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financial dimensions
The Rapid Prototyping Advisory From NCP Leasing
Platform Strategies: The Fraternal Twins GambitYou're going to get a new RP platform. One choice you might make along the way is between a high-end system and a midrange platform. The high-end system will let you use a wider range of materials. It will have a larger build envelope. And, possibly with the aid of third party support, it will very likely enjoy a long productive life. The midrange machine will be simpler to operate, providing a productivity advantage for many jobs. It will also cost a lot less, so much less that you might be able to get two or three of them for the price of a single high-end machine. So, it's a tough choice, particularly for service bureaus that have to run lean to survive in a pretty competitive market. What's the right answer? Well, for some people the best and most economical choice isn't one or the other, it's both.  Striking the Right Balance While most RP users migrate to the latest platforms, in some cases moving to a pair of platforms makes more sense. The pair typically includes a new midrange system and an upgraded version of an older but well regarded high-end platform. If you're on a budget, how can you afford two platforms? You probably can't if you insist that one will be a state-of-the-art high-end platform will all the bells and whistles. But if you can make good use of an older high-end platform, possibly one that has been upgraded to lift its performance and stability, you're on the way. The savings, compared to buying a brand new box, can pay for a midrange platform and then some. If you were going to trade in an installed platform against the price of a new one, you may already have the base of an upgraded RP system in your possession. All you have to do is buy the upgrade. On the other hand, if you don't have a suitable base system, you have to find one, which can sometimes require a bit of patience. But even so, because you don't have a system to trade in against a new high-end model, the cost of moving to fraternal twin platforms is still likely to be within your reach. We encounter this possibility in financing transactions. And while leasing costs don't reflect all the technical considerations that play role in the selection of an RP platform, they do say a lot about your choice of systems. Basically, it's a lot less costly to finance RP systems that are expected to have a long life, if not in your company, elsewhere . . . after your lease has run its course. When you lease an asset for a few years, under what is called an operating lease, you are not paying for the total cost of the asset; you are paying the difference between what the asset costs to acquire and what the lessor expects it to be worth at the end of the lease, which is called the residual value. (You also have to pay interest on the money that is tied up during the lease, but that's the case whether the transaction is an operating lease or a finance lease, which pays out the full cost of the asset.) That's all nice in theory, but you might want some facts, or at least the facts as they are today. Some RP platforms have proved to be unusually resilient in financial terms. Others are very hard to remarket when the come off lease. Still others are so new that nobody has enough experience remarketing them to say how long they well last (in economic terms). A lessor must be conservative when estimating residual values for relatively new systems, but you can rest assured that some relatively new systems look like they will stay around, while others look like they will fade away pretty fast. The factors that make an RP system fade out of the market are often technological. Some RP platforms are going to become obsolete because their manufacturers have superb successor systems under development. Some platforms get cranky as they age, so much so that even the best technicians can't keep them in competitive shape. Some platforms come from vendors who are bent on killing off their old products, and as a result they make it hard to get spare parts, expensive to get consumables, and almost impossible to get the information that is part of first class tech support, whether from the vendor or a third party. If your high-end requirements happen to be met by one of the systems with a demonstrably long life, you're in the right place to get financing. And if you choose a companion midrange system that appears to have good prospects, economically speaking, you will end up with another financial bonus. Should you choose to lease both platforms, you will find that the terms of the two leases are both pretty favorable compared to the terms that you must face if you require an RP systems that are likely to lose a lot of their value, or which will be difficult to remarket at any price. Most of our financing involves brand new platforms, but a significant part of our lease portfolio is comprised of used machines. Some of these started as new machines and are now in their second lease. Others are machines that we have purchased from users and then leased back, sometimes as part of a package that also includes a new midrange system. Whatever the make and model of RP system you favor, and whether you plan to buy it outright or to finance your purchase, it's probably a good idea to talk to NCP Leasing or another lessor. The financial perspective you get, even if in the end you don't decide to lease the asset, is rock solid information that you really ought to consider very carefully. It will be in the form of a specific financing offer that details your cost for the equipment for a specified period of time. Because you can only guess at the cost of material you are likely to use during the next three years, and the amount of time you will invest while using the system, that lease estimate is almost certainly the most dependable part of your budget. There's one more benefit you should not ignore. Once you have a lease proposal in hand that involves a used, probably upgraded, platform in hand, you will be in a much stronger negotiating position if you want to give one or two vendors a chance to rethink the asking price for a brand new platform. The information you accumulate by