Hewlett-Packard is hoping to bolster the purchasing power of its cash-strapped corporate customers by extending 0% financing schemes to some of its largest servers and storage systems.
The technology giant, which last month started offering 0% financing deals on PCs, printers, and low-end servers and storage kit to small and mid-sized businesses (SMBs), is now broadening that to big-ticket items such as Unix servers and storage area networks. The scheme is being piloted among UK customers before the company commits to wider implementation.
Like many of its cash-rich counterparts in the IT industry, HP is testing the appetite for contracts that spread the payment of IT equipment over periods of one to three years – at no extra cost to the customer. Sitting on $11.2 billion in cash, HP feels well-placed to bankroll such deals.
In December, the company started offering 0% financing on its systems management and information management software lines for deals of over $100,000. And in January, it started offering North American SMB prospective customers “0% same-as-cash” deals on transactions of $1,500 to $150,000, with payments spread over 12 months.
Whether that will appeal to larger customers is a moot point. A year ago, HP tried offering 0% financing for its volume server lines to SMBs, with “no real interest”, according to Iain Stephen, director for Enterprise servers and storage at HP UK and Ireland. “We spent lots of money promoting it and nobody used [the facility],” said Stephen, especially in an era when they could get finance elsewhere. But HP wants to see if the changed economic environment has altered that sentiment among larger companies.
Its initial scheme covers Unix Integrity servers and enterprise storage area networking products. “We have never tried [0% financing] before in that space. It will be a new experience for us to see if people are interested,” said Stephen.
The dilemma for HP is that in the current buyer’s market, customers are in a position to demand steep discounts on list prices. HP’s challenge is to balance the cost of providing the finance with the level of pricing customers expect, Stephen said. “What we are trying in the pilot is to get a realistic price for the product so we are able to afford the free financing. In the end, someone has to pay the finance cost. In this case, we are paying for it, but that means we have got to make enough money on the product to sustain the finance cost.”
With cash tight among many of its customers, the appeal of 0% financing is to move IT purchases from capital expenditure to operating expenditure. Related to that is another increasingly popular financing option being used when acquiring blade server environments.
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Stephen reports that organisations are seeking to purchase their blade infrastructures through a financing deal and then populate them with blades as an operating cost. “The idea is that if you are going to fit out ten racks with chassis and switches, then you might want to buy that in some kind of [capital] financing deal and then opex the blades. That works because the price of the individual nodes is actually very low compared with the cost of the infrastructure.”
Such changes in financing point to a notable reticence among HP customers and prospects to open their wallets. In its latest quarter, to 31 January, sales of HP industry-standard servers were down 22%, while revenues from Business Critical Systems were down 17% year-on-year. Storage revenues dropped 7%.
The hope among HP executives is that the 0% and other financing deals will rekindle some of that sales momentum.
“Access to capital is a key differentiator and that is something we feel good about,” said Steve Gill, head of HP in the UK and Ireland. “HP’s Financial Services operating has a budget it wants to use for the [enterprise systems] pilot project; it has a portfolio of customers from the very safe to the very risky, and as we work our way through that, we will make an assessment of whether it has been a good use of the cash or not. If it has, we will continue; if it hasn’t, we will draw back.”
