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profiles: Wall Street Soars Above Main Street

From WSJ.com/Small-Business

Wall Street Soars Above Main Street

WSJ.com/small-business

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October 22, 2009
By David Wessel
By Ben Charny
With small-business customers finding it harder to finance high-tech purchases, Microsoft Corp. plans to increase the amount it lends them for purchases, by as much as 60%.
The move -- coming amid a historically tight credit market and at a time when other technology giants are considering selling their financing units -- raises the risk for Microsoft, which says the number of defaulting loans will likely rise and that its exposure to bad credit is "approaching materiality."
Microsoft said it expects to issue $1.25 billion in loans in 2008, compared with the $780 million in financing it extended in 2007. The increase may help the Redmond, Wash., software giant prop up an important sales channel for the company. "The decision to do all this was tied to the macro situation," said Brian Madison, general manager of Microsoft Financing. "Information-technology buyers keep accelerating their leasing and financing, so we see this as a time when we can make a big difference by making things easier."
Microsoft offers an array of loans between $100,000 and $500,000 -- a "sweet spot for small businesses," Mr. Madison said. Still, the financing Microsoft expects to extend in 2008 represent only about 2% of the company's expected fiscal 2008 revenue.
As credit becomes harder to come by, especially for smaller businesses, financing programs like Microsoft's are becoming a key part of the way companies buy technology products. Research firm IDC expects technology buyers to finance 38% more of their high-tech purchases by 2011, with financing reaching $111 billion, or 8% of all high-tech spending.
The strains caused by the credit-market meltdown have exposed the frailties of some tech-financing arms. Some lenders caught up in the subprime mess were also heavily involved with technology financing. Dell Inc., meanwhile, has said it is exploring strategic options for its financing arm.
IDC analyst Joe Pucciarelli expects that in three years, at least a third of the current providers of financing for technology purchases won't exist. "The broader and more important point here is that the overall IT leasing and financing market remains stressed," he said.
Write to Ben Charny at ben.charny@dowjones.com
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