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Used Tech Gear: Notes From The Underground

Refurbished switches, servers, and other products are cheap, plentiful--and risky.

"Cisco is out to kill me," says Mike Sheldon. "They wish me dead."

What earned this executive the enmity of one of the world's most powerful companies? Money, what else. Sheldon is president and CEO of Network Hardware Resale, a $170 million-a-year company in Santa Barbara, Calif., that sells used Cisco Systems products to a market hungry for reliable, low-cost IT gear. Sheldon and others like him operate on the borders of respectability: Equipment manufacturers don't like losing sales to these independent resellers, and some companies forbid their IT organizations from buying secondhand gear.

But does that stance make sense? Sure, counterfeit and stolen products pollute the pool of aftermarket equipment. The Alliance for Gray Market and Counterfeit Abatement, a trade group, estimates that one of every 10 IT products sold may be counterfeit. That figure is based on surveys of electronics industry executives, conducted with KPMG. In the past three and half years, stolen network equipment worth more than $41 million has been recovered by Rapid Enforcement Allied Computer Team, a multiagency task force that fights high-tech crime.

However, if you choose your partners carefully, taking a risk on used gear can pay off. In our survey of nine resellers, the average price for a 13-slot Cisco Catalyst 6513 switch, which lists at $65,995, was just shy of $29,500 (see chart "Beyond The Bottom Line"). In general, preowned equipment can be purchased at 10% to 90% less than the cost of new systems.

Who's buying used gear? Better to ask who isn't. The customers of secondhand equipment range from small busi- nesses operating on tight margins to Fortune 500 companies and global telcos. For some, deep discounts are the draw. For others, the secondary market opens new channels for hard-to-find parts and components, particularly for products such as mainframes and printers that original vendors no longer sell or support. For example, in an online survey conducted in May by InformationWeek, one IT pro wrote that his company buys used dot-matrix printers--required by certain financial applications--at deep discounts over what new ones would cost.

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Before shopping the secondary market, know the players and understand the ground rules. If you want software upgrades or service contracts from the original vendors, for example, expect to pay fees to get right with them. Forgoing software licenses means no access to upgrades or security patches, a potentially dangerous situation.

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