Compaq expects surge in leasing business

Amid dismal technology market forecasts, at least one vendor, Compaq Computer, expects big growth in the leasing of computers and related gear next year.

In fact, Compaq's leasing subsidiary, Compaq Financial Services Corp. in Murray Hill, N.J., expects to increase the amount of Compaq gear that it finances by 35 percent next year, CEO Irving Rothman said Monday.

Rothman acknowledged that those projections are based on a relatively small number of users, since Compaq entered the business only in 1997. The subsidiary said it expects to lease about 12 percent of all Compaq products sold to enterprises next year, up from about 8% this year.

"All of us would like the economy to be stronger, but we're still gaining market share," he said.

Still, Compaq is well behind several other large computer makers in assets managed, according to an independent trade listing, the "Monitor 100" (download .pdf), which was released in June. That list put Compaq's financed assets for last year at US$2.6 billion, well behind the $29 billion in financed assets from IBM Global Financing and the $6.8 billion from the leasing arm of Hewlett-Packard, Compaq's proposed merger partner.

"Compaq does a very nice job of leasing, but they are dwarfed in size by some others," said Francis O'Brien, an analyst at Gartner Inc. in Stamford, Conn.

She estimated that more than 70 percent of U.S. companies lease some type of computer equipment. Because of the economy, she said, "fewer people are buying equipment, but of those that do, a lot more will look towards financing or leasing gear."

Companies seeking to lease will face fewer choices because the independent leasing companies are being squeezed out of business since they are unable to finance the attractive deals of banks or computer makers, O'Brien said.

Rothman's operation -- 850 workers in 42 countries -- hasn't yet faced layoffs. But its future after the merger between Compaq and HP is uncertain. Rothman and O'Brien declined to speculate about whether HP or Compaq's financing arms might survive the merger. All Rothman would say about the subject is that he has talked by phone to his HP counterpart.

O'Brien said there is no simple way to determine if a company should lease equipment. A recent Gartner memo she wrote said, "Leasing without proper planning is fraught with peril."

According to O'Brien, companies need to be able to answer the following four questions before leasing:

-- What is the real replacement cycle of the equipment?

-- Is an asset management program in place?

-- Are the operating system and software application environment defined and expected to be stable for the duration of the lease term?

-- Does early installation of the equipment generate a tangible return on investment?

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