The Hindu Business Line : It’s all on lease

Since a lease is tied up with a specific contract term, companies use leasing as a means to make technology refresh cycles of routine. This brings down overall total cost of ownership of technology.

Signing the deal. - P.V. Sivakumar

V.Rishi Kumar

Businesses need to constantly upgrade the technology they invest in even while keeping costs down. What is the way out?

Networking technology major Cisco says it helps out small and medium businesses (SMBs) with financing options, through its arm Cisco Capital.

According to the Vice-President of Cisco Capital, Gautam Munish, flexibility in financing, such as leasing, will become a decisive factor for small and medium businesses in choosing a technology solution.

Cisco has launched this service in India and plans to take it to other markets in the region.

Through Cisco Capital, an SMB can finance not only Cisco equipment, but also third party solutions and the soft costs associated with integration and support services, according to the company.

The leasing plans are designed such that they include incentives that make it easy for a company to upgrade its existing Cisco equipment and to afford the very latest advances in technology networking, it says.

With most SMBs looking at the next phase of growth integrating their businesses with global players, they need to be extremely competitive. This is possible only with the best technology infrastructure, feels Munish.

Generally, SMBs have relatively lower budgets for investments. Therefore, they prefer a tight capital expenditure.

That is where leasing offers a viable choice, he says.

Since a lease is tied up with a specific contract term, companies use leasing as a means to make technology refresh cycles of routine.

This brings down overall total cost of ownership of technology.

Already MNCs such as Cisco, HP, IBM do this and many more are likely to follow the lease finance option, says Munish.

Two kinds of options

There are two types of lease options — Capital Lease and Operating Lease.

Capital Lease is where the total value of the periodic payment equals the acquisition cost of the asset.

Options at the end of the lease typically include return, renewal or purchase. This option is good when future ownership is desired and the company has this for over five years.

The Operating Lease provides options to the customer to retain the equipment at the end of lease.

The customer has the option to either renew or purchase the assets at the value of the equipment. The lease provider retains ownership during the term.

This is like paying rent. Most technology leases are of this nature due to lower cost and operational advantages.

Users’ take

Two companies that opted for Cisco’s offer shared their take with eWorld.

Knoah Solutions

The Chief Executive Officer, President and Co-Founder of Knoah Solutions, Sri Myneni, says the company’s technology infrastructure is critical for its business as it provides 24x7 support to customers, including help desk services.

“After evaluating various telecom technology vendors for Voice over Internet Protocol (VoIP) based network technologies, we decided on Cisco infrastructure.

However, for us, the next challenge was the overall investment cost required to build infrastructure for over 1,000 people,” says Myneni. “To control our overall expenses, we opted for Cisco Capital’s leasing option which helped us secure all the network-related equipment and also other infrastructure with a lease cash ownership basis. As we grow, this helps us scale up our infrastructure,” he says.

“Significantly, we are protected from technological obsolescence as it provides for constant upgrades.

We plan to upgrade to more new technological infrastructure after the end of the term. The Cisco options have also helped keep our capital expenditure under control.”

The company, which has two centres in Hyderabad and one in the US, is looking at ramping up operations.

Invensys

Rama Murthy Vadlamani, Supply Chain Head, Invensys India, says the company’s focus is on providing industrial automation-related technology solutions through a development centre in Hyderabad. The entire networking and IP infrastructure is based on Cisco switches.

This system has over 1,000 network ports helping local employees connect to the European centres.

The development centres co-exist in the East and the West and the Internet infrastructure forms the backbone of the company business, providing the necessary connectivity.

“We opted for Cisco lease finance which helped us save costs and thereby better manage our cash flows.

This has meant that we did not have to block our funds for, say, about three years as the funding was financed by Cisco Capital.”

The lease plan comes at a nominal value and does not require much upfront payment, he says.

It protects against technology obsolescence by allowing Invensys to upgrade to new technology, says Vadlamani.

vrishi@thehindu.co.in