examining a few practical alternatives helps to level the playing field, which otherwise will be significantly tilted in favor of the vendor. Beam Me UpDo you ever think your old SLA system is a dog? Well, if it is, it's one that can lean a lot of new tricks, if you give the machine a laser upgrade. Depending on the model you start with, the upgrade might enable your RP system to use a wide range of new materials. If the new laser packs a bigger punch, as well it might, you will see your build times come down. If you use your SLA system intensively, you will find that the new laser lasts a lot longer than the original. And if your old system has gas laser, you will find that the new solid-state light source delivers its original power throughout its life; gas lasers lose their vigor as they age. The benefits are not only technical. They are also financial. The laser upgrade can add a lot of value to an older SLA platform. More than that, the value that has been added will survive, enabling the old platform to retain more of its worth for a longer time. So, while we recognize that RP users install laser upgrades primarily for technical and production-related reasons, a lessor like NCP Leasing places more importance on two other benefits of the upgrade. First, the upgrade gives the original platform a substantially extended life. Also, the potential market for an upgraded platform is much larger, so when a system comes back at the end of a lease it is far easier for us to find it a new home. Here are some of the particulars: An original SLA 250 has a 50mw He-CD laser that typically lasts 4,000 hours. One of the possible upgrades for this platform uses an xCyte solid-state laser, also rated at about 50 mw. The upgraded laser should last 15,000 hours, or nearly four times as long. Moreover, the solid state laser will deliver its rated output for the whole of its life; the original laser will lose a third or more of its pep halfway through its rated life, and it will keep fading from there until it eventually fails. An original SLA 500 uses an argon-ion laser rated at 400 mw that generally will last about 4,000 hours. A replacement solid state laser with the same power output will last 20,000 hours, five times as long. And, if it is one of the well-regarded models, such as the one offered by Coherent, it will require a lot less service during its lifetime, too. Moving forward to the Viper, one widely used upgrade will be a switch from the manufacturer's solid-state laser, rated at 100mw (or 20mw in high resolution mode) to a higher spec xCyte model. The original laser typically lasts 8,000 hours. The upgraded laser offers the same peak power, but it can also deliver this strong beam when the platform is run in high-resolution mode, improving build times. It also will last at least twice as long, typically for 15,000 hours but often for 20,000 hours. These are only three examples. There are other upgrade options. They all provide some or all of the benefits of the upgrades we have highlighted. And, for the most part, they will have a similar impact on financing if you are a lessee or plan to become one.  The Good Life Upgraded lasers have longer lives than the ones they replace. They may also allow a platform to use a different range of materials. And in some cases, they can trim a platform's build times. Please bear in mind that not all RP platforms can be upgraded, and not all laser replacements or upgrades provide the dramatic improvements in platform performance that are cited in our examples. You have to look before you leap. In addition to all the technical considerations, a laser upgrade has an impact on the financial characteristics of your platform, too. If you lease an RP system, you cannot upgrade the laser without the permission of the lessor, because you are obliged to return the system in the same condition as it was in when it was installed under your lease. But any lessor would be wise to consider financing an upgrade that can enhance the value of the underlying capital asset. So, if you are thinking about an upgrade, after you have tackled the technical issues it's a good idea talk to your lessor. The lessor will evaluate all the details of the upgrade, including you engineering plan and how you will maintain the upgraded platform. Then the lessor will determine if your upgrade can be financed and figure out how to properly structure this financing. If you arrange new or additional financing for an upgrade, all your budget numbers will change, including the equipment lease term and the monthly payment. The new agreement will recognize in its terms and conditions the improved asset and also the longer life that asset will have as a result of the upgrade. There's no guarantee that the financing cost of the upgrade you want will please you. Some platforms and some upgrades are very difficult to finance inexpensively, while others turn out to be financially attractive to lessors and therefore to lessees, too. If you've made a choice that has good financial characteristics along with attractive technical benefits, you will be able to see, in hard numbers provided by a lessor. It will become apparent if the upgrade is a good investment. If it's not, don't do it. About NCP Leasing, Inc.NCP Leasing, Inc., is the leading independent provider of financing for rapid prototyping equipment and a significant source of financing for other high technology assets. Founded in 1987, NCP provides a wide range of lease and rental structures to satisfy the needs of industrial and commercial companies. We have participated in over 200 RP transactions since 1994. We currently own RP systems at more than twenty Fortune 500 companies and a significant number of Service Bureaus. This experience gives us an edge when it comes to making accurate assessments of residual values and it enables NCP to offer lessees excellent value, flexibility and strategic guidance. NCP has considerable financial strength. We remain principals in all transactions. Our lessees benefit from dealing with their actual lessor rather than an agent or lease repackager. This can be a great advantage to lessees when circumstances indicate that significant advantages might arise if a lease is restructured during its term. 
Summer 2007 |