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Vishwanath Kulkarni

Folks who rent out IT hardware are in for a good time. Driving the boom are rapidly changing face of technology, mushrooming BPOs and even the impact of the earlier IT slowdown. This is what the readers are carting away...

IT is still largely an undiscovered segment of the IT hardware market in India. However, it is growing at a pretty brisk pace.

The burgeoning IT and BPO (business process outsourcing) market, coupled with non-IT companies' rush to e-enable their businesses, is fuelling its growth.

You must have guessed by now what we are talking about - yes, it's IT hardware rentals.

The concept of hardware rentals may seem relatively new in the Indian context. However, it has been prevalent in Western markets, especially the US, for quite some time.

The renting concept seems to be working well for Indian firms, which are traditionally cost-conscious and more so when it comes to technology investments that help them fulfil their infrastructure needs.

The entire range of IT equipment — from high-end servers, laptops, workstations to even switches and routers — is available on rental basis.

"In the true sense, the hardware rental market started picking up from 2001, when the technology slowdown set in," says Sunil Kumar, director, Lampo Computers Pvt Ltd, an IT hardware vendor in Bangalore.

"We were forced to try out renting hardware for survival as sales had slumped due to the slowdown," he says.

Since then, Sunil Kumar hasn't looked back, as the rentals business gained momentum and now accounts for a major chunk of his revenues.

Why rent hardware?

In a rapidly changing tech world, the technology that's prevalent today is obsolete tomorrow. For companies that invest in IT, fighting technology obsolescence is a key concern. "Change is so rapid that machines turn obsolete by the time one buys them," says Sunil Kumar.

One way to handle this, for both IT and non-IT companies, is resorting to renting of hardware, which helps them keep pace with ever-changing technology.

Moreover, rentals help companies with a frozen capital expenditure to expand operations without hassles.

"It helps them make quicker decisions," says Naresh Bothra of the Kolkata-based Computer Exchange.

Rentals offer a flexible option for companies to deploy better technology without having to deal with capital losses associated with the sale of obsolete equipment.

"Many IT companies are taking to leasing out of hardware as it helps them save on capital expenditure and problems relating to IT operations and asset management," says R.P. Harish, managing director of Connoisseur, a Bangalore-based hardware vendor.

Indian chief information officers (CIOs) and chief technical officers (CTOs) had earlier considered rentals a costlier option compared to the cost of acquisition.

However, in an industry where the value of hardware depreciates every year, renting equipment has emerged a cost-effective option, says Sunil Kumar, who promotes and rents Intel's White Box Servers.

"Rentals help one get peak performance machines as and when one wants them," he says. Also, the cost of upgrading and maintenance is almost nil as that responsibility lies with the rentals provider.

Explosive growth

Most players are bullish on the hardware rental market. A growing outsourcing industry will drive growth, they say. "We have seen 100 per cent year-on-year growth over the last couple of years," Sunil Kumar says. He feels growth will be much higher this year.

The concept of IT hardware rentals is gaining ground mainly in the IT nerve centres of Bangalore, Chennai, Mumbai, Pune and New Delhi, besides cities such as Kolkata and Coimbatore.

Industry sources estimate that there are hundreds of players in this market, the bulk of them being small-timers, mainly in the unorganised sector. The market is estimated to be in the Rs 200 crore-Rs 300 crore range in India.

For `just in time' needs

The renting concept helps companies meet a sudden surge in workload. "It's not only the small players who go for the renting option. Even the biggies are in our client list," says Harish.

Big software players rent out hardware, especially to deliver smaller projects that are of short duration. "Once the job is over, the hardware can be returned and there is no hassle of ownership," he says.

Connoisseur offers its own brand of Skyrunner range of servers and the Connoi range of notebooks under rentals.

The Bangalore Electricity Supply Corporation (Bescom) is one of its big customers. Connoisseur has installed 54 servers on rent for Bescom to manage operations such as billing.

"The ideal rental period for equipment such as servers is about two months," says Sunil Kumar. However, "it goes up in many cases depending on the execution of the project."

The growing numbers of BPO and call centres are fuelling the boom in the rental market.

Many small-time call centres are resorting to hiring desktops and other equipment to execute pilot projects. In case the pilots are not converted into full-time deals, these companies have nothing to lose.

For start-ups too, the concept of IT rentals holds tremendous potential as the period of establishing a business should typically be covered by low capital investment.

As promoters or venture capitalists expect quick returns from start-ups, rentals provide an effective option for such companies. Apart from PCs and servers, the demand for laptops on rentals is very high.

The bulk of the demand for laptop rentals is from software companies, which keep sending their employees overseas, says Sunil Kumar. "At any point of time, over 1,000 laptops are hired on rental basis in Bangalore," he says.

L.G. Prasad, IT manager, Logica CMG, says his company takes IT hardware on rent mainly to meet a sudden surge in requirements. "Moreover, there could be some lag between the time we place an order for hardware and the actual delivery. This time gap could be about four to six weeks and this is where rentals will help us carry on with the project without any delay."

Investment-intensive

Though rentals offer an option for user companies to reduce their investments, it is an investment-intensive segment for the providers operating in this space.

"We need to keep investing in new machines and recycle and upgrade the older ones as customers prefer the latest machines," says Sunil Kumar.

"Though it is an investment-intensive segment, one is assured of returns within a quicker time as the IT industry is booming," he says. "The ideal recovery period is normally one year."

Most players charge between 10-12 per cent of the server cost as rentals on a monthly basis. At the end of the rental period, most customers don't prefer to buy out the hardware because of the capital gains, he says.

Moreover, the rental providers also make money by selling their old machines, after recycling and refurbishing them, at discounted rates.

Pressure on prices

Players who have been in the industry for some time now say that the entry of new small-time guys is leading to a price war in the rentals market.

Also, falling hardware costs in general are putting pressure on the rentals.

"Earlier we used to offer desktops for rentals. This has slowed down now owing to the undercutting of prices by the entry of unorganised players in the market," says Harish. "Prices are at rock bottom as far as PC rentals are concerned."

Typically, about 12 per cent of the cost for PCs is charged as rentals for a period of six months and above. In the case of notebooks, rentals ranging from 15 to 18 per cent a month are charged.

vishwa@thehindu.co.in

Picture by Bijoy Ghosh

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