Report: IT Spending Growth Expectations Lower for Second Half - Will IT Credit Be Hurt?
(
Page 2 of 2 )
Sacconaghi's report also looked at IT hardware companies that provide credit to
customers and how that business is faring during the current credit crisis.
Dell Financial Services, HP Financial Services and IBM
Global Financing all provide credit to customers for technology purchases, but
Dell's finance organization is most at risk because it provides financing to
both consumers and businesses, while HPFS and IGF deal almost exclusively with
corporate clients.
In the most recent quarter, Dell saw a 5.7 percent loss rate on its customer
receivables, more than double the rate a year ago, according to the report.
"This trend has not been lost on Dell, as it has steadily increased its
bad debt coverage on financing receivables to 6.9 percent in the most recent
quarter," Sacconaghi said. "Even assuming that things deteriorate
further, and that Dell needs to raise its bad debt coverage to 10 percent, [that]
indicates that Dell's bad debt expense in FY09 should be limited to about $150
million or only about $50 million higher than FY08 … we estimate Dell's total
risk from higher default is limited to 3 cents in earnings per share."
HPFS and IGF are not as at risk because their customer bases are more
enterprise-centric, said Sacconaghi.
"HP and IBM are likely to perform more extensive credit analysis
on [their] clients than Dell does for a consumer purchasing a $500 PC," he
said. "We also believe business customers are less likely to default than
consumers, save for companies that actually file for bankruptcy."
/ 5 
Channel News and Analysis 
