By Ken Hardin
With Irv Rothman, President and Chief Executive Officer of HP Financial Services.
This interview originally appeared in the IT Business Edge weekly report on Maximizing IT Investments. To see a complete listing of IT Business Edge weekly reports or sign up for this free technology intelligence agent, visit www.itbusinessedge.com.
Question: With borrowing rates as low as they are and enterprises looking to extend the lifecycle of their hardware as much as possible, are customers now viewing the flexibility that comes with leasing as almost a premium service?
Rothman: Some customers are very, very price-conscious, and they are going to compare their borrowing cost to the cost of leasing, and it's purely an economic analysis for them. Most customers at the upper end of the marketplace...are looking for much, much more than a purely economic analysis. They are looking for people to help them manage the assets through the lifecycle; they are looking for operations flexibility; they are looking for somebody to help them track and manage the assets, which is something big companies don't usually have the assets to do; and, finally, they are looking for that (equipment) obsolescence protection. Mindful that the economic analysis can be a close call, particularly for large customers with access to the capital market..., we are offering more and more services to incent those customers to consider financing.
Question: You mention inventory management as a major incentive for leasing for large customers. Is that also a compelling factor for midsize organizations?
Rothman: If they've got hundreds of pieces of equipment, it's quite valuable to them. We actually offer a product called AssetEdge, which enables the customer to view his entire inventory that's on lease from us online...and that is an enormous advantage to them, because then they know when equipment needs to be upgraded...they know when they need to offer new training to their people, software upgrades, and...what's really, really important, is that they know where the stuff is, because, if it's on lease and, at the end of the lease, they need to return it and they can't find it, it's costly.
Question: Are most customers now opting for purely operational leases, to get the most flexibility, or are some still opting for capital-type leasing where they acquire the equipment at some time during or at the close of the lease?
Rothman: Typically, if a transaction is 25 percent soft costs (software solution, maintenance, installation, other non-hardware-related services), the agreement may have some aspects of an operating lease, that is to say that the customer has the opportunity at the end of the lease to purchase the equipment or renew the equipment at fair market value, as opposed to having a fixed-price purchase option, but it may not technically be an operating lease. Most customers don't care, unless they are looking for an off-balance sheet accounting treatment. Some of our very large customers do care a lot about that.