Dear Squeak and Blat,
We've had various computer hardware vendors on campus, like Dell, Compaq, Apple, and the like and they keep pushing us to consider leasing our computer purchases. Can you give this penny-pinching music prof some guidance on the pros and cons of buying and leasing. Thanks.
Dr. I. M. Poor, PhD
Squeak:
Dr. Poor. I'm not a good one to ask on this, as I've always purchased my computer workstations outright. The reason for this is that our State regulations, in the past, have made it very difficult to purchase anything beyond one year, even journal subscriptions. So the first thing I would suggest is that you talk to your campus finance and budgeting folks and see if they can handle a leasing arrangement within the university and State regulations (if you are a public institution).
Your email, however, prompted me to revisit this issue. The basic argument the computer sales folks always give me is that the leasing arrangement would allow us to roll over our computer hardware every year or so by turning in the old models for new ones. Typically the package includes not just the workstations, but printers, scanners, monitors, and other such peripherals. If you are investing $20,000 per year in new computer hardware, then you would pay $20,000 a year in a lease that renewed every 3 or 4 years, and automatically get new computers for the old ones. It sure sounds good doesn't it? Of course, leases include interest charges, so I'm sure the computer vendors find them attractive as they and a bank are making money somewhere in the mix.
Where I can see a lease package especially attractive is if I were having to build a large computer lab with networking from scratch. Letís say it will cost me $200K to get such a facility up and running. Rather than purchase $50K of it a year, and wait four years to be up and running, I could lease it at $50K per year and have it all at once.
I decided to speak with my campus finance people and did some Internet research to see what resources I could find to help us weigh the pros and cons on the question. Here's what I found.
One of our key finance administrators says: "Under the old Purchasing Act and the current Procurement Code, it is possible to lease or lease/purchase computer equipment. Our mainframe computer is being acquired through lease/purchase. There is the requirement that any multi-year lease or lease/purchase contract include the statement that the transaction is void in any year the State appropriations are inadequate to cover the payments. That could make some vendors a bit nervous. To my knowledge we have not leased any departmental type computer equipment." Based on his response, I can see that it should seriously look into leasing now as an option.
Surprisingly I found few sites that offer a discussion of the pros and cons of leasing computers in school settings. Here are a few links that may be helpful:
From the April 1998 Issue of FamilyPC: Savvy Consumer: A Lesson on Leasing, By David H. Rothman. Balancing the rapid depreciation of computer hardware against the life and cost of a lease for a single home computer.
New Mexico State University went with a computer leasing program with Hewlett-Packard. This online link provides the details of that leasing agreement.
Advantages of leasing personal computers, a Q&A guidesheet provided by IBM Credit Corporation.
Pacific Business News: Dilemma: Lease or buy high-tech equipment? By Malia Zimmerman. Article uses examples to discuss the pros and cons of leasing for business and schools.
Blat and I are not endorsing any of the finance and computer companies noted here, just sharing the information weíve found. (Come to think of it, however, maybe a little kick back would buy that new XGA color video display projector we need this year!? Just kidding of course.)
One big issue that these web links focus on is the fact that computer hardware depreciates very fast. Within a year, a model will be out-of-date. Just think back a year ago: no Mac G3 computers were available, 166 Pentium MMX was considered hot computing power and not Pentium IIs, and machines are now running at 300 mHz or faster. Most of the leases are three-year leases for computer hardware. A computer will be pretty old, technology wise, in three years, and not worth much on resale.
Some other issues that you can pick up on from these links, especially the University of New Mexico link, is that it is possible to set up the lease so that can buy equipment from several vendors, you can add new purchases to an existing lease, and you can renew the lease at the end of its term. I suspect that once you make the move into a lease, you will want to keep rolling it over and renewing it.
Any way, after all of that I still canít make up my mind if leasing is a better deal or not. I see that Blat is about to wax poetic with his response to this dilemma, so Iíll let him take a shot at it. We'd like to hear from others about their experiences or research on the leasing issue.
Blat:
Dear I. M. Ah, to lease or not to lease. That is the question. Whether 'tis nobler in the pocketbook to suffer the monthly payments and end costs for purchase, or to buy up front against a sea of dropping costs, and by doing so, own it all.
You ask an important question, I.M. I've been pondering this at my school. I run a small, 14 station lab of Macs that serve multiple needs of music students. I need mid-level machines to run a variety of applications. Ever two years or so, we try to upgrade machines. Leasing seems ideal and I have thought about approaching my Dean with this idea.
Perchance to lease! First off, good information on leasing comes from the major manufacturers of computers. In the case of Apple, try http://www.applemax.com/index.html. This site is Apple's AppleMax program that is designed as a partnership between Apple and GECapital. GE does the administration and Apple provides the gear. Leases can be designed to include software and other hardware peripherals (Apple and Non-Apple) as well. Look carefully at the information on this site. Apple provides a number of different kinds of leasing options. One option is a plan that has you actually owning the equipment at the end of the lease term. Another has you turn in the equipment with no questions asked. Another gives you the option to buy the equipment at lease end for the market value (sounds like leasing a car to me, without the penalty for additional miles!) The Dell folks on the Wintel side have a similar page and an even more expanded set of leasing options for education. Try: http://www.dell.com/dfs/educational/ for a rundown on their options. Squeak will give you a bunch of other sites on the net for information on leasing.
And by a lease to say we end the heart-ache of high costs! Yes, indeed, leasing is less money for more computers. Apple's website suggests how you can parley a $36,000 investment in the purchase of 12 machines to 50 computers with the same outlay if you lease! Other advantages include the possibility of new equipment at the end of each cycle and fewer hassles with maintenance. Costs are predictable each year and you can spend less time thinking about convincing the administration for new dollarsóit becomes part of the budget! Wel,l before you go out and jump on the leasing computer wagon, consider a few other cautions:
Equity: a consummation devoutly to be wished! Well, not with leasing unless you lease to buy. You can lease with the intention to retain the machines, but that is like financing on time. You might want to study that option carefully in terms of the total cost to you. Most schools will probably want to lease with the idea of returning the machine and getting a top-of-the-line machine at the end of the cycle. That way, you just keep paying for computers each year as part of your operating expenses. Nice idea, but no equity. Why is equity so important? Well, partly because retaining older machines, at least in my experience, is important. At the end of a two-year period, I take my lab machines and pass them on to faculty and staff at my school that require modest computing needs. For instance, a two-year old PowerPC Mac6500 or Wintel Pentium I are wonderful machines for a faculty member new to computing or a secretary who has administrative needs. Simple music notation, sequencing, database entry, word processing, emailing, and web browsing does not often require a G3 with built-in video digitization or a Pentium II with MMX technology. Think about how you use older machines at your school before you jump to quickly to leasing.
Shuffling Off That Bottom Line Coil. Study the costs carefully. The real costs of leasing over the long term may actually not be cheaper than buying the computers outright, especially if you require monitors, scanners, printers and other peripheral equipment that do not really need to be upgraded as quickly. Educational pricing is very attractive these days as computer companies vie for leadership in the K-12 and collegiate markets. Don't forget, too, that you will still need to repair these machines if they are out of warranty and you will definitely need to come up with the money to replace them if they are stolen by the local crooks or damaged by one of those frustrated basso profundos from your opera program who can't understand why the computer stalls while browsing the Lyric Opera's website. The computers do not belong to you and that places more pressure on you to maintain them (For, who would bear the whips and scorns of time).
So, maybe give leasing a try, but do your homework on how the arrangement will really effect the way you do business at your school. My guess is that leasing is not for everyone!