Consider these statistics:

·         Google, Yahoo, and Microsoft are deploying data centers in the Columbia River Basin of Washington State in order to draw on renewable hydro-power;

·         The U.S. government is spending $4 billion from its economic-stimulus package on smart grid initiatives;

·         Peak demand needs have exceeded current capacity (while electricity costs have skyrocketed), and the problem is expected to worsen in the U.S.;

·         According to projections from the U.S. Energy Information Administration, electricity generation around the world will nearly double from about 17.3 trillion kilowatt-hours (kWh) in 2005 to 33.3 trillion kWh in 2030. In the case of the U.S., its power grid simply will not be able to keep up with the growth and demand for additional power using conventional means;

·         In recognition of its own looming capacity problem, CANARIE, the Ottawa-based agency that supervises standards for the Canadian Internet backbone, has initiated a $3 million RFP, called the Green IT Pilot Program, to encourage zero-carbon data center deployments in Canada by 2011;

·         Meanwhile, in the U.S., for the first time ever, new power capacity brought online from renewable energy sources in 2008 was greater than half --- reaching 60% --- thanks to solar, wind, hydro-dam, and geothermal. As recently as 2005, new renewable energy sources accounted for only 15 percent of marginal capacity;

·         In the U.S. over the last five years, no marginal power capacity has been added with nuclear plants due to prohibitive regulations and a general public opinion of “not in my backyard” --- a trend likely to continue under the Obama Administration;

·         In the U.S., it’s estimated that reduction in peak demand by a mere 5% would yield savings of about $66 billion over 20 years --- to say nothing of the resulting reduction in green house gas emissions that would accompany a 5% peak demand reduction.

So what does all this mean for IT professionals?

Green IT practices have become much more than just designing and building the most energy efficient data centers. It’s also about powering data centers with renewable energy sources such as wind-mill farms, hydro-dams, geothermal, or solar-power sources. It’s no longer enough to reduce your data center’s carbon footprint focused solely on increased energy efficiency of equipment and processes.

Perhaps the best IT form factor to achieve zero-carbon implementations is the containerized data center since it is easily transportable via rail, truck, ship, or helicopter/plane; this means it can be deployed adjacent to renewable energy sources. For example, Verari’s FOREST container reaches an industry-leading PUE performance of 1.1 (best-in-class PUE performance for brick-and mortar data centers is considered to be 1.6), but now Verari is bidding on data center opportunities in renewable energy zones near river basins, dams, and wind-mill farms.

At Verari, we’ll continue to be a green IT leader, and we’re proud to be at the forefront of zero-carbon data centers with our FOREST container deployments to-date.

Green IT is all the rage among IT professionals. “Green IT 2.0” is a newer buzzword that prescribes a holistic approach to not only greener data center designs and practices, but also encourages eco-friendly practices across all functional departments (e.g., proper e-waste management of toner cartridges or paper). So why are these trends so hot? The first aspect is straight-forward: energy efficient data centers built with modular form factors save tremendous amounts of operating and capital expenses (OpEx and CapEx). For many years, IT departments have been asked to do more with less, and now we have a positive, politically correct spin on what to call this initiative --- “next generation, green data centers.” Moreover, best practices in Green IT really should include the entire organization (not just the IT Department) since IT is pervasive throughout any organization today. For example, desktop/laptop computers are scattered everywhere, PDAs are assigned to employees by the thousands, and departmental printers populate every office floor. So it’s a good thing that green IT initiatives are beginning to cross all lines of business from top-to-bottom. Undoubtedly, this will be a more holistic, sustainable approach to cutting energy costs and e-waste in an organization.

I’m most enthusiastic about one of Verari’s practical approaches to Green IT: combining IT leasing with our FOREST container. IT pundits today seem to frame the green data center of the future as if it’s a ways down the road and as something that no IT vendor has taken by the horns. Yet, for about a year, Verari has been delivering high density, energy efficient containerized data centers (we call ours “FOREST” for Flexible, Open, Reliable, Energy Efficient, Scalable, and Transportable) combined with creative lease financing solutions. The FOREST container form factor, for example, is designed to be a fully optimized system, complete with sophisticated management and monitoring tools. FOREST’s design attributes deliver the most energy efficient “data center in a box” with a PUE rating approaching 1.05, and meets the current challenges faced by IT professionals more effectively than a brick-and-mortar data center ever could. This is easy to understand when all of FOREST’s attributes are taken together:

• Modularity – a container approach closely matches supply of capacity to demand, either in a growth or decline scenario.

