Despite optimistic noises from many of the major players – a substantial number of which are widely believed to be in the kind of trouble that sent Continental Information Systems Corp to the Chapter XI bankruptcy protection wall, fears are growing that a shakeout in the IBM mainframe leasing business to stand comparison with the one that followed the Itel Corp collapse is in process of unfolding. Once again IBM is widely blamed for the difficulties of the weaker and greedier players, and the fact that IBM Credit Corp is writing business that the more conservative leasing companies led by the gran’daddy of the business, Comdisco Inc wouldn’t touch with a bargepole has tempted some of the less experienced players to take on absurd risks on the basis that if IBM thinks it’s OK, it must be OK. Many of them, unfortunately, don’t have a $60 billion company behind them to pick up the tab. The problem for investors involved with foundering leasing companies is that most of them aren’t worth buying, and it’s much simpler and safer to wait until they go belly-up and then pick up the business that they leave lying on the table – as well as hiring the talented people who get left without a job. But even that approach doesn’t bolster the coffers of the Comdiscos of this world as much as might be expected, because much of the business they leave behind is too risky to be worth having – let IBM Credit Corp, which somehow manages to come up smiling year after outrageous year, have it if it will. And even IBM Credit doesn’t always get off scot-free – as reported, it had to take $25m in write-downs of unrealistic residual values last year. And even the leasing companies that are secure in the arms of a sugar daddy Pacificorp’s Pacificorp Capital, Inspectorate International AG’s Meridian – are for sale, if buyers can be found. Baby Bells There is a new source of buyers in the shape of AT&T Co and two or three of the Baby Bells – BellSouth and Bell Atlantic in particular. Telephone companies are happier homes than most for leasing companies because they have to find attractive homes for the enormous cash flows generated by the telephone operator’s business, they have a blue-chip customer list, and their names confer respectability on what is widely regarded as a business peopled by cowboys. But BellSouth’s Dataserv acquisition admitted to MIS Week that it had not performed as well as expected since acquisition, putting the blame on the nature of the leasing business and the agressiveness. We have decided not to be aggressive. It doesn’t pay to enact a lease if the residuals at the end aren’t right, said chief operating officer Philip Hinderaker. That could be bad news for IBM this time around – if the phone companies are prepared to stay the course, and learn the business thoroughly – as they can afford to do. Because once the shakeout is behind the industry, IBM will be facing a smaller coterie of much sounder companies that will not only leave most of the doubtful business to IBM, but will be a lot more difficult to push around when disputes arise than are the smaller, stand-alone companies that don’t have the muscle to pursue IBM through the courts and the regulatory authorities to a successful conclusion, and are likely to be dead and buried before a decision.
