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Hardware Today: Shopping the Second-Hand Server Market

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One of the few market segments benefiting from the financial pressures of the past few years is the used equipment market.

With the freewheeling days of profligate spending long gone and the hunt for bargains in high gear, the used equipment market is flourishing. Carl Weinschenk elaborates on when taking the refurbished route is the best path.

With the days of profligate spending long gone, the hunt for bargains is in high gear. While it’s hard to get a precise handle on the “average” savings when going used, it’s not uncommon for buyers to slice 80 percent off the list price of new gear, says Robert Davie, founder and executive vice president of ITParade, a used equipment firm in Cary, N.C.

Colin Williams, the owner of Coastside Networking, another used equipment firm, agrees that the savings from going used can be extreme. He paints a picture of a mercurial marketplace that today is far more freewheeling than the new equipment market.

“In the new equipment market, discounts are very, very predictable — 20 or 25 percent off list, perhaps 35 or 40 percent if you are a big customer. In the used equipment market, you can save a bundle or modestly, anywhere from 35 percent or 75 percent,” says Williams. Coastside, based in Half Moon Bay, Calif., specializes in Cisco equipment. “It’s much more dependent on supply and demand. A month ago, for instance, something could have been in short supply and cost $14,000. Now, maybe there’s a glut and the price can drop radically.”

Nothing is universal, however, and the good fortune isn’t across the board. “Business is steady, I wouldn’t say spectacular,” Williams says. “People who I talk to say it’s mixed. Some are doing quite well, some are barely hanging on. Quite a few others are just getting by.”

In the bigger picture; however, the downturn of the past few years has established the category — which prefers to call itself the “refurbished” equipment industry — far more firmly than when the dotcoms reigned and the economy thrived. During those days, IT departments responded to almost any impetus to run out and buy a new server or other piece of hardware.

The used equipment market, although unquestionably large, is difficult, if not impossible, to measure. Zeus Kerravala, vice president of enterprise infrastructure for Yankee group, is unaware of a concrete estimate of the market’s size.

Todd Hanson, principal analyst, public network infrastructure for Gartner, describes the market as too segmented and amorphous for a feasible estimate. Gartner does project that the used telecom equipment market will be $1.8 billion this year, $1.6 in 2004, $1.7 in 2005 and 2006, and $1.6 in 2007.

There is also no average age of equipment being bought and sold. Williams says that he has seen four-year-old equipment as well as gear still in the box. (Older types of equipment are more prevalent by virtue of having been around longer, however.) Likewise, there is no typical size company in the used equipment market.

While there is no question that price is the biggest driver, it isn’t the only reason IS departments buy used equipment. In some cases, IS departments are running networks based on equipment that is no longer manufactured, and adding or replacing broken machines is much easier if the same make and model is plugged in. That’s where Coastside, ITParade, and similar companies come in. “Everyone likes consistency,” Davie says. “Standardizing on a model is one of the big reasons companies buy refurbished equipment if it’s not available from the manufacturer anymore.”

Hardware in this very fluid market reaches resellers through a variety of channels, including OEM overstocks and enterprises themselves.

There are, however, several levels to the industry. At one end are eBay and the like, unauthorized dealers that sell hardware from all vendors; then there are dealers authorized by vendors to sell their hardware; and finally, the vendors themselves, who in many cases now have resale units.

Buyers should be aware of this hierarchy in relation to the nature of the task the used equipment will have. In other words, it’s generally not a good idea to use gear bought on eBay for mission-critical applications.

It goes without saying that companies dealing in the used equipment business should tread carefully, and an IS department should pay the most attention to determining whether the company it is dealing with is legitimate.

Not surprisingly, the biggest negative in this space is the potential for dealings with less than savory characters. In the telecom segment this is of particular concern. Gartner analyst Todd Hanson notes that a telecom network runs the risk of being decertified if the enterprise puts in used equipment. Decertification does not always happen, however.

Common sense and vigilance are key to protecting the company from embarrassment and financial loss. Williams and Davie offer some tips for screening used equipment sellers:

  • A warrantee is a basic indicator that a seller is legit. Thirty days of protection is the norm. (While this may seem too brief, keep in mind that new equipment warrantees are generally the same length, and equally basic and low level.)
  • Get a purchase order. It provides the organization with at least some legal protection should there be a problem down the road. The purchase order should clearly state the terms, warrantee, and policies of the company with which you are dealing.
  • Research the company. How long has it been in business? Can it provide references with whom it has done business? If a lot of money is involved, it is appropriate to ask for a bank reference.

For enterprises looking to sell equipment, there are other issues to consider beyond the honesty of the prospective business partner. For instance, Davie says that products sold as a working unit — as opposed to in an “as is” condition — are worth two-thirds more.

Keeping detailed records of the gear also improves the price. “Much of the secondary market is in upgrades, to memory and disk space,” he says. “If [what is being sold] is detailed down part level, it maximizes how much money you can get.”

The hardware generally comes with enough software to make it marginally functional, Kerravala says. Buyers then supplement this with app-specific software. Hanson notes that the biggest technical problems often stem from software and firmware, not hardware, failure.

The immediate future appears bright for an industry that thrives on difficult economic conditions. “This industry does well when the focus is on the bottom line,” Davie notes.

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