Used gear in demand

Imagine if someone offered you a state-of-the-art Cisco router still in its original box for 50 per cent less than Cisco’s deepest discounted price.

What’s the catch? Well it’s not stolen. And its not some franken-router cobbled together in the back of a garage. In fact it comes with a warranty and it’s backed by service and support from Cisco-certified staff. The only catch is that the router isn’t sold by Cisco or one of its approved resellers.

The market for used networking gear has grown gradually over the years to become a nearly two-billion-dollar-a-year business, according to estimates from IT consultancy Gartner Group.

“We’re not seeing a concerted effort by larger corporations to go out and embrace the used equipment market,” said Lawrence Orans, principal analyst with Gartner. “But if the stars line up and the inventory is there, many midsize businesses are getting what they need at a lower price” from used equipment dealers.

A quick search at the world’s largest auction, eBay, proves there’s no shortage of used network equipment sellers. Although most auctions are for low-end or slightly outdated gear, there are some higher-end items available. Some of the more expensive auctions included a Juniper M160 Router for US$50,000, a 10 Gigabit Ethernet card for a Cisco 12000 series router at US$74,999 and a Cisco 7507 router for US$25,115.

But most of the action in the high-end market for used network gear doesn’t take place on eBay, said Chuck Sheldon, founder and president of used network equipment seller Network Hardware Resale. The profit margins on eBay are unpredictable and often too low, he noted.

Network Hardware Resale, which is on pace for US$75 million in revenues this year, generates most of its sales through its direct sales force and established contacts with enterprise customers, Sheldon said.

The company gets its used gear from a range of sources. Some comes as a result of bankruptcies, some comes after mergers, some comes from large enterprise customers who test various gear for their networks and wind up with a surplus. “A significant amount of the equipment we have in stock is still in the box, never used and never opened,” Shedlon said. “So ‘used’ is an interesting moniker that only partially applies to our business. Yes, it has been previously bought, but in a significant amount of cases it’s not used.” Sheldon notes his company has more gear available now than it did three or four years ago. One reason is that major network vendors have recently revamped their product lines, leading to a new spate of equipment testing by enterprise customers.

Naturally, when buying used gear, customers are concerned about the condition of the equipment, its availability and support, said Mike Sheldon, Network Hardware Resale’s vice-president of sales. Network equipment makers don’t honour warranties on gear that isn’t resold by the vendor or one of its approved resellers, Mike Sheldon noted. So Network Hardware Resale offers a one-year warranty of its own.

On availability, Network Hardware can often challenge Cisco’s turnaround times, because Network Hardware’s equipment is already built and ready to go, Mike Sheldon said. “We generally get customers even very complicated systems in a few weeks or less, frequently within one or two days,” he said. “Cisco’s general lead time on complicated systems is six to 10 weeks.”

For support, Network Hardware Resale has several Cisco-certified engineers on hand to help customers with problems. The firm also has an arrangement with a third party to provide customers support for software issues at an additional charge. Despite the fact Network Hardware Resale sells a lot of Cisco gear, the company has no relationship with Cisco, Chuck Sheldon noted, adding that Cisco frowns on vendors selling used Cisco gear without a formal tie to Cisco.

Sheldon would like that to change, because he feels his firm provides a service to Cisco by allowing Cisco customers to recover some of their capital equipment costs and giving enterprises who might otherwise turn to Lucent, Foundry or Extreme, a cheaper Cisco option. “We provide a service to Cisco and if they were smart they’d embrace us, rather than snub us,” said Mike Sheldon. “They haven’t done that yet, but we’ll see.” What Cisco has done is start encouraging its own sales force to sell used Cisco gear.

While the savings may not be as high as what customers can get from a non-Cisco-approved seller of used gear, Cisco will offer discounts of 25 per cent to 30 per cent on used equipment. Cisco also offers a relicensing program for customers who have purchased Cisco equipment from non-approved resellers.

Terrence Verity, CIO at Seneca College in Toronto, found out about Cisco’s used equipment program by chance, after one of the school’s departments had purchased a piece of Cisco gear from eBay. The department came to Verity to see about certifying the equipment, so Verity placed a call to Cisco.

“They told us, ‘Why would you buy it off eBay, when you can buy used equipment from us at the same price, but get a warranty?” Verity said. “I like that approach. I can get something from a trusted supplier rather than having to pay to get equipment certified and maybe not getting equipment that would be as functional as I thought.”

Verity added that his central IT department has yet to buy any used equipment from Cisco, or any other supplier. “In most cases I’m buying new equipment, because it has new functionality and we have new needs, new scale we need to handle, so it isn’t the case that used equipment would meet our demands anyway.”

– with files from Network World (U.S.)

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