Used Tech Gear: Notes From The Underground - InformationWeek

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7/6/2007
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Used Tech Gear: Notes From The Underground

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

HE SAID, THEY SAID

Independent resellers are painted by OEMs as primary sources of fake equipment and components. "Our concern is that when a customer goes to the aftermarket, they're losing business and productivity," says Benson Chan, senior manager of worldwide business development and marketing for Cisco Capital Remarketing. "Maybe it's product authenticity or quality."

Read: Buy used gear, your business will suffer.

No wonder secondary resellers we spoke with want to dispel the miasma of suspicion surrounding them. The United Network Equipment Dealer Association was formed to promote industry best practices, ensure high standards of product quality, and enforce ethical business practices. The 350-member reseller trade group recently launched an anti-counter- feit task force to help members identify and return counterfeit networking gear (see story, "Fighting Fakes In The Market For Used IT Equipment").

UNEDA has mechanisms to penalize members for shady business practices or for knowingly trading in stolen or counterfeit goods; it has expelled three members in the past 12 months. Still, the group lacks real teeth because expulsion doesn't stop a reseller from continuing to operate.

Not all resellers are created equal. There are three tiers of used-equipment dealers. On the top rung are vendor-authorized resellers of "certified refurbished" products, which means the gear has been examined for authenticity, tested, repaired if necessary, and brought up to factory specs. For example, Cisco's Certified Refurbished Equipment program is run by Cisco Capital, the company's financing arm. Cisco works with authorized resellers to refurbish and sell equipment that has been returned from leases as well as manufacturing overruns, liquidations, and unsold inventory.

Other vendors, including IBM, EMC, Hewlett-Packard, and Dell, have programs that restore equipment to original factory specs and often provide hardware warranties, all necessary software licenses, and even tech support contracts. Dell Outlet, for example, sells refurbished PCs, servers, printers, monitors, and other gear.

The second tier comprises independent resellers, a polite euphemism for companies that aren't necessarily affiliated with, or authorized by, equipment makers. Independent resellers get their stock from value-added resellers or enterprises that overbought a product or canceled a project, as well as through liquidations, their own customers, and a network of other resellers. There are hundreds, perhaps thousands, of independents in the United States, ranging from mom-and-pop outfits located at strip malls to $100 million-plus companies with large warehouses, testing and refurbishing facilities, and dedicated sales teams.

Many independents act primarily as brokers, finding equipment for other resellers. Others sell direct to IT departments, VARs, and integrators. Resellers may offer warranties that range from 30 days to the life of the product, and some offer their own tech support. One big caveat: If you buy from an independent reseller and want access to software upgrades, security patches, or OEM support, expect to pay the vendor an inspection fee on top of software license and support contract costs.

Customers dealing with independent resellers also run the risk of getting counterfeit or stolen equipment, or "gray market" gear that was obtained through an unauthorized channel and resold elsewhere. The severity of the problem remains unclear, but consider this: In May, a federal grand jury indicted a Massachusetts man for falsely requesting "replacement" parts from Cisco at least 700 times and then selling those parts to resellers across the country. Cisco estimates that this alleged scam cost it millions of dollars in lost business.

Stolen equipment can be hard to track in the secondary market because it may pass through several brokers' hands before arriving on the customer's loading dock, but it's out there. "We've had some of our own equipment stolen and put on the market," says the head of network operations for a financial institution.

One tech professional who participated in our online survey says his company experienced "eight or nine incidents of counterfeited components" when buying used Cisco equipment. To put an end to the problem, the company banned future purchases of used Cisco products.

On the bottom tier are private sellers that work through auction sites such as eBay. While their prices tend to be rock bottom, you usually get what you pay for.

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