To Buy or Lease a PC?
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That's a discussion an increasing number of IT shops are having when it comes to PC purchasing. And if they're not, they should be. Why?
There are more and better benefits in PC leasing than ever before.
That's the conclusion of Robert Frances Group (RFG) senior analyst Adam Braunstein who's been researching the multi-billion-dollar IT leasing business for several years.
"The numbers aren't staggering, but I'm absolutely seeing an uptick in PC leasing," Braunstein told internetnews.com. "More companies are getting it. The tide is shifting each year in favor of leasing."
Like other office equipment, the option to lease rather than buy PCs has been available for decades. But several new factors and trends make the lease option more attractive.
First, there's price. Braunstein said the big PC companies, like Dell, HP and Lenovo, are falling all over themselves with pricing incentives and other gimmicks to get lease customers.
"Let's say there's a PC that normally sells for $700. I've seen lease rates where companies pay only $640 or $650 over the course of the 30-month lease," said Braunstein. "So they're actually saving money on the purchase price and financing that cost."
Such discounts relate to firms buying in large quantity, typically thousands of PCs. And don't worry about the leasing company's profits. They more than make it for the discount in service contracts.
PC companies contacted by internetnews.com would not confirm whether they offer more attractive lease terms or buy terms, but emphasized the hardware purchase is a small part of the overall IT expense.
"The cost of each unit only represents 15 to 20 percent of owning and managing that asset," Keith Kendall, HP's financial services managing director for the Americas, told internetnews.com.
"The computing asset now costs less than a TV. It's managing the overall cost and lifecycle that matters more."
Braunstein said buying remains a perfectly logical option for many corporations, but leasing, particularly in a corporate campus with hundreds or thousands of PCs to manage, has advantages.
One emerging concern is energy costs. Newer PCs you lease might include LCD monitors that require about 30 percent less energy than CRTs. Similarly, processors from AMD and the Intel "Crusoe" due out this summer, boast higher performance-per-watt than older models.
"We have a lot of clients in a campus-like setting that can't purchase more power. The power company is saying 'We can't give you any more,'" said Braunstein. "Now you have CEOs with better things to do than show up at local planning meetings to justify their diesel generators."
Beyond energy savings, there is capital savings.
"You don't lay out your cash, our cash," said HP's Kendall. "And we say your cash is more valuable in your hands than in the asset."
Like HP, Dell doesn't break out its PC leasing business, but it's a significant part of the huge Dell Financial Services (DFS) operation, which grew 24 percent last year.
DFS includes both consumer and business financing which covers both lease and financing of computer purchases.
"Every company has specific issues," Matt Gonser, vice president of commercial sales at DFS, told internetnews.com. "With the smaller companies you might see more emphasis to preserve liquidity and improve their credit line; larger companies want to be more current with technology and avoid obsolescence.
For maintaining and servicing the assets, the more homogeneous you are by staying current, the better off you are."
One Lease Size Does Not Fit All
Much like car leases, PC leases have terms. PC leases typically run about three years, but the big players offer a range of options.
"A company with a big sales force, for example, might want to lease their notebooks for a year and then refresh with new units, while other lease assets are staggered," said Gonser.
"For the less intense computing areas, we get requests for 48 to 60 months."
The major PC lease companies will accommodate these kinds of mix-and-match terms. And there are programs for disposing or recycling the old units when the lease is up.
Of course this all costs money and terms are spelled out in the lease contract. But with environmental concerns on the rise, both from an ethical and legal liability perspective, getting rid of old PCs you own can be even more expensive.
The "end-of-term" contract agreements are where some of the lease companies are jockeying to offer more value. Systems don't always come back complete, for example, which can lead to extra charges, if not arguments, over what was or wasn't returned.
DFS scans the assets at the customer's site to get a full accounting of what's being returned, as well as handling the shipping.
Gonser said DFS has seven things they charge for, such as a cracked LCD, and will honor their big customer's "best faith" effort to return smaller items like mice and keyboards.
The big PC leasing firms recycle end-of-term PCs where possible or crush and safely dispose of the ones that have no value.
"In places like California there've been some ugly lawsuits where a company gave employees PCs that ended up in a landfill so the state goes after the big-pockets corporation," said Gonser.
Disposal and overall management of the PC lifecycle are among the potential benefits of leasing.
"If you buy an asset you're stuck with it," said HP's Kendall. "Companies need help managing their assets, and no company is expert at doing all of this, nor do they want to be. It's not their core business. That's where we can add value."
As for staying current, Braunstein said three years seems to be the sweet spot for most companies. He notes Intel (processors) and Microsoft (Windows and Office) generally update about every three years.
"And by leasing, large companies save significant money up front that they can reinvest in their business."