Lifecycle management is key to
success in the ever-popular field of lifecycle management. Claire
Hack speaks to Cisco Capital, Dell FS and Computacenter on how it’s
done best.
Go deeper with GlobalData
IT finance continues to enjoy solid popularity as the
ever-changing nature of technology forces businesses to become more
cost effective in order to keep up with new developments.
Investing in ownership of equipment no longer
makes sense for many, as after a few short years companies are left
with obsolete equipment with little or no residual value.
But what kind of lifecycle does leased IT
equipment actually have? According to Dave Wesson, head of
financing solutions at Hertfordshire-based IT infrastructure
service provider Computacenter, servers, for instance, usually last
about three to five years.
“There are some exceptions to that – for
example, where banks or similar organisations have requirements for
fast processing, they might have server lifecycles of two years,”
he said. “There are also some customers who will go beyond five
years.”
How well do you really know your competitors?
Access the most comprehensive Company Profiles on the market, powered by GlobalData. Save hours of research. Gain competitive edge.
Thank you!
Your download email will arrive shortly
Not ready to buy yet? Download a free sample
We are confident about the unique quality of our Company Profiles. However, we want you to make the most beneficial decision for your business, so we offer a free sample that you can download by submitting the below form
By GlobalDataAt Dell Financial Services, a major IT captive
with a strong presence in Europe, for example, the typical lease
term in Europe is three years or less.
“That’s what we see in about 80% of what we do
in Europe,” Rick Stipe, director of Dell Financial Services
International, said. “In some cases, it might be shorter.”
The picture is reflected on a more
international basis, according to Tim Shockley, European sales
leader at Cisco Capital.
“How these assets are used is going to be
telling for lifecycles,” he said. “For example, working on a
trading floor, an environment that relies on speed, that
lifecycle’s going to be the shortest.Working in a retail outlet,
you just don’t have the need for the latest technology.”
Servers, he said, traditionally last about
three to four years, while data storage equipment lasts between
four and five.
Refreshing equipment
In terms of refresh timings, Wesson
said, the decision is not based purely on the age of equipment.
“It’s more commonly driven by changes in
technology, changes in software and new projects,” he added.
“Customers will often flex the point of refresh by a year, one way
or the other.”
Shockley said: “We help them refresh their
technology to help them stay competitive and ahead of their
competition. Some lessors are not focused on helping clients to
refresh when it’s optimal for them to so because they don’t have
the appetite to take on the risk.”
Compared to the reprographics and print
industry, which has fairly fixed refresh cycles, the IT world is
much more project and upgrade-driven, Wesson said – but the economy
has also been an important factor.
He said: “In the last one-and-a-half to two
years, many companies have seen customers delaying or deferring
investment decisions.We can help customers spread costs but they
still have to make the investment decision upfront.
“If they can use their existing infrastructure
for a bit longer, they’ll wait for the economic situation to steady
before making that investment.”
But Shockley said the cost of maintaining old
equipment was also a deciding factor.
“When you evaluate assets three, four, five
years old, it is an easy decision. Cisco builds in a process that
enables the end user and whoever the vendor is to decide whether
they made the right decision two, three, four years ago,” he said.
“They can evaluate and decide to stay or move to new
technology.”
Software refresh patterns, on the other hand,
are usually driven by licensing agreements, Wesson said.
“Businesses might have a one-year or three-year
licensing agreement, at which point they’re often forced to renew –
they can’t afford to go six months or a year without renewing,” he
added.
Not surprisingly, IT equipment also depreciates
very quickly with residual value all but wiped out at the five-year
mark, Wesson said.
“The shorter the equipment’s expected life, the
more likely customers are to lease,” he said.
Shockley agreed, saying: “There are two big
reasons customers are looking for financial solutions: one is cash
flow and the other is useful life – what’s the best way to use
assets without owning them?”
Wesson added: “If a customer has no cash
constraint issues, we wouldn’t expect a refresh period of more than
three years and we wouldn’t expect them to lease.
“Broadly, leasing is used for one of two
reasons – to take advantage of residual values for lower rental or
if the customer is cash-constrained.”
Mitigating risk
Technology refresh options, as part of
a lease framework, can offer extra flexibility and mitigate risk if
a customer wants to return early. This is the case at Cisco
Capital, where customers can refresh early as and when they need
to, Shockley said.
“There’s a traditional mentality in buying IT
assets,” he said.
“The customer ends up owning them a long time,
forgetting about them and then running into the position of having
outdated technology they haven’t budgeted for.
“Having refresh options built in simply
provides a more economic and flexible model.”
Aogán O’hAoláin, finance director for EMEA
small and medium business at Cisco Capital, added: “In the current
climate, we see a stronger tendency to refresh if there are lease
agreements in place.
“As a number of small and medium companies
have challenges accessing capital and paying money up front at the
moment, leasing allows them to take the strain off their cash
flow.”
Key player profiles
- Dell Financial Solutions was founded in 1997 and offers
financing across its entire
product range. - Computacenter describes itself as
Europe’s leading independent provider of IT. - Infrastructure Services, advising
customers on IT strategy, implement technology from a range of
vendors and managing tech-
nology infrastructures. - Cisco Capital is a wholly-owned subsidiary of Cisco Systems and
provides IT financing solutions on a global basis.
