<TABLE cellSpacing=0 cellPadding=0 width="100%" border=0><TBODY><TR>Tech sales take a hit from credit crunch
</TR><!-- headline one : end --><TR>Lenders tighten financing as firms default on loans to buy tech products </TR><!-- show image if available --></TBODY></TABLE>
<!-- START OF : div id="storytext"--><!-- more than 4 paragraphs -->NEW YORK: The credit crisis is resulting in a slowdown in technology sales, according to the Wall Street Journal. This credit crunch is a much bigger problem than most people in technology realise.
Defaults on tech financings - loans that allow companies to purchase computers, software and other products - have spiked this year, said the Journal. The problems are surfacing after years in which such loans flowed freely, it added.
Most companies which provide credit to tech buyers are in deep trouble. CIT Group, KeyCorp and others are taking write-downs. Baytree Leasing Co, which provides some of this financing, says it has seen the default rate jump from 0.5 per cent to 1 to 1.5 per cent.
Lenders are responding by tightening their tech-financing terms, said the paper.
Tech financing is a big business that will hit US$88 billion (S$133 billion) - or about 14 per cent of the total amount spent on computer hardware and software - this year, estimates research firm IDC.
While some businesses were once able to get loans for software that required no money down or had zero per cent interest, some tech-financing operations are now offering rates to small businesses of around 8.25 per cent, according to lenders.
Nearly 20 per cent of chief information officers said unfavourable credit terms caused them to recently delay or cancel purchases, reported the Journal, quoting a a survey by CIO Executive Council.
Chief information officer George Conklin at Christus Health, a hospital chain in Texas, told the Journal he used to structure most of his software contracts so that he was paying only 25 per cent upfront. Now software sellers are reluctant to accept anything less than 50 per cent upfront.
The credit tightening has driven some big tech companies, such as IBM, Oracle and Cisco Systems, to lend more of their own money to customers, said the Journal. But this entails taking on new risks.
Last month, 0.86 per cent of equipment loans were written off as losses, up from 0.48 per cent a year earlier, said the paper, quoting figures from the Equipment Leasing and Finance Association.
While the numbers seem low, it is about the same as the percentage of real estate loans - around 1 per cent - expected to be written off in the third quarter by the top 100 US commercial banks, said the paper.
IBM has seen its default rate rise from 1.1 per cent in the June quarter to 1.3 per cent in the September quarter, it also said.
Cisco financed more than US$4 billion in customers' purchases, or about 10 per cent of sales, in its fiscal year ending July, up from US$2.7 billion the previous year. Oracle tapped its reserves to finance US$1.1 billion, or about 15 per cent, of new software sales in the year ended May 31, up from US$891 million the previous year, the paper added. But collecting on these loans when the economy sours can be a problem. Cisco had to set aside almost US$900 million for bad loans in 2001 after lending to telecommunication and Internet start-ups during the dot.com bubble, said the Journal.
</TR><!-- headline one : end --><TR>Lenders tighten financing as firms default on loans to buy tech products </TR><!-- show image if available --></TBODY></TABLE>
<!-- START OF : div id="storytext"--><!-- more than 4 paragraphs -->NEW YORK: The credit crisis is resulting in a slowdown in technology sales, according to the Wall Street Journal. This credit crunch is a much bigger problem than most people in technology realise.
Defaults on tech financings - loans that allow companies to purchase computers, software and other products - have spiked this year, said the Journal. The problems are surfacing after years in which such loans flowed freely, it added.
Most companies which provide credit to tech buyers are in deep trouble. CIT Group, KeyCorp and others are taking write-downs. Baytree Leasing Co, which provides some of this financing, says it has seen the default rate jump from 0.5 per cent to 1 to 1.5 per cent.
Lenders are responding by tightening their tech-financing terms, said the paper.
Tech financing is a big business that will hit US$88 billion (S$133 billion) - or about 14 per cent of the total amount spent on computer hardware and software - this year, estimates research firm IDC.
While some businesses were once able to get loans for software that required no money down or had zero per cent interest, some tech-financing operations are now offering rates to small businesses of around 8.25 per cent, according to lenders.
Nearly 20 per cent of chief information officers said unfavourable credit terms caused them to recently delay or cancel purchases, reported the Journal, quoting a a survey by CIO Executive Council.
Chief information officer George Conklin at Christus Health, a hospital chain in Texas, told the Journal he used to structure most of his software contracts so that he was paying only 25 per cent upfront. Now software sellers are reluctant to accept anything less than 50 per cent upfront.
The credit tightening has driven some big tech companies, such as IBM, Oracle and Cisco Systems, to lend more of their own money to customers, said the Journal. But this entails taking on new risks.
Last month, 0.86 per cent of equipment loans were written off as losses, up from 0.48 per cent a year earlier, said the paper, quoting figures from the Equipment Leasing and Finance Association.
While the numbers seem low, it is about the same as the percentage of real estate loans - around 1 per cent - expected to be written off in the third quarter by the top 100 US commercial banks, said the paper.
IBM has seen its default rate rise from 1.1 per cent in the June quarter to 1.3 per cent in the September quarter, it also said.
Cisco financed more than US$4 billion in customers' purchases, or about 10 per cent of sales, in its fiscal year ending July, up from US$2.7 billion the previous year. Oracle tapped its reserves to finance US$1.1 billion, or about 15 per cent, of new software sales in the year ended May 31, up from US$891 million the previous year, the paper added. But collecting on these loans when the economy sours can be a problem. Cisco had to set aside almost US$900 million for bad loans in 2001 after lending to telecommunication and Internet start-ups during the dot.com bubble, said the Journal.
