Network Equipment: Current Or Legacy Models?

Whether pinched by tight budgets or propelled by plans calling for better ROI, enterprise buyers are realizing that used equipment is a viable alternative to new switching and routing devices.

It’s a fallacy that network equipment has to be factory-fresh to work long and well in the enterprise. Moreover, the notion that used means old in a functional sense simply is not true, particularly when you’re dealing with tried-and-true products.

Data Networks International, aka DNI (973/486-0440; www.dni-llc.com), proves the point that buying used is a good option to paying list prices for new equipment. The Stanhope, N.J.,-based firm has been serving the secondary network equipment market for more than a decade.

DNI President Paul Regolizio attributes his company’s success to quickly finding what a customer needs—down to the part number—and then leveraging the seller and buyer network he has built up over the years to deliver it at a price up to 70% less than what new products would be.

Regolizio’s company leverages a natural process. “Companies redesign, change, merge, or go out of business, which displaces a lot of top-quality network equipment,” Regolizio says. “Then we purchase, refurbish, inventory, and resell.”

DNI purchases from large enterprises, including carriers. Regolizio says, “We run into all sorts of situations. In some instances, network designers change their minds or don’t follow through on a project, and we end up with brand new or practically new switches and routers. On other occasions, we purchase legacy equipment, such as older Cisco Catalyst Supervisor Modules, because we know that there are enterprise customers with less sophisticated infrastructures who simply want to keep their networks up and running.”

Mostly Cisco

While DNI sells equipment from Juniper Networks (www.juniper.net), Extreme Networks (www.extremenetworks.com), Foundry Networks (www.foundrynet.com), and other recognized network equipment manufacturers, 90% of its business comes from acquiring and reselling Cisco (www.cisco.com) network devices. The concentration in Cisco sales isn’t surprising. “Cisco has an 80% share of the enterprise switching market,” says Phil Hochmuth, a senior analyst at Yankee Group in Boston.

Regolizio says Cisco doesn’t especially like secondary equipment marketers such as DNI. “They see it as competition for new equipment, not as another way of keeping their products in the market,” he says. Compare the suggested prices for new Cisco equipment to the same used models from DNI, and you can understand why. According to Regolizio, Cisco prices a new WS-SUP720-3BXL supervisor card for the Catalyst 6500 and 7600 products at around $40,000. “We could probably offer the same thing used for 60% less,” Regolizio says.

But competition from the secondary market doesn’t exactly have Cisco all that worried. “The used market is a tiny portion; it’s just a blip on the screen for Cisco,” Hochmuth says. Still, Cisco is aware of competition from the secondary market, and the networking giant is beginning to take notice, according to Hochmuth. He says, “Cisco eventually could become its own largest competitor.”

Refurbished, Reliable

Most of the equipment DNI receives is in very good condition. The company cleans each piece of equipment, brings the device back to its factory default configuration, tests it, and ships the product with new rack kits, power cords, and accessories. “We provide a test sheet to verify the equipment was working according to spec when we shipped it,” Regolizio says. “We serialize and track everything, too,” he adds. DNI also provides a one-year warranty on what it sells.

Regolizio says new products shipped from the factory in some cases may not be as reliable as good used equipment. “Most used equipment has gone through burn-in and proven itself on the job, whereas new merchandise may have been in a warehouse for a year,” Regolizio explains.

DNI also helps out resellers. “We do for resellers [what] they can’t do themselves,” Regolizio says. Systems integrators, for example, generally know exactly what they need by part number. DNI, Regolizio says, fulfills their requirements accordingly. But the difference for the reseller compared to the vendor selling new equipment is the reseller has the ability to make 30% through the secondary equipment market vs. only 5% on new equipment, and it can still pass on a significant savings to the end user.

Good Business

Regolizio calls DNI “an interesting business,” noting that the business model