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May 24, 1988

ECONOCOM ANTICIPATES IBM SILVERLAKE WITH SALE-AND-LEASEBACK DEALS ON 36, 38

By CBR Staff Writer

One of the favourite games that is being played at the moment by leasing companies is gambling on the pricing and functionality of the coming Silverlake mid-range machine from IBM. Sale and lease-back deals take the existing System 36 and 38 machines off a customer’s balance sheet, and give the risk back to the leasing company. The trick is that the amount being risked is only what’s on the balance sheet of the company. Often these machines are already valued at below 50% of current list, and even the devastating pricing on the orginal 4300s couldn’t reduce the current System 38 range to that residual. Another trick, offered very publicly by Econocom International NV, but probably by other leasing firms, is applying a flexible or exchange lease to existing or top-up System 36 and 38 machines, in return for ensuring the Silverlake lease business comes to Econocom. Low or non-penalty get out options fall at 12 months, 18 months, two years and 30 months, which should be plenty of time to assess Silverlake and proceed to the front of IBM’s delivery queue. Econocom expects to stay in the flexible and exchange lease business once Silverlake is announced, and as long as it doesn’t get its fingers burnt, it will spread the terms to all IBM machine types. The existing 3X equipment should be a safe balance sheet bet if it was bought new 15 months ago or longer. Anything purchased more recently than that may well mean that users are dicing with their finance director’s goodwill.

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