• Lowers Risk – mitigates the investment risk related to traditional data centers.

• Cost Effective – through lower energy consumption and a form factor that is easy to lease.

• Capital Efficient – typically 50-70% of the capital cost for an equivalent brick-and-mortar data center.

• Rapid Deployment Time - measured in weeks versus years, for better agility.

• Energy Efficiency – significantly smaller carbon footprint; ability to “attach” to renewable energy sources, such as hydro dams and windmills.

• The Verari FOREST is based on our award winning and patented Vertical Cooling Technology™, which means we use a fraction of the power for air movement that our competition uses.

• Thanks to Vertical Cooling Technology™, energy credits (rebates) can accrue up to $300,000 for a FOREST container.

• Operational Support/Manageability - our 2^nd generation container has a mature single pane of glass facility management system that interfaces with any SNMP standard system that a client may have.

• Flexibility/Heterogeneous Design - accommodates equipment from most IT vendors.

• High Availability/Reliability - FOREST is designed with several redundancy and reliability capabilities, achieving a Tier 3+ rating from the UpTime Institute.

IT leasing from Verari Financial Services (VFS) provides the proverbial icing on the cake. Planned technology refreshes in containers, for example, enables IT professionals to better track and retire their assets and to manage only the most energy efficient and current equipment. VFS’ Green Leasing Program integrates trade-in credits for the removal of older, less efficient IT assets; technology refreshes that provide current, energy efficient Verari gear; plus energy rebates based on actual first-year electricity cost savings related to new equipment. All of these life cycle management services are more easily executed with the FOREST container and leasing for superior TCO versus brick-and-mortar data centers.

I came across an article from the February, 2009 edition of the Harvard Business Review entitled, “Seizing Advantage in a Downturn,” by David Rhodes and Daniel Stelter. It struck me that the timing of the article was perfect for businesses muscling their way through the current recession. Most of the suggested tactics addressed financial management, which I think would be useful to share since lease financing, in particular, can be an extremely useful management tool during tough economic times and an integral part of a prudent, “Katie, bar the door” financial strategy. In today’s global financial market, cash is king and credit markets are still frozen. Leasing minimizes these pressures. Specifically, when evaluating IT acquisitions, leasing provides a convenient and flexible financial alternative to seeking credit approval (tougher now than ever!) or making large cash outlays (burning cash) --- both of which can impact negatively on your balance sheet.

Financial Fundamentals

Positive cash flow and cash-on-hand is crucial to making it through tough economic downturns. Cash must be conserved, and lease financing can help with cash preservation. Plus, many businesses discover that cash is needed for either current obligations or for investing in strategic/profitable products, so lease financing becomes a key enabler for focusing on the right priorities. Here are some other financial management tactics suggested for managers operating in downturns.

1. Monitor and maximize your cash position

·        Calculate expected cash inflows and outflows.

·        Produce a rolling weekly or monthly cash report.

·        Centralize or pool cash across units.

2. Tightly manage customer credit

·        Segment customers based on their credit risk.

·        Offer financing only to credit-worthy or strategic customers.

·        Assess trade-offs between credit risks and marginal sales.

3. Aggressively manage working capital

·        Reduce inventories by monitoring production and sourcing.

·        Reduce receivables by actively managing customer credit.

4. Optimize your financial structure

·        Consider leasing in order to avoid CapEx and “on-balance sheet” debt.

·        Reduce debt and other liabilities --- lease financing can really help here

.·        Secure access to lines of credit --- lease financing shines here as well.

·        Secure access to equity capital by tapping nonmarket sources.

Customers, in other words, need to “batten down the hatches” in recessionary times. For example, if your business has loosely run operations, sluggish sales, and an overextended organization, now is the best time to implement solutions to eliminate your vulnerabilities. Here are some steps that managers can take to survive a recession.

1.      Reduce costs and increase efficiency

·        Root out longstanding activities that add little business value.

·        Revive earlier efficiency initiatives that stalled.

·        Analyze current suppliers/procurement process.

·        Consolidate/centralize key functions.

2.      Aggressively manage the top line

·        Revitalize customer retention initiatives.

·        Realign sales force to generate short-term sales.

·        Reallocate marketing spending toward immediate revenue generation.

·        Consider more generous financial terms for customers in return for higher prices.

3.      Re-think your product mix

·        Identify products for which customers are willing to pay full price.

·        Consider results-based pricing or subscription pricing.

