Amplicon’s Sale Strategy Is Paying Off
Amplicon, a little-known but rapidly growing Santa Ana computer leasing company, recently posted a big jump in earnings, and its sales staff nearly doubled over the summer.
Amplicon makes money by borrowing from banks to acquire computer equipment, which it then leases to corporations. It uses the lease payments from its clients to pay off the bank loans.
Typically, Amplicon puts up no more than 5% of the purchase price of a computer system. When the bank loan is paid off, it can continue to lease the equipment or sell it.
Nationwide, equipment leasing is a $120-billion-a-year industry, encompassing everything from copy machines to commercial jet aircraft. Computer leasing generates about $35 billion a year. About half of all new computers are leased.
In contrast to industry leader Comdisco, a Rosemont, Ill., computer leasing company that does over $1 billion in business each year, Amplicon has only a sliver of the market. But Amplicon is coming on strong.
$8.5 Million in Profits
For the fiscal year ended June 30, Amplicon reported a profit of $8.5 million, contrasted with one of $4.9 million the previous year. Revenue rose to $95.8 million from $74 million.
What makes Amplicon unique--and highly profitable--is its total reliance on telemarketing, said Michael Millman, an analyst at Shearson Lehman Hutton in New York.
Millman, who is recommending purchase of Amplicon stock, estimates that marketing costs represent about 4% of Amplicon’s sales, or only about a third of what its competitors allocate to marketing. Other computer leasing companies rely on personal visits to drum up business.
Patrick E. Paddon, who founded Amplicon in 1977 and is its chief executive, said that telemarketing has yielded leasing deals with a Hawaiian pineapple grower, an Alaskan Indian tribe and a Maine department store. But most of the business, he said, comes from divisions and subsidiaries of big corporations that typically lease $250,000 systems.
“We do as much business in New York as we do in California,” said Paddon, who estimates that a typical personal sales visit would cost nearly $300.
The telemarketing strategy has been working so well that in July, Amplicon increased its sales staff from 42 people to about 90, each of whom must make 75 calls a day.
One reason for the leasing business’s attractiveness is that it carries a relatively low risk because of the type of loans used to buy the computers, Millman said.
Should a client default, the bank would repossess the equipment, but Amplicon’s liability would be limited to the 3% to 5% of the equity it has invested in the equipment.
Millman estimates that Amplicon’s profits will rise to $10.5 million this year and believes that the company’s stock could go “substantially higher” from its current price.
The stock, which was issued at $12.25 a share in April, 1987, and was trading above $16 that summer, has recovered nicely from a post-crash low of $6.75. Amplicon closed at $14.125 a share on Friday.
A couple of points of caution: Leasing companies are plagued by continual changes in accounting rules. The Financial Accounting Standards Board, a private accounting regulatory body, has been working on an overhaul of leasing accounting practices. The uncertainty surrounding the proposed changes has been depressing the stock of leasing companies in general, according to Millman. In addition, there have been some notable bankruptcies in leasing over the years, which has left Wall Street a bit sour on the industry.