The Repo Man Cometh
If a car owner doesn’t pay back his auto loan, the repo man usually arrives to take back the
vehicle. But what if a company defaults on a loan for a multimillion-dollar SAP ERP software
purchase? Or if it can’t repay IBM Global Financing for the hardware, software and services
that it bought two quarters ago? Does a repo man sneak into the data center and take back
As it turns out, hardware isn’t that different from a 2008 Toyota Camry: It can be
“repo’ed,” refurbished and resold by the vendor. “We can take back equipment,” says Fred
Clarke, media relations manager for IBM Global Financing. “We can refurbish and resell them
on IBM.com or through a broker network and really recapture the residual value on that
Tech vendors offering their own financing, such as IBM and Oracle, and those that rely on
financing partners, such as Microsoft, may soon start to see red ink associated with their
customer financing deals. Defaults on technology loans, which help customers purchase
computers, software and other tech gear, have spiked this year, according to The Wall Street
Journal. So repossessions are a possibility.
IBM’s Global Financing resells any gear that is repossessed because a customer defaults and
“we can’t work out a deal,” Clarke says. IBM employees or third-party partners will
physically take back the equipment, load it on trucks and bring it to one of IBM’s 22
Software, though, is not as tangible as a mainframe: It cannot be resold and has no
collateral value. “Software is pretty much a loan,” says Clarke. “There’s nothing you can do
with software once you’ve taken possession of it.”
For software vendors, the repo recourse is of negligible value. Microsoft and its financing
partners have few options to recoup a loss. So while the relationship with Microsoft will
surely sour, the customer still has the usable software.
Clarke admits that retrieving the IBM software bundled in a “solutions” deal is a bit
riskier than handling the hardware loans, but “we adjust for that risk based on the interest
rates we charge.” He stresses that IBM has “a very conservative approach to lending. ” IBM
Global Financing’s default rate, according to its third-quarter earnings report, increased
from 1.1 percent to 1.3 percent.
Forrester Research VP and principal analyst Ray Wang says technology loan defaults
historically haven’t been a big problem for vendors that offer financing options. Clarke
says that “this is not an everyday occurrence for IBM.”
In fact, IBM’s Clarke says the financing division has seen an uptick in customer inquiries
about financing options. “We are being more prudent in how we’re lending, and we are
definitely looking at credit quality of the customer set, which is something that we’ve
always done,” he says. “But we have money to lend.”
Taiwan Hopes to Avoid Chipmaker Bailout
The Taiwanese government stands ready to help its ailing DRAM chips industry but hopes to
avoid U.S.-style capital injections.
“The plight of the DRAM industry is known to the government and we are taking effective
measures to help,” said Taiwan’s President Ma Ying-jeou during a press conference last
month. “We will be very careful about doing the kind of capital injection the U.S. is
The U.S. government injected cash into major banks such as Citigroup and Morgan Stanley to
help them survive the economic downturn. Since starting that plan, U.S. automakers and
others have asked for help.
In Taiwan, the global financial crisis has most hurt DRAM companies. The island’s makers of
dynamic random access memory chips started losing money last year when a chip glut sent
prices plunging. The worldwide slowdown exacerbated their woes by making it harder to obtain
loans and now threatens the global PC market, where most DRAM chips are used. Taiwan’s
industry accounts for a quarter of the global DRAM supply.
Taiwanese officials have talked about offering loans to or making capital injections in the
chip makers through the island’s National Development Fund in recent weeks. No consensus has
There’s much at stake: Taiwanese banks loaned DRAM makers around $12.6 billion, according to
Taiwan’s economics ministry. “We understand very well how much weight the DRAM industry
carries in Taiwan,” Ma says. “Their fall would not only affect the IT industry but also our
banking system as well.”
Energy Star Coming to Servers in February
Looking for a server? Keep your eye out for the blue-and-white Energy Star label. The U.S.
Environmental Protection Agency (EPA) has released a third draft of its Energy Star
specification for servers and expects the final spec to be ready for use in February.
The specification aims to help customers identify the most power-efficient servers when
making purchases. The Energy Star program already covers desktop PCs, monitors, light bulbs
and other products. Products are identified with an Energy Star label.