4.      Rein in planned investments

·        Establish stringent capital allocation guidelines.

·        Shed unproductive assets.

·        Divest noncore businesses.

I hope that these tips will help to make your business survive the recession and thrive during the inevitable recovery in the near future. Remember too that in business success and failure are not isolated good fortunes and misfortunes, but inseparable parts of the business process. Seize your opportunities now!

There’s been a lot of talk in the utility industry about incenting IT managers and IT vendors to design more energy efficient data centers. It started a few years ago when Pacific Gas & Electric (PG&E) announced an innovative energy savings incentive program targeted at the computer industry. Using a sophisticated energy savings calculator, PG&E predicts the amount of kilowatt-hours that can be saved during the first year of installation of new, more energy efficient IT equipment. Then, based on the parameters of the energy incentive program, an energy rebate check is also calculated and issued to the customer prior to installation. PG&E’s maximum allowable rebate check is $500,000! For the period of 2009 to 2011, PG&E has set aside $50 million specifically for data center energy rebates alone!! (Note: Rebates will vary somewhat from utility to utility.)

So PG&E has become the “gold standard” for other utilities’ IT energy savings incentive programs across the country. Gradually, utilities are emulating PG&E. For example, four other California utilities have announced programs of their own and many more energy credit (rebate) programs will be coming on line in 2009 once utilities formalize their programs and set aside funding. Other active energy rebate programs for IT equipment exist in Dallas, Austin, and Vancouver, British Columbia. We’d like to explain our new Verari Energy Credit Incentive Program in greater depth by answering customers’ most frequently asked questions.

What is Verari’s Energy Credit Incentive Program?

Verari’s Energy Credit Incentive Program makes it easier for customers to apply and qualify for various energy rebates offered by utilities in their respective coverage areas. To be a responsible corporate citizen, Verari is committed to protecting and respecting the environment through eco-friendly operations, product engineering, and data center design. The Energy Credit Incentive Program represents a major step forward in enhancing Verari’s commitment to green IT and to the environment, while offering a convenient application process to businesses.

Why do utilities offer energy credits (cash rebates) versus charging businesses more for electricity?

License approvals for new power plants are consistently being rejected due to environmental concerns regarding toxic CO₂ and other greenhouse gas emissions. In the last few years, over 150 construction permits for new power plants were denied due to stringent regulatory processes. In short, utilities can’t build power plants fast enough to meet the future demands of data centers and other sources of fast-growing electrical consumption.

How does the Energy Credit Incentive Program complement VFS’ Green Leasing Program?

Announced December 9, 2008, the VFS Green Leasing Program has three primary pillars, which includes energy credits:

1.       Trade-in older IT assets for new, energy efficient Verari equipment.

2.       Technology refresh program to maintain the most current/energy efficient IT assets.

3.       Energy credits based on actual savings validated by energy certification partners and/or utilities using the energy savings calculator.

When the upfront rebate is applied to a VFS lease, the energy incentive has the effect of an equity down payment, which reduces the monthly payments for the lease. 

How does a customer submit an application for an energy credit and how long does it take?

The process takes about three months, and here are the key steps:

•          The Verari sales representative works with the customer to help calculate energy savings and the resulting rebate prior to the installation of new Verari equipment.

•          The customer completes and signs the application for the rebate a few months before installation.

•          An energy savings amount is confirmed by the local utility.

•          The Verari equipment is installed and the utility is notified.

•          The energy rebate is paid to the customer.

 What is an energy certification partner and what kinds of services does it provide?

Verari has partnered with energy certification partners to work with customers in validating their current IT electricity consumption, and to help customers calculate future electricity consumption with new, energy efficient Verari equipment. Other responsibilities include:

•          Performing all spreadsheet development, document assumptions, and producing an energy savings calculator according to utilities’ requirements --- which varies slightly from utility to utility.

•          Interfacing utilities to negotiate and obtain qualification for energy incentive rebates.

•          Assisting customers in securing rebate checks from utilities. (Verari assists too.)

Our goal with this program is to help create an environment where everyone wins --- one where the customer saves money, the utilities meet power demands more efficiently and avoid large capital expenditures, and Verari is recognized as being an innovative, green IT leader.

