Hardware choice swings from lease to buy

Hardware choice swings from lease to buy

Catch-ridden contracts and leasing letdowns leave many disenchanted IT managers searching for good buys to overcome contract pitfalls such as penalties for late returns and damages.

The IT industry is seeing an increased shift towards purchasing due to increases in interest rates and penalties associated with leasing contracts, Gartner analyst Frances O'Brien said.

"As companies realize they're not going to return equipment to the lessor on time it makes more economic sense to buy equipment outright," O'Brien said.

She believes that IT leasing tends to be cyclical and said it's become an increasingly popular procurement strategy over the past three years after interest rates plummeted and IT managers were under enormous pressure to cut costs.

However, as interest rates have begun to rise, some companies that ended up paying more for leased equipment due to late returns or damaged equipment are leaning towards a purchasing strategy.

One such organization is the Australian Broadcasting Corporation (ABC).

While it now leases PCs, the ABC is reviewing the costs and benefits of purchasing in the future, according to ABC IT services desktop service manager Ping-Fai Tse.

"Internally we have had a lot of problems with our leasing company," Tse said.

"Our main issue with leasing is the cost of disposing, and the penalties involved. If we don't dispose of PCs in time we continue to pay the lease, which gets expensive.

"I can see why we moved to a leasing model, just like people have credit cards, but on the other hand I think the industry view has shifted because with leasing, people have to replace after three years."

However, Tse doesn't see interest rates as a deciding factor on whether a company leases or purchases hardware.

"I don't think the interest rates are an issue And anyway, if we purchase then the money has to borrowed so we face interest rates in that respect as well," Tse said.

National Health and Medical Research Council (NHMRC) clinical trials centre IS manager Paul Vlagsma, however, is thinking of leasing, instead of purchasing, which is what the organization has done in the past.

"We were thinking of heading in the opposite direction. We like the idea of renewing the work stations every three years, the old leasing argument," Vlagsma said.

Despite this feeling, Vlagsma does see how leasing could become a problem.

"I've never been disenchanted with leasing before in other organizations; I guess if you're in an organization that has a high turnover with PCs then you could start to find that the fines and penalties could be a problem," Vlagsma said.

Other IT managers who spoke to Computerworld agreed it makes more sense to buy in terms of ROI but it really depends on what the best fit is for each organization.

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