Volatility and uncertainty in world financial markets is impacting IT spending. In tough economic times, when budgets are under unprecedented pressure, the leasing option becomes even more attractive. But it’s important to bear in mind that IT leasing isn’t isolated from broader economic currents.
According to IDC, financial instability is affecting IT leasing and the organizations that employ it. In July 2007, IDC noted that financial markets for collateralized debt obligations (CDOs) were being impacted by the problems in the subprime mortgage sector, and that because CDOs and IT leases are treated similarly in capital markets, IT leasing could be affected. Last April IDC predicted that over the following 36 months, “at least one-third of the current IT leasing and market providers will exit this market or will experience a change of ownership.” *
Despite the turnover, IDC points out that providers with strong infrastructures and direct access to capital markets, such as HP Financial Services, will be better able to weather the turmoil. That’s good to know, because IT leasing and financing are actually growing—even as overall IT spending declines.
Tightening IT budgets and limited access to capital are prime drivers, but other factors are at work. For example, the growth of virtualization boosts the value proposition of leasing by pressuring organizations to improve IT portfolio management.
The drive to ‘green’ IT plays a role too. Because environmentally sound practices are no longer just a nice to have, corporations place a premium on the expertise leasing providers can offer in asset management and the safe and environmentally friendly disposition of decommissioned IT equipment.
Meanwhile new accounting practices will help to clarify how IT leasing works for many organizations. U.S. accounting and reporting requirements—particularly lease accounting practices—are likely to be harmonized with those of the International Accounting Standards Board (IASB). Having a single uniform standard will reduce cost and complexity, with leasing transactions likely to become more transparent and more similar to financing.
Leasing IT makes sense in tough times. Approached intelligently, it’s a better option than ever.
* IDC, Roiling Markets Impact IT Financing; More to Come, Doc # lcUS21183408, April 2008, and Worldwide IT Leasing and Financing 2008 Top 10 Predictions, Doc #210716, February 2008.