30 Minute Interview

Cutting hardware procurement costs

Gautam Munish, Vice President, Cisco Capital India talked to Varun Aggarwal about the benefits of a Hardware-as-a-service model or leasing hardware equipment for both SMEs as well as enterprises

Gautam Munish

What are the drawbacks associated with capital expenditure on networking equipment and how does leasing resolve these issues?

In today’s scenario, companies are going all out to limit capital expenditure. In this situation, research has shown that, faced with limited budgets, companies particularly SMBs opt to invest in point solutions that solve immediate needs but are often not fully integrated or compatible with wider systems, resulting in lower long-term productivity. Upgrades and changes of technology are also crucial requirements as a company grows and market dynamics change. This is where leasing comes to the rescue. To compete with larger, better-capitalized competitors, SMBs would be wise to explore leasing and financing alternatives that allow for usage without having to allocate capital budgets.

Leasing provides the option to reduce upfront investment by focusing on a usage model where the costs of equipment are matched to business revenue. This allows businesses to spread the cost of equipment and services over several years. In this manner, they can opt for flexible upgrade options provided by technology players. Gartner, in a recent report on SMBs, noted that through leasing, total cost of ownership (TCO) is lowered as IT hardware, software standards are introduced, and companies begin to proactively plan life cycles for IT assets. By adopting a more formalized approach to technology refresh and deployment, SMBs are often able to minimize ongoing support costs, improve productivity and maximize the usefulness of their assets.

Shortening technology refresh cycles is more of a software issue than a hardware one. Then how does leasing hardware help resolve this issue?

While it is true that technology refresh cycles are shorter for software but increasing competitiveness and the need to stay at the cutting-edge of technology for enterprises and SMBs alike has gradually led to shortening of technology refresh cycles in networking equipment as well. The duration of the refresh cycle varies from one sector to another for e.g. companies in the ITeS sector are most affected by shortening refresh cycle.

A hardware box or a solution can have components (both hardware and software) from different vendors apart from Cisco. How does Cisco provide services for such boxes?

Companies are embracing various service models today. Cisco can choose to follow these models or be innovative and create a service model that is unique in the industry. Our strategy is to deliver smart, configurable services, driven by customer requirements and delivered collaboratively with our partners. Services, directly from Cisco or through our partners, can create an intelligent, trusted, and resilient network that is designed to meet customers’ business needs globally.

Leasing seems to be a more apt for SMBs; however, a substantial number of your customers are cash rich. What are the benefits that they achieve from this service?

The key benefit of leasing for large enterprises is the ability to keep assets off their balance sheets. This is particularly important in order to mitigate book loss, which can adversely affect their ability to garner funding to acquire cutting-edge technology. This is even more crucial in the case of listed entities where key financial parameters can be adversely affected by increasing assets owing to technology upgradation or purchase.

Leasing can help them maximize cash flow, gain tax advantages, reduce risk of obsolescence and retain the flexibility to easily upgrade technologies as needs evolve.

What is the size of the market for such deals?

According to the latest study by New York-based Access Markets International (AMI) Partners Inc, SMBs in India are on track to invest up to $605 million on networking hardware this year, up a healthy 24% over last year.

If that were to serve as the base information, we should think that in the next 3 years timeframe, almost a quarter of that business could potentially be driven by customized finance offerings.