Will IT Credit Be Hurt?

By Jessica Davis  |  Print this article Print

IT hardware spending will likely show low single-digit growth for the second half of 2008, lower than original estimates, in the wake of weak corporate earnings. A recent CIO survey shows more caution in the IT spending environment.

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."
Jessica Davis covers the channel for eWeek and Channel Insider. Her technology journalism career began well before anyone heard of the World Wide Web and has included stints at Infoworld, Electronic News/EDN, and the Philadelphia Business Journal. Her work has also appeared on CNN and Forbes.com. She has covered hardware, software and networking, as well as the business side of technology. She has won several journalism awards, including a national ASBPE award for best staff-written column, and was named Marketing Computers hardest working tech journalist on their inaugural list of top tech journalists. Jessica can be reached at jessica.davis@ziffdavisenterprise.com

Submit a Comment

Loading Comments...