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DELL Offers Easier Financing, Despite Rising Credit Losses

By David Phillips

Updated on: December 8, 2008 / 12:02 PM EST / MoneyWatch

In a move to boost sales and profits of higher-margin items like corporate server computers, DELL is offering zero-percent financing to commercial customers. Ironically, the decision to offer easier financing terms comes after word that the PC maker's financing arm, Dell Financial Services (DFS), reported an increase in credit losses for the third-quarter ended October:

As of October 31, 2008, and February 1, 2008, customer financing receivables 60 days or more delinquent were $47 million and $34 million, respectively. These amounts represent 3.4% and 2.1% of the ending customer financing receivables balances for the respective periods.
Net credit losses for the nine-month periods ended October 31, 2008, and November 2, 2007, were $60 million and $27 million, respectively. These amounts represent annualized credit losses of 5.4% and 2.5% of the average outstanding customer financing receivables balance for the respective nine-month periods. -- Third-quarter 2009 FORM 10-Q filing

At October 31, subprime receivables comprised approximately 20 percent of the gross customer receivable balance of $1.5 billion.

To isolate the company from financial risk and improve liquidity, Dell unloads assets to third parties, too. For the nine-months ended October, Dell sold $1.1 billion in fixed-term leases and loans to unconsolidated qualifying special purpose entities, retaining interest of $308 million in some of the securitized receivables. Net credit losses for the period totaled $81 million, up from $55 million in the prior year. These amounts represent annualized credit losses of 7.8% and 6.5% of the average outstanding securitized financing receivables balance for the respective nine-month periods.

In the most recent quarter, global commercial business revenue dropped six percent year-over-year on a unit shipment decline of five percent, reflecting the slowdown in overall global IT end-user spending. As Dell struggles to boost sales in the face of an increasingly gloomy global climate, management obviously believes that offering its business customers more flexible financing options will more than offset the associated credit default risks.