Jury still out on vendor financing benefits

SYDNEY (11/10/2003) - George Etnasios is sold on leasing his organization's hardware and has been for the last seven years, but now he is a little more particular about who he finances through.

IT manager of The Spastic Centre, Etnasios said leasing was the most economical, easiest way of refreshing the center's hardware platform every three years.

The Sydney-based Spastic Centre has a US$150,000 (US$105,000) three-year Master Lease agreement with Dell Inc. with financing from Macquarie Bank.

He feels that leasing hardware for the center's 900 end users is a smart move, but using a third-party financier poses a logistical nuisance once the agreement ends.

"When you want to give the PCs back at the end of the deal to a party like (Macquarie), it's a hassle. We have to keep all the boxes for the equipment, clean the machines and re-box them for Macquarie's logistics provider to collect," he said.

The Spastic Centre was considering moving to Dell Financial Services to continue leasing its computer fleet and servers, as they offered a more competitive deal than Macquarie for a three-year term, which would cost A$50,000 less in labor costs, Etnasios said.

However, Ben Wrigley, Hotel Intercontinental Sydney's IT manager, paints a different picture saying that given the choice, he would never go down the leasing path again because vendor-financed leases or purchases can make for complicated relationships in the future.

Wrigley said that over the years the decision to finance IT equipment through a lease always seemed sensible, given "leasing costs versus depreciation costs were similar."

However, he warned, these arrangements can lock customers into a relationship with a vendor reducing the ability to get a better deal in the future.

"Once you lift the bonnet on vendor finance, you find the same nasties that you can potentially encounter with third-party finance providers," he said.

"And when you have continuing arrangements with vendors, threatening to take your business elsewhere and slamming the door in (their) face is not very effective."

The move by companies to vendor-financed leases or purchases is part of a growing trend as companies increasingly forgo financial institutions for IT funding needs. In fact, even the banks are financing their leases through IBM instead of their own institutions.

Almost a third (31 percent) of the US$35 billion in assets IBM Global Financing leases is with financial institutions, said Belinda Tang, vice president of IBM Global Financing in Canada.

Vito Mabrucco, IDC's products and services research vice president, claims IT vendors now have the upper hand when it comes to leasing and long-term purchasing deals.

"The vendors can look at (potential) future sales whereas the financial institutions only look at the money," he said.

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