Reprinted with permission from AG Automatisering Gid.

NHR, Reseller of second hand Cisco equipment has recently become active in Europe.

With Second Handies You Can Build Networks Quickly

From a new base camp in Amsterdam, a reseller in second hand Cisco equipment is working in a virgin territory in Europe. The American company is doubling its revenue year after year.

Occasions

The warehouse of Network Hardware Resale is packed with 16,000 network components out of almost the entire switch and router product ranges. The company of Chuck Sheldon, IBM veteran and former mayor of Hermosa Beach in California, however has no connections to Cisco. The equipment in the warehouses is mainly purchases from large telecom companies and Internet service providers. They do not need the equipment anymore, but would like to receive some value for their investment.

Chuck’s customers are Fortune-500 companies, medium to large enterprises. They are not so much attracted by attractive prices as they are by the one-day delivery time that is proclaimed by NHR, says Sheldon. “Often, they want a product immediately. A new product from a Cisco distributor may only be delivered in ten days. And, obviously, they are interested in the discounts up to 80% off the list price.”

Gartner-analyst Neil Rickard confi rms that numerous companies’ use second hand networking equipment. He acclaims that they preferably look for hardware, which is very suitable for second hand use. “Equipment like stackable or rack mounted units does not deteriorate or age quickly.” That is why products are mainly depending on software, like call servers and call managers, are hardly sold second hand. “By the time you have installed all licenses and the latest upgrades, you have spent as much time and money as you would have when buying a new product.” Equipment that works with a mix of software and hardware, like routers are mainly put in testing environments or at the side during expansions and are not put in the core network.

Stand-in

Half of the goods in the NHR warehouse have never left its original packaging. NHR, Reseller of second hand Cisco equipment has recently become active in Europe. They are network components that have been purchased as stand-ins, but were never used. The rest of the equipment that comes in at NHR, will go through an extensive testing process before they are sold. NHR has a signifi cant number of technicians among its 58 employees that have specialized in Cisco products.

NHR delivers under the same conditions as Cisco does. If equipment fails within 90 days it will be replaced immediately. Moreover, the customer can get a “Cisco SMARTnet 1-year extended factory warranty”. In the US, six to eight companies actively sell networking equipment from stock. Worldwide, the market accounts for a revenue of $400- 500 million, but the market is growing rapidly. Sheldon expects to close this year with a revenue of $50 million, doubling the revenue in 2001. “That is the third consecutive year.”

At this point, American companies are more inclined to use second hand Cisco equipment than European companies. In America - more than in Europe – companies take care of their own purchases and maintenance of networking equipment, as Rickard explains. In Europe, but also in Asia, the purchase will go through a system integrator in more than 50% of all cases. System integrators are, however, less inclined to regard second hand equipment as an option for their customers. Ten percent of NHR’s revenue is made in Europe, Asia counts for fi ve. “We are happy to have the fi rst offi ce in Europe, ahead of our competition, from where we can approach the market that has been a virgin territory until today. Our planning also contains opening an offi ce in Asia”, says Sheldon.

The Amsterdam offi ce started in July with 5 people, but Sheldon expects to grow to 25 in three years. Before the offi ce opened, NHR already had more than one hundred customers in Europe, mainly in Germany, England and Spain. “They have found us via the Internet and have made some effort to fi nd us. Because of the time difference, most communication has found place via e-mail. Now that we are in Amsterdam, the contact will be easier. Moreover, we will be able to actively approach the market. In the two months after opening our offi ce, we have brought in 25 new customers.”

Old Boxes

Cisco is not impressed by the second hand market for its products. Steven Loewy, director of Enterprise Solutions Benelux hampers: “A serious company will not make its critical network dependent on old boxes that are someone else’s.” Also his fellow-director David Bradshaw, who is responsible for sales to the service provider market, does not have the impression that the second hand market is a threat to the revenue for new equipment.

“What else do you expect from a manufacturer?” Sheldon reacts. “And they are right, of course. Cisco had $19 billion revenue last year.” “However, “ states Gartner-analyst Rickard, “the effect of the second hand user market can not be ignored. Since used equipment is often sold for a fraction of the price, you may easily multiply the total revenue with three to calculate the effect on the total loss of sales for new equipment.”

Sheldon describes his own relationship with Cisco as a love-hate affair. “They would rather see my customers buy new equipment at Cisco. But I have also experienced that they appreciate the fact that faithful Cisco-users retain the uniformity of their platform and that they are not jumping to a different manufacturer because of us.” NHR trades in Cisco equipment almost exclusively.

Rickard says it is hard to typecast the future of second hand networking equipment for the coming years. It is largely dependent on the reaction of the manufacturers. “With trade-in auctions with products that introduce new technology, they can kill re-use within a short period of time.” However, he does not expect Cisco to set up a trade-in program for its entire product range, but only within certain areas to stimulate development.

He claims that suppliers of second hand equipment benefi t from the gradually maturing market, because it slows down the replacement and evolution of new products. The swift consolidation in the telecom industry on the one hand and the tight customer budgets create excellent conditions for growth in the second hand market, states Rickard.