SIC 7377 Computer Rental and Leasing

SIC 7377

This industry consists of establishments primarily engaged in renting or leasing computers and related data processing equipment on the customers' site, whether or not also providing maintenance or support services. This industry does not include establishments engaged in both manufacturing and leasing computers and related data processing equipment. Establishments primarily engaged in finance leasing of computers and related data processing equipment are classified in SIC 6159: Miscellaneous Business Credit Institutions. Establishments primarily engaged in leasing computer time are classified in SIC 7374: Computer Processing and Data Preparation and Processing Services.

NAICS CODE(S)

532420

Office Machinery and Equipment Rental and Leasing

INDUSTRY SNAPSHOT

Companies in this industry bought, sold, and leased new and used high-technology equipment. These companies included maintenance companies, refurbishment/reconfiguration firms, transportation companies, financial institutions, original-equipment-manufacturer (OEM) finance companies, software distributors, and industry consultants.

The success of computer rental and leasing companies evolved from the strong urge among U.S. industries to remain on the cutting edge of technology. While many companies wanted to upgrade their computer equipment, few were ready to invest the necessary money up front, and many decided instead to turn to rental and leasing companies. By leasing equipment, companies could experiment with new computers and peripherals, upgrading as they felt necessary.

Sales volume in the computer leasing and remarketing industry was between $15 billion and $25 billion annually in the early 1990s. By the late 1990s, equipment leasing had grown to a $183 billion industry, according to the Equipment Leasing Association. The second half of the 1990s proved to be a profitable environment for the computer leasing industry, despite dramatically reduced purchase prices of new computers. Some computer leasing companies responded by adding services to their leases, such as computer maintenance and insurance. After the economic downturn of the early-2000s, the leasing industry began to rise again, as companies rediscovered the advantages of leasing equipment.

By 2002, according to the U.S. Census Bureau, there were 1,175 establishments engaged in computer renting and leasing. Combined, they employed 11,299 people. Just four years later, in 2006, the total number of establishments had fallen to 915 employing 9,600. Total equipment leasing industry revenues totaled $208 billion in 2004, with information technology (IT) equipment reported at $28 billion in 2005 and the computer rental and leasing segment generating $2 billion in revenue in 2006.

ORGANIZATION AND STRUCTURE

The two main types of leases used in the industry were finance leases and operating leases. In direct finance leases, which were excluded from this industry classification, the lessor provided the financing. In leveraged leases, other investors provided debt financing. Operating leases were considered the best option for companies trying to avoid depreciation deductions. In an operating lease, the lessor owned the equipment and took the depreciation, so the user incurred no liability. The cost of leasing was considered an expense on a company's income statement but did not show up on its balance sheet. There were four typical lessors: banks, captives (usually manufacturers' subsidiaries), independents, and financial services organizations.

Other kinds of leases included the purchase option lease, in which a business owned the equipment but did not carry the balance-sheet debt; the sale-leaseback, in which a company sold its own computer equipment to a lessor to remove it from the balance sheet and then leased it back; and the dollar-out lease, in which the business could acquire the equipment at the end of the lease for one dollar. In some cases the purchase price was determined at the end of the lease based on the fair market value of the equipment at that time, and in other cases the price was determined at the lease negotiation.

Computer rental and leasing companies selected their clients carefully. They considered credit ratings, as well as the type of company they were dealing with, before structuring the lease. Some lessors required several payments up front. Others took their first payment upon delivery of the equipment. They also offered various levels of service that accompanied the lease. The industry is tied to the client's ability to obtain credit approval and...