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If there is a silver lining to the cloud of economic recession, it is that IT buyers are seeing greater discounts on IT equipment than they have in a long time. On the other hand, these greater discount levels show how difficult it is for IT equipment manufacturers and vendors in the current economic climate. Lessors, who sit between buyers and sellers, see a bright side as well as a dark side in the current business climate.
This Research Byte is an excerpt from our full report, Vendor Discounts on Computer Equipment (Mar. 2009). See the link at the bottom of this page to download the first five pages of the full report, free.
A Buyer's Market
Our work with IT equipment buyers indicates that they are enjoying much greater discounts this year over those seen just a year ago. Vendors are fighting to maintain market share and are becoming more creative and flexible in their discounts, terms, and conditions. Most vendors have increased discounts by 5% to 8% across most categories. Those vendors that were always at the maximum of around 50% discount with little room to negotiate are now moving to extend their advantage into services by bundling services and giving discounts on software and maintenance services as well as on equipment.
Therefore, if end-user organizations can survive the current economic downturn, this is a good time to be buying IT equipment.
Vendors in a Catch-22
IT equipment vendors and manufacturers are in survival mode and need to be creative to stay in business. Costs of material, labor, marketing, advertising, and sales are all in a state of flux.
Material costs in many cases are falling, which might be considered an advantage to the manufacturer. But unless sales demand is present to move product out the door, manufacturers cannot take full advantage of lower material costs. It is a “Catch 22” for most vendors. If they build more product to take advantage of lower material costs, they may simply be increasing their costs to hold unsold equipment or find themselves having to offer even greater discounts to move the equipment—wiping out any advantage of lower material costs.
Mixed Blessing for Lessors
Lessors face a more complicated situation. On the one hand, companies that would have purchased new equipment in the past are now more interested in leasing as a strategy to conserve capital. Many lessors are reporting increased demand due to this factor. In addition, organizations that do not have the budget for new equipment are seeking to extend existing leases. This is good news for lessors, as any extension of a lease increases the return on investment to the lessor. On the negative side, however, this trend could be offset if customers declare bankruptcy and return equipment prior to the end of their original lease.
The big issue for lessors, of course, is capital. When banks begin to increase lending to worthy lessors it is likely to be at low interest rates, which should give way to lower lease rates for those companies that are credit-worthy. When the economic stimulus begins to take hold there should be an increase in demand for leasing and at much lower rates than have been seen in quite some time.
If so, increased demand and low interest rates will become good news for manufacturers as well.
You may also download the first five pages of the full report from the link below, free.