The third draft establishes power consumption limits for when a server is in an idle state.
To qualify for the Energy Star logo, vendors must also meet minimum requirements for power
supply efficiency and publish a data sheet for each server indicating its power and
performance levels for maximum, minimum and typical configurations.
The Energy Star specification covers servers with up to four processor sockets. The EPA
excluded blade systems from the draft because the Standard Performance Evaluation Corp., a
nonprofit that establishes benchmarks for high performance computers, indicated that its
benchmark for measuring idle consumption can’t run on blades. Future specifications will
“look for appropriate ways to address blade systems,” the EPA draft says.
The specification takes effect on Feb. 1. The idle power limits have been set at 60 watts
for one-socket systems and 271 watts for four-socket systems. Additional components are
given an additional power allowance. For example, a second hard drive gets an additional 15
watts of power.
Crisis Helps the Cloud to Rise
The economic crisis may have a silver lining for IT companies that invest in cloud
computing, as it will contribute to significant growth in that sector, according to research
Based on a survey of IT executives, CIOs and other business leaders, IDC (a sister company
to CIO magazine) expects spending on IT cloud services to reach $42 billion by 2012growth
bolstered in part by the worldwide economic crisis.
“The cloud model offers a much cheaper way for businesses to acquire and use IT. In an
economic downturn, the appeal of that cost advantage will be greatly magnified,” says Frank
Gens, senior vice president and chief analyst at IDC. “This advantage is especially
important for small and medium businesses.”
Aside from the economic crisis, three market forces are driving the shift to cloud computing
and services, according to IDC. First is the search for growth and revenue in emerging
markets in Brazil, Russia, India and China, as well as in the small and midsize business
sector. Other factors are the shortcomings of traditional approaches in helping these
markets increase IT revenue and competitive pressures from new players promoting the
cloud-based business and IT model.
IDC differentiates between cloud services and cloud computing and is reporting sharp growth
in both areas. It defines cloud services as both business and consumer services that people
use over the Internet, and cloud computing as an emerging IT development, deployment and
delivery model that enables real-time delivery of products and services over the Internet.
Cloud computing will capture 25 percent of IT spending growth in 2012 and nearly a third of
growth in 2013, IDC predicts. By 2012, almost 10 percent of customer spending on IT will be
on cloud offerings, including software as a service and cloud storage. While the definition
for cloud services does include Web-based services from Google, Amazon.com and eBay, among
others, it also includes any Web-based services that other companies will offer to engage
easily with customers and partners, Gens says.
This in turn will spur growth in cloud computing, since these services need highly scalable,
affordable and flexible IT infrastructure to support them, Gens says.
CTO Role Becomes Broader, More Strategic
The chief technology officer role has evolved from one narrowly focused on engineering into
one with broader, more strategic responsibilities, according to the CTOs of two major IT
CTOs once were limited to engineering and research responsibilities, highly focused on
technical issues, without much influence on broader business strategies. That, however, has
been changing over the past 10 years, say CTOs.
Cisco CTO Padmasree Warrior’s job includes traveling to many foreign countries to meet with
clients and government policy makers to understand their technology needs and concerns. She
also is tasked with identifying and analyzing new technology trends, industry changes and
market transitions, and communicating her findings and conclusions to other Cisco executives
“My role is more now about thinking broadly across solutions,” she said during a session at
the Web 2.0 Summit in November.
She works closely as an advisor to Cisco’s historically active M&A (mergers and
acquisitions) group regarding what companies are truly innovating in areas that are
important to Cisco.
Fellow CTO Shane Robison told a similar story about his role at Hewlett-Packard. “If I had
to capture it in a word, I’d say strategy,'” Robison says. He and his team of business-unit
CTOs look out for major technology and business trends. “[We then] develop a context in
which we can make business decisions about where to invest and where to place our bets going
forward,” he says. This involves factoring in business, technology and market strategies,
The business unit CTOs relay those conclusions to the unit managers, who use them as a
primary factor in HP’s decision-making process for plans in areas such as business, product
development and marketing.
–Juan Carlos Pérez