IBM's Black Friday-like promotion pushes IT equipment leasing

As the holiday season approaches, IBM this quarter began its own Black Friday promotion by offering incentives it hopes will convince users to lease its hardware or buy used IBM equipment.

When asked, Tom Higgins, director of IBM Global Financing, was hard pressed to provide any argument against leasing. IBM, like most other major IT vendors, operates its own financing arm and recommends that leasing is especially attractive for customers that have concerns about their budgets, about upgrade processes and about ultimate equipment disposal.

Industry analysts have said they expect that leasing will increasingly become the preferred path for many large users of IT equipment, especially as the economy continues to stagnate and large companies look to preserve capital. And in most cases, analysts say, IT vendors have the backing to extend credit, giving them a leg up over many other financing options.

In addition to spreading out the cost of equipment, leasing may enable companies to speed upgrades, analysts said. For example, leasing could help a company more easily shift from a five-year to a three-year IT equipment replacement schedule.

In a study of performance and energy use of IBM blade servers, Cal Braunstein, an analyst with the Robert Frances Group Inc., in Westport, Conn., found that over a three-year period a user could replace 1,000 blades with 250 blades due to constant performance improvements. The cost of leasing the upgraded systems would be less than a company would have spent to power that equipment if it owned it, according to Braunstein's research.

Joe Pucciarelli, an analyst at IDC, said the poor economy will probably continue to limit capital available to large firms, so he expects an increase in their leasing of IT equipment. He said the benefits of leasing versus buying may be further justified by allowing IT operations to more easily upgrade to more powerful systems rather than have to build out floor space to house more older equipment.

Pucciarelli did note that companies that turn to leasing must have a good lifecycle management process in place so it can effectively utilize the new equipment.

The IBM promotion offers a 90-day payment deferral on leased hardware, software and services, as well as zero percent financing on software products. IBM also said it is offering its pre-owned equipment “at attractive prices” during the promotion.

In addition, the company said that during 2009 it has been passing savings from accelerated depreciation tax benefits to customers even though its global financing arm holds title to the equipment.

In the latest quarter, IBM Global Financing revenue fell by 15% to $536 million. By comparison, rival Hewlett-Packard's financial services unit reported revenue of $726 million in the quarter, up 5% from the prior-year period.