Saving money with used network hardware: Tricky but doable

Buying used network hardware is a good way to save some money and to extend the life of your infrastructure, but it's tricky. It can sour your relationships with your key vendors, and finding good support for the equipment is a challenge. But the right strategy can be a goldmine in these tough times.

Buying used networking hardware is a great way to hold down costs in these tough economic times, as long as IT organizations can get quality support for the products and avoid antagonizing their key vendors of new equipment.

"[Buying used network hardware] sounds like a great idea on the surface, but it often ends up being a lot harder to execute," said Robert Whiteley, principal analyst and research director with Forrester Research in Cambridge, Mass. "Most larger companies are going to have a support contract in place with a particular vendor. When they buy used equipment, it's much harder to get that folded into the support contract."

Companies like Cisco can check equipment by serial number to determine whether it qualifies for SmartNet support, for instance. Whiteley said IT organizations often won't be able to fold those used switches into the larger support contract. Instead, they will have to pay a premium for a separate contract that won't be as heavily discounted. And in some cases, a manufacturer might be unwilling to sell any support for the used equipment.

"Basically, Cisco frowns on purchasing used equipment, so they do not make it easy for you to support it," Whiteley said.

Organizations must also be careful whom they buy used equipment from, he said. There's always the chance that a dealer isn't as reputable as it claims to be, and organizations might find themselves with gray market or black market gear. Gray market products have been refurbished, but not necessarily to vendor specifications. Whiteley described black market equipment as products that are fake or fraudulent.

"We know of several clients who purchased infrastructure and then went to get a support contract on it, only to find that it's not available or it's fraudulent gear altogether," he said.

Before buying used equipment, organizations must make sure they are working with a reputable dealer. They can go to the original manufacturer and see whether the vendor is an authorized reseller of its used equipment or a certified partner of the company in good standing.

Of course, vendors of used equipment often have adversarial relationships with the manufacturers, who see these vendors as competition. Mike Sheldon, CEO of Network Hardware Resale (NHR), a Santa Barbara, Calif.-based company, does about $200 million in annual business selling used networking equipment. About 85% of the used equipment he sells is from Cisco.

Sheldon said Cisco is "quite hostile" to his company. This hostility manifests itself in a variety of ways, either directly from Cisco or through its value-added resellers (VARs). He said this is often the main reason why potential customers are reluctant to buy used equipment.

Cisco and its VARs might threaten to cancel maintenance contracts or to revoke the bulk discounts that they offer, Sheldon said.

"[For many customers] their heavy discount with Cisco may depend on simply the benevolence of Cisco themselves," he said. "Cisco sets its own prices. One of the reasons we exist is that Cisco gives some customers 70% off and some customers 30% off. If they gave 70% off to everyone, there wouldn't be a Network Hardware. We don't sell to most customers who get 70% discounts. We sell them some, and we buy back a great deal of them."

The reaction from VARs varies from company to company, Sheldon said. Some VARs are just as hostile as the manufacturers to used equipment dealers. Others will work closely with companies like NHR to help customers find the right mix of new and used equipment in their infrastructure.

Sheldon said NHR tests all the equipment it sells. For that equipment, it also offers its own 24-hour support, which he claims is comparable to Cisco's Smartnet, but his company can't offer the software upgrades that a Smartnet contract provides.

Whiteley said the difficulties associated with finding reputable resellers and buying product support means that organizations often take a segmented approach to introducing used networking equipment into their infrastructure.

"There are certain types of infrastructure, like the core and the edge of the network, where you simply won't risk it," he said. "You'll buy new infrastructure there because it's not worth saving the money. However, you're probably going to have some peripheral branch offices, or perhaps some group level switches and things like that, where you probably have old infrastructure that has passed its maintenance time anyway. And it works. But you're not running it in any officially supported capacity. That stuff is ripe to replace with refurbished or used gear."

Many companies might turn to used equipment as a stopgap to unanticipated problems, Whiteley said. For instance, a company might be on a five-year refresh cycle with its edge switches but find that half a dozen switches need to be replaced after three years. In order to keep the entire edge on a five-year refresh cycle, the company might buy some used switches to get it through those last two years.

"We've seen a lot of customers in the last six months who've scaled back plans to upgrade and are now planning on extending the life of their network," Sheldon said. "And one of the challenges they face when Cisco end-of-lifes or end-of-supports a product, these companies have no choice but to upgrade. We are there to provide that choice. We can provide large quantities of one-generation-old switches or routers and maintain them with 24-hour support. We're seeing greatly renewed interest from large customers that want to extend the life of devices that are three to five years old but are still working."

Let us know what you think about the story; email: Shamus McGillicuddy, News Editor

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