leasing of IT assets is not about the money--this is the message IT solutions vendors are trying to communicate to businesses of all sizes.

Companies such as Hewlett-Packard and IBM, are among several IT specialists cum financiers that are touting their IT asset management services as more comprehensive than traditional financing institutions.

According to Irv Rothman, CEO of HP Financial Services, businesses that turn to technology specialists get a reasonable interest rate for leasing IT assets, and at the same time, enjoy a host of services that include asset lifecycle management and disposal.

"Banks have the ability to produce a very low rate which some customers like a lot, while [companies like us] have the ability to produce a rate that's competitive and also bring a number of value-added services related to the assets," said Rothman, in an interview with ZDNet Asia.

"There are still customers who want to negotiate you down to the fifth decimal place… but there are [also] many companies which appreciate the fact that a finance company cannot manage their IT assets as well," he explained.

Singapore-based TSMP Law for instance, has done its calculations when it comes to IT leasing. The company, which has around 50 employees, opted to lease when it began operations in 1998 to free up its cash flow, said Stefanie Thio, its corporate head and joint managing director, in an e-mail interview with ZDNet Asia.

The law firm later acquired its assets "to save on interest costs," said Thio. However, TSMP chose to lease again in recent years when the company decided to undergo a systems overhaul. It picked HP as its partner, providing new PCs, servers, firewall tools and other security systems and software.

Thio, who had compared various leasing options before committing to HP, saw value in taking up a lease with an IT vendor. "Having [a leasing agreement with] HP, as opposed to leasing from a pure financing company, gave us access to a leading player in the computer market and the option to upgrade when the lease runs out," she explained. "This is better than a pure financing lease."

In TSMP's case, "security, reliability and servicing were the most important considerations," said Thio. "Our selection process was driven by these [factors], not financing considerations."

Rothman noted that an IT vendor's asset management program typically helps customers make the move from older equipment and acquire new equipment. The vendor also manages and tracks the assets during their lease life, and dispose of the equipment in a responsible and secure manner at the end of its lifecycle, he said.

Nic Nuske, Asia-Pacific general manager of IBM Global Financing, noted that leasing from tech companies could offer businesses "more discipline" in managing the lifecycle of IT assets, and avoid the substantial costs of maintaining older equipment.

"Once you've gone past the useful lifecycle of the asset, the cost increases exponentially," Nuske said. "If you actually work out the cost of getting rid of the redundant technology…[analysts] Gartner and IDC estimate hundreds of dollars per asset."

IT specialists can help businesses maintain some degree of discipline in refreshing the technology they operate, through options to extend the lease or upgrade to newer assets. The customer then does not "end up with a roomful of redundant technology," he added.

Nuske also noted that companies are increasingly concerned about acquiring technology solutions, and not just a bunch of IT products. This means businesses first assess what they need to achieve, and then narrow down the technology that can aid them in attaining their objectives, he said.

Tracking of assets is another benefit that technology companies can offer to businesses, especially larger enterprises.

According to HP's Rothman, a common problem faced by large businesses is that large amounts of money were spent on acquiring and updating large quantities of IT assets, but the companies eventually lost track of the equipment or were not aware of when the lifecycle of their IT assets expired.

Leasing contracts from technology vendors will also provide more flexibility than pure financing contracts. IBM's Nuske said a typical lease term lasts three or five years. However, a well-established leasing contract could give the customer flexibility at any point in the lease, and not impose penalties should the customer decide to acquire instead of lease, he said.

With potential benefits for both large and small enterprises, Rothman emphasized that asset leasing should be an option that every company can depend on.

"Companies budget and think about things internally in a lot of different ways…sometimes the rationale is not always clear," he said. "But if you ask me, I can't imagine why anybody would want to own IT [assets] when you can lease it."

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