Several analysts have asked us (Verari Financial Services) whether or not the global credit crisis is having any impact on the VFS leasing business. Since VFS is such a new business for Verari, (launched June, 2008), this has been a difficult question to answer - especially considering that our lease growth rates have continued to increase monthly in the last four months. The crisis has definitely impacted most in one way or another, but IT leasing is uniquely positioned to help alleviate the strain created by the reduced availability of credit. Our “gut” has been that since access to credit has tightened and loan rates have gone up --- even for well-managed, publicly traded companies --- that IT lease financing would perhaps grow faster.

This recent Wall Street Journal article from October 27, 2008, supports our hypothesis:

“IBM, which has its own financing arm, says it has seen an "uptick" in the number of customers looking for credit. The Armonk, N.Y., company has responded by launching a new program this month that offers loans at below-market rates with no payment or interest due for 90 days.
Underwriting customer purchases "gives us a competitive advantage," Mark Loughridge, IBM's chief financial officer, said during a call with analysts on Oct. 16. IBM's financing unit had $24.5 billion in loans outstanding at the end of 2007.
Cisco also uses its own cash reserves to drive sales. The networking giant financed more than $4 billion in customers' purchases, or about 10% of sales, in its fiscal year ending July 26. That's up from $2.7 billion the previous year. Oracle tapped its reserves to finance $1.1 billion, or about 15%, of new software sales in the year ended May 31, up from $891 million the previous year.”

In short, IT leasing has become a competitive advantage for more and more businesses that partner with IT lessors capable of providing creative, low-interest leases with flexible payment plans. IT customers get the equipment and current technology they need now in order to compete and serve customers best in their respective industries.

Customers have certainly grown familiar with the convenience of leasing IT equipment over the last 30 years, but now more than ever IT and Finance departments are turning increasingly to IT lessors as their chief IT funding source since they are unable to get competitive loans on their own from distressed banks. So as banks continue to be prudent and cautious lenders to businesses --- perhaps the most since the Great Depression --- the amount of IT assets managed by IT lessors should continue to grow healthily. There is no better time to be leasing IT equipment than today.

By now, most people understand that the credit crisis is encouraging IT vendors or IT lessors to provide business customers additional financing options, such as trade-in credits for aging equipment. Trade-ins are popular with customers, but still not included in many IT solutions due to higher residual value risks associated with the increasing rate of IT obsolescence in x86 environments. Unfortunately, many customers may not be getting proper guidance regarding how to manage their equipment life cycles most efficiently. The good news, however, is that trade-in services help to initiate discussion around proper life cycle planning and management. By understanding IT asset life cycles, IT lessors can provide the highest trade-in credits for aging assets that, in turn, really help businesses remain competitive in their respective industries. Let me explain further.

For the most part, when customers acquire IT equipment, little thought is given to how they plan to retire the asset, say, three-to-five years down the road. Trade-in credits, however, help to initiate a discussion around smart asset retirement. From the very beginning, a business plan is structured in the lease on how to dispose of older, energy-hogging equipment. Customers also appreciate trade-in credits since they can provide a significant cash infusion to their business. This means that new technology can be acquired without major cash outlays --- so even the largest IT projects can get approved and started faster. Moreover, by installing new equipment, customers can lower costs of data center real estate, power, and cooling.

Trade-in services also help to ensure a smoother migration path to new IT environments by allowing customers to dispose of hundreds or thousands of IT assets quickly and responsibly. Many lessors’ trade-in services (like VFS’) apply to all kinds of assets, including PCs, servers, networking, and telecommunication equipment. Plus, customers can more easily initiate energy efficiency projects globally.

Trade-in services include green asset disposition and also take into consideration local regulatory laws for compliant and secure equipment removal. I know, for example, that our VFS Trade-In Program fully integrates trade-in credit and IT asset disposition services for a very compelling value proposition. VFS also includes the pick-up and transportation of IT assets in our leases, providing a tremendous convenience to customers.

Finally, there’s an “outsourcing cost advantage” gained using integrated trade-in and disposition services from IT lessors or IT vendors. The Robert Francis Group (RFG) believes, for example, that companies save 20 percent when they outsource data wiping and other disposition responsibilities to a reputable IT lessor, like VFS. This does not even consider the positive cash flow impact that trade-in credits have on a business. So the combination of both disposition and trade-in services creates a compelling value proposition as well as a smart way for customers to mitigate risks associated with IT asset retirement.

Every IT lessor uses the following adjectives to describe their leases: “creative”, “innovative”, “customized” and “flexible”. Perhaps nothing tests these claims more than the Capacity on Demand (“CoD”) computing model. This is where customers pay for compute/storage capacity incrementally based on day-to-day, or even hour-to-hour, needs. This eliminates unutilized IT resources and staff, which means considerable savings and a more sensible approach to project planning. Very large IT capital expenditures can be avoided altogether, which is particularly valuable for start-ups who have limited lines of credit or for other kinds of businesses operating in risky business climates (e.g., airlines).

