As the earnings calls for IBM (IBM) and SAP (SAP) over the last 24 hours drive home, enterprise hardware and software deal signings have fallen sharply in recent weeks.
Logistical issues are playing a role here -- in some cases, companies don't want to make new purchases at a time when they can't meet with salespeople and systems integrators in person. But macro worries and liquidity issues are clearly issues as well, particularly for companies in industries such as retail, energy and travel.
With that in mind, a slew of larger enterprise IT firms have launched generous financing programs meant to win over customers that are having cold feet about making new purchases. Among the moves:
1. Cisco Systems (CSCO) is providing $2.5 billion in financing for hardware, software and services purchases. Customers have the option to defer up to 95% of their payments until Jan. 2021, after which they would make monthly payments.
2. Hewlett-Packard Enterprise (HPE) is providing more than $2 billion in financing that's meant to help customers dealing with "financial challenges stemming from the COVID-19 crisis, including cash-flow or liquidity issues." More than 90% of what's owed can be deferred until Jan. 2021, after which customers can make monthly payments equal to 3.3% of a contract's value.
3. Dell Technologies is providing a whopping $9 billion in financing, while letting customers defer payments for up to 180 days. Dell is also providing 0% interest on 24-month and 36-month finance leases for new server, storage and networking hardware purchases.
It might not be too long before Amazon.com (AMZN) , Microsoft (MSFT) and/or Alphabet/Google (GOOGL) join in by announcing moves meant to ease the near-term financial burden on struggling clients that are customers of their respective public cloud platforms. Last week, Bloomberg and The Information both reported that public cloud providers have been fielding requests from clients that have seen major revenue declines to let them defer payments or otherwise restructure long-term contracts.
The Information reported that Amazon "has been the least willing" of the three firms to provide more flexible payment terms, while Bloomberg reported that Amazon and Microsoft are restructuring some deals for larger clients on a case-by-case basis, but haven't done the same for smaller clients.
Both the traditional IT hardware giants and the public cloud players arguably have the balance sheet strength and credit ratings to support a fair amount of customer financing -- especially at a time when the Fed has slashed interest rates almost to zero and is making aggressive moves to prop up corporate debt markets. Ultimately, these financing programs could serve as one more way in which cash-rich tech firms are likely to get stronger during this downturn relative to more cash-strapped peers.
However, whereas firms such as Amazon, Microsoft and Cisco can afford large new financing programs without breaking a sweat, HPE and Dell could feel some financial strain, given that the two companies are carrying substantial amounts of net debt and already have large amounts of financing receivables on their balance sheets thanks to prior customer financing deals.
And regardless of how strong the balance sheet is of a company that has launched a major financing program featuring deferred payments, it's worth remembering that the company's near-term revenue, billings and bookings are getting a boost from generous financing offers that in certain cases might carry some collection risk.
