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By Ben Charny
Of DOW JONES NEWSWIRES
SAN FRANCISCO -(Dow Jones)- Dell Inc. (DELL) said Monday it is "undertaking a
strategic assessment of ownership alternatives" for its Dell Financial Services
division, which has ties to a commercial lender snared by the subprime crisis.
Those alternatives range from selling the financial division, which is valued
at about $1 billion, to not changing a thing, a Dell spokesman said.
Dell's actions highlight how the subprime crisis has begun to snare technology
companies, which are more apt to have financial-services arms like Dell's in
order to lend its customers money to help finance their deals. But as the credit
crisis worsens, Dell, Microsoft Corp. (MSFT), telecommunications maker Avaya
Inc. and others with similar arrangements face potentially similar reckonings.
For 11 years, Dell has contracted with New York-based commercial lender CIT
Group Inc. (CIT) to provide its customers with loans to finance their Dell
product purchases. About a tenth of Dell's sales last year involved CIT Group in
some way. While Dell bought up CIT's share of the joint venture late last year,
about $455 million of the current $2.1 billion Dell has loaned to its customers
was underwritten by CIT.
CIT is now reeling under the weight of its investments in subprime mortgages.
Last week, CIT's future was called into question after the lender said it had
tapped a $7.3 billion line of credit in order to continue day-to-day operations
through the end of the year.
On Monday, Dell said it is assessing alternatives for its U.S. consumer and
small-to-medium business revolving credit financing receivables and operations.
The review may also include commercial leasing.
"We plan to look at alternatives that will strengthen the product offerings,
enhance customer experience and improve (Dell Financial Services') overall
financial services capabilities in the most efficient way," Dell Chief Financial
Officer Don Carty said in a statement.
The relationship between Dell and CIT dates back to 1997, when the two created
a joint venture so Dell could offer business-customer financing. Two years into
operations, the joint venture also began lending money to consumers. Partnering
with CIT helped to goose sales in a way that helped Dell also expand its profit
CIT currently offers finance programs for Dell's customers in Canada and in
more than 40 other countries throughout Europe, Asia, Latin America and the
South Pacific. CIT continues to have the option to provide funding to Dell's
financial services division through January 2010.
CIT also has similar lending relationships with telecommunications provider
Avaya and computer software giant Microsoft, which could put those tech firms in
the same situation facing Dell. Avaya and Microsoft had no immediate comment.
"We are fully committed to supporting Dell and all of our valued vendor-
finance clients, and will continue to service their vendor-financing needs," CIT
said in a statement last week. A company representative couldn't immediately be
reached for comment on Dell's announcement.
- By Ben Charny, Dow Jones Newswires; 415-765-8230; firstname.lastname@example.org
(END) Dow Jones Newswires
Copyright (c) 2008 Dow Jones & Company, Inc.