CoD computing is here to stay and, increasingly, our customers are requesting financing terms to support this paradigm. The popularity of CoD computing ranges across different industry verticals, such as Application Service Providers (ASPs) and Financial Services, and businesses of all sizes, from Fortune 1000 enterprises to small-to-medium businesses (SMB). ASPs, for example, are requesting flexible lease financing terms and conditions that are congruent with a “pay-as-you-grow” IT philosophy. ASPs also add another challenge to lease finance structuring: meeting the needs for rapid IT growth and unpredictable spikes in demand for IT resources. Just to survive, Wall Street firms must be agile and responsive to unknown “market events” or other global externalities. Other large enterprises find that they must provide rapid provisioning and scalability of IT resources all around the world in order to serve their customers best. SMB customers want to focus on their core, strategic lines of business where they are most competent, and this does not typically include IT. Finally, the uncertain nature of smaller, start-up businesses lends itself well to CoD computing since IT investment risks are mitigated.

Verari Financial Services (VFS) can meet all the new financial challenges posed by CoD computing. Just recently, we proposed a lease financing solution to a premiere ASP that operates multiple data centers in the United States and the United Kingdom. We were able to craft a lease based on their current capacity utilization rate and add capacity incrementally based on their monthly growth projections over a four-year term. VFS leasing was structured granularly so that different kinds of Verari equipment could be added easily to their install base as needed. VFS provided the option to reconfigure hardware components (e.g., memory) within Verari BladeRack 2s as applications change in the future - a huge convenience. Over the next two-to-three years, VFS will provide trade-in credit for older racks so that our customer will be able to refresh (upgrade) to the most energy efficient, densest BladeRack 2 X-Series solution available - an added cost savings! During the technology refresh process, VFS will assume all asset disposition risk by accommodating safe/secure removal of older equipment, and our lease will include professional installation/de-installation services.

I think what our customer appreciated most, though, was that VFS granted credit approval for lease financing in spite of their highly leveraged financial position and today’s difficult credit market. Essentially, VFS made a thoughtful business decision to help underwrite our customer’s business risk since we’re confident that the future is bright for this ASP, and we want to be their trusted, long-term IT and financial partner.

I’m very excited to introduce Verari Financial Services (VFS) --- the new lease financing arm of Verari Systems, Inc. I hope that by offering flexible lease financing alternatives to our customers that VFS will help them to more easily cost-justify and begin the data centers and IT projects of the future! Since this is my first blog, I would like to summarize the VFS program offerings.

VFS is providing one-stop, flexible lease financing solutions for all asset classes. VFS leases, for example, can include hardware, software, and professional services, as well as other kinds of property such as data centers and buildings. VFS provides personalized asset management and asset recovery services, including technology refresh and trade-in credit programs, to help customers manage shortening technology cycles. So I want our customers to take advantage of all the integrated benefits of leasing --- everything from predictable, level monthly payments, to cash conservation, to scheduled technology refreshes, to trade-in credits for older IT assets, to the elimination of obsolescence and disposal risks.

We want to help customers meet their changing business demands by allowing for flexible terms and payment options in our leases. If customers need to keep their equipment longer than first expected, for example, VFS leases can be renewed easily with low cost extensions or purchase. Finally, VFS will dispose of equipment in an environmentally responsible and secure manner, complying with local and federal laws.

•         Very competitive lease rates

•         High residual values built into each lease for lower monthly payments

•         Technology refresh program for smoother shifts to new, more powerful and energy-efficient technology and easier disposition of old technology

–        Easy disposition of old technology

–        New technology uses less power & space and is more reliable & faster

–        Saves $ over IT life cycle; improves staff productivity

–        Greenest way to acquire and retire IT assets

•         Trade-in program that helps reduce stranded IT assets

–        Trade-in credit offered on all vendors’ equipment

–        Excellent trade-in values due to strong remarketing arm

•         Lease financing solutions for all kinds of IT projects, such as data center consolidation

•         Disciplined planning for the entire IT asset life cycle, including safe/secure equipment disposal services

•         Personalized IT asset life cycle management services for a long-term partnership

–        Equipment tracking/reporting

–        Secure/safe equipment disposal in accordance with laws