Demand for software and services growing ahead of
hardware
“Overall, I wouldn’t say that I
was pleased with the result, but I’m okay with it. We are pretty
good and we have pretty positive momentum in every region.”
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This was how Irv Rothman, chief
executive of HP Financial Services (HFS), reacted to the captive’s
latest results for the year to the end of April, which saw revenue
decline to $641 million (€465 million), a 6 percent fall
year-on-year.
But Rothman told Leasing Life
his company also saw financing volume grow to 7 percent, which he
said was a “very good result”, especially as this figure rises to
23 percent, adjusting for currency.
“If you look around at other lessors,
you will see that the EFLA [Equipment Financing & Leasing
Association] reported first quarter financing volume down 31
percent for their members. But we are still growing at 7 percent –
and that is pretty darn good,” he said.
In terms of the decline in revenue,
Rothman said it was a reflection of the global economic turmoil,
which has caused many customers to delay or go for smaller
solutions. The turmoil has also led to CFOs becoming increasingly
involved in the process, he said, which has had the effect of
changing how the company goes to market.
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By GlobalData“Some 80 percent of our client base is
enterprise, and we really need to prove how we can help manage
their IT infrastructure from cradle to grave, in a holistic way,
with a fast return,” he remarked.
The company’s future strategy is,
therefore, to lead with asset management.
“We are the world’s largest owner of
HP equipment with over $9 billion on our books, so this is a
terrific opportunity for us to emphasise our asset management
capabilities.”
Rothman also said that software and
services have become a greater part of HFS’ offering, seeing
penetration rate for software “almost tripling” in the last
year.
At rival IBM Global Financing (IGF),
finance demand for software and services were also stronger than it
was for hardware in the last quarter.
As a result, IGF is focusing on
bundled software solutions more than ever before, Dan Ransdell,
general manager for worldwide client financing, told Leasing
Life.
“We’re still seeing a pretty strong
demand for financing of software and services – they’re becoming a
much bigger portion of our revenue,” Ransdell added.
Penetration rates for software grew by
five points to reach 30 percent of IBM’s sales in the last quarter,
Ransdell said. However, services’ penetration was still in the “low
double-digits”. High-end products, such as servers, in which IGF
has historically had a strong penetration rate, remained high,
between 60 percent and 70 percent of sales.
But, as with HFS, revenue also fell at
IGF, down 9 percent to $600 million, or flat, adjusting for
currency.
But despite this, the captive still
managed a strong return on equity of 28 percent, driven by the
company’s focus on improving spreads.
IGF also saw loss rates grow by nearly
1 percentage point to 1.7 percent in the last quarter, but Ransdell
said he remains confident.
“This is directly related to the
market. While we always like to have loss rates as low as possible,
at that rate it’s still pretty attractive compared to many other
financial institutions,” Ransdell said.
“We are more focused than ever on our
customers’ credit quality, paying real close attention to our
accounts receivable to pick up any potential problems.”
Ransdell added that the economic
environment had also led to many companies going into capital
conservation mode, with the CFO’s role growing in importance.
“CFOs have truly become the decision
makers, so, as a finance company, you need to really demonstrate
that using finance gives them an instant, positive return on
investment, or they will just want to wait until the dust settles,”
Ransdell said.
Jason T Hesse
