Carl Weinschenk spoke with Mike Sheldon, the CEO of Network Hardware Resale.
Weinschenk: What are the dynamics of the used equipment market?
Sheldon: The used networking equipment industry is about a $2 billion industry. It's a worldwide market. There are thousands of companies that buy and sell equipment in the secondary market. It is dominated by Cisco, but it is a pretty healthy market that includes Juniper, Extreme and Foundry [and others]. In the last nine months, the availability of equipment increased. Since 2001, there has been a fairly large amount of equipment available. It is not just dusty old crusty equipment from 10 year ago. You can add to that the latest and greatest state of the art gear, primarily because of all the liquidations and bankruptcies. Prices are very good because of the supply. People can expect discounts in the 50 to 60 percent off range. People can save something like half when they look at the pre-owned market. It really is a viable alternative to consider the secondary market as opposed to buying things new. It is the same product that is new, but is available at a substantial discount.
Weinschenk: How do people know the equipment is working and does not have a major problem, such as being stolen, for instance?
Sheldon: A number of companies have stepped up to offer maintenance alternatives. You are not sacrificing much as far as maintainability. There are not many risks in the high end of the secondary market. The risk of gear being stolen or reworked is not a factor at all in our business. We have robust counterfeit detection [capabilities] and procedures. We have a very strong relationship with law enforcement. From my perspective, it is virtually not a risk. We reject about 5 percent of what is received because of cosmetic damage and so on. A part a week is counterfeit, out of 300,000 parts a year.
Weinschenk: Tell us about Network Hardware Resale.
Sheldon: Network Hardware Resale is the largest reseller of secondary equipment, by three or four times the next competitor. We have $200 million a year in revenue. Our prices in aggregate are 75 to 80 percent off. If you look at the volume of equipment, it is akin to $500 or $600 million dollars in new equipment. We're headquartered in Santa Barbara, with major facilities in Dallas, Singapore and Amsterdam, and have sales offices in Hoboken and London. We're global. We specialize in Cisco and have been in the business for 17 years. We offer a one-year warrantee, which is often better than if the gear was new. We stock thousands and thousands of pieces of gear, gear that is worth $300 million at Cisco's manufacturer's suggested list price. We stock that amount of gear all the time. Many of the OEMs have gone to the build-to-order model. We can get you a product the next day, almost anything. Not just one or two. On a lot of products, we can get you a hundred in very short order. Companies use us not just to save money, but to meet SLAs.
Weinschenk: Isn't the gear configured for the original owner?
Sheldon: It's no different than a PC. We bring it back to the manufacturer's spec, free of configuration unless customers let us load it for them. Over one-third of what we sell is unused. There is a lot of surplus new equipment in the market. It is not limited at all to three-, five- or seven-year-old gear. We can get products that shipped a couple of months ago.
Weinschenk: Is there a quantitative way to assess the changes-I would assume growth-in the sector due to the recession?
Sheldon: I am not aware of any actual scientific study, no. But if I was to use a simple measure of the amount of information from the IT community and financial press, it has grown a lot. The requests from companies through the Web site and our marketing group have increased substantially. Typically, the requests were on the SMB side. They still are, but they are coming from larger companies as well. Everyone is facing the same issues. Buying the same product at half the price is a petty obvious way to minimize capex.
Weinschenk: Has the market changed?
Sheldon: Ten years ago, the impression many may have had is that the secondary market was a few hundred guys working out of garages, buying equipment at auctions and flipping it. We have over 50,000 square feet dedicated to testing and refurbishing equipment. We have 250 employees, with 90 dedicated solely to engineering, refurbishing and supporting products.
Weinschenk: What should people look for in a used equipment dealer?
Sheldon: Look for a large organization of high quality. ISO 9000 is a good certification to look for. The quality and depth of technical capacity [is another thing to look for]. It's one thing to sell a very complicated router at a good price. It's another to understand how it works, how to support it. Ask them about how they test it. Not many firms test under load. We certainly do and some others do. Customer references are always something we recommend. Do they deal with companies like yours, solved problems like yours? Common sense stuff.
Weinschenk: Should people be concerned that equipment is stolen?
Sheldon: If they are buying off eBay, then that's a concern. From a reputable vendor, that is never the case. If you do have suspicions, go to the vendor. We offer a one-year guarantee on everything we sell-but guarantee that everything is authentic for life. If you get something with a problem off eBay, you have no recourse.
Weinschenk: Generally, how old is gear that is sold in the secondary market?
Sheldon: We still have equipment from 15 years ago and equipment that was made yesterday The sweet spot is two or three years old. Cisco makes great stuff, as does Juniper. If it is free from manufacturer defects-which would show up in 30 days -- these products have a 20-something-year usable life. They have very few moving parts. If there is a problem it tends to be a power supply or fan that is easy to replace. Even those don't often have a problem.
Weinschenk: What is your relationship like with Cisco?
Sheldon: I'd call it a healthy competitive relationship or something of a detente.
Weinschenk: What are your biggest sellers?
Sheldon: High-end switching. The Cisco 6500 platform is number one. It is 30 percent [of our business]. The Cisco 7200 series mid- to high-end router is second. Fixed configuration switches, which are in the low end to mid-high end, is the next biggest category.