Article

Should you lease network equipment or buy new or used gear?

Jessica Scarpati

You might not think twice about leasing a car or renting an apartment, but what about your switches and routers? Attractive offers geared to smaller businesses over the past year from Cisco Systems and HP ProCurve to lease network equipment at low rates or finance purchases at 0% interest and with no money down have turned skeptics into believers, opening a door for organizations that otherwise couldn't afford big cash-in-hand infrastructure purchases and refreshes.

"[Enterprises like] having that flexibility to treat the purchase more as op-ex versus cap-ex, especially in this current economic environment," said Ryan Halper, president of Seattle-based Cynnex Networks, a Cisco networking partner that specializes in small to medium-sized business (SMB) solutions.

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He said many companies have been reluctant to finance large network infrastructure upgrades because they don't want to pay the interest. An operating lease gives them that op-ex alternative, Halper said, and a recent finance offer from Cisco that gives them option to pay for the gear over three years with no interest is resonating with his customers.

Moreover, users don't feel that they're pouring money into a hole if they lease or finance network equipment, he said. The end of every operating lease allows SMB customers to purchase the leased equipment at fair market value or trade it in for something more recent, he said. Customers who participate in the 0% financing program own the equipment at the end of their three-year agreement.

"It really is more like financing the ownership of the equipment," said Halper, who estimated that more than half of his customers lease through Cisco's financing arm, Cisco Capital Finance, which operates through the vendor's channel program. "The main reason why this growth has occurred is because of the 0% financing offer."

Representatives from Cisco Capital Finance declined to disclose leasing volume, lease attach rates, revenue or profits related to the 0% financing offer for SMBs made available in late January -- valid for all products and bundled services from $1,000 to $250,000 -- but noted a recent "uptick in our channel partners and end-user customers interested in financing," according to emailed statements from the division.

Don't want to lease network equipment? Try refurbs

Leasing network equipment traditionally hasn't gained the momentum that leasing computing equipment has over the years, as enterprises typically don't want to be ripping out all their routers every year or so, according to Zeus Kerravala, a distinguished research fellow at Yankee Group.

Meanwhile, purchasing used equipment from a vendor or reputable reseller is an alternative way for cash-strapped SMBs to afford the latest technology without a contractual commitment, Kerravala said.

"Most vendors now will give you maintenance on used equipment, as long as it's not too old," he said. "For smaller companies, it's a great way to go."

National Hardware Resale -- which resells used and refurbished Cisco, Juniper Networks and Extreme Networks equipment -- slices an average of 72% off Cisco's list prices, according to Holger Peters, NHR's director of business development.

Although typical manufacturers will have 5% to 7% of customers return defective products, a recent audit from the QuEST Forum, an industry group promoting quality standards for telecommunications equipment, reported that 0.46% of NHR customers returned defective products, Peters said. The online retailer chalks the rating up to its thorough testing of used equipment it plans to resell.

"Savings are all great, but no company wants to save money if they're not certain that it doesn't mean any risk to their network," he said. "When our equipment leaves the dock, we know it is in fully functional condition."

"Leasing offers a tremendous opportunity for customers to increase ROI and improve cash flow in practically five minutes after they've purchased the equipment," said Dan Serpico, president of FusionStorm, a value-added reseller of Cisco, Juniper Networks, Hewlett-Packard ProCurve and Brocade gear. "I think Cisco's new program … opens the game up to [smaller businesses]."

Savings not always clear when you lease network equipment

As the clock wound down on his last lease contract with Cisco Capital, Rick Drescher, director of technical services at Studley Inc., a real estate services firm based in New York City, realized he was due for a network refresh. He chose to lease again, trading in 90% of his equipment -- or about 30 switches and 20 routers -- for newer models.

The remaining equipment, a handful of 802.11g wireless access points, wouldn't have been easily removed from the ceilings of various branch offices around the country, Drescher said. The refresh also included upgrading to 802.11n, which brought another 30 802.11n access points and two controllers into the two five-year contracts he recently inked.

"Depending on what it is, how reliable it's been and whether there's a clear upgrade path, we keep some equipment and we send some back," he said. "For things like server migration … it's more labor intensive to migrate a file system than to replace a switch or router."

Leasing network equipment doesn't always come with clear and obvious savings, Drescher said, noting that every company accounts for the depreciated value of equipment it leases or owns in its own way.

"A lot of it is basic math. If you can lease something for, say, a 1% lease rate and it was a few hundred thousand dollars worth of equipment, a lot of places would rather do that than take the money out of the bank and pay up front," he said. "[But] IT people should be talking to their accounting departments to figure out … the best way to handle this."

To protect his company's financial commitment, Drescher insists on full support services from Cisco for any leased gear in any contract negotiation. Limiting the number of contracts by bundling purchases together also makes managing the accounts easier, he said.

"I always try to lease equipment with coterminous maintenance contracts," Drescher said. "I'll make sure we have SMARTnet on everything we [lease] until the day we return it."

Let us know what you think about the story; email: Jessica Scarpati, News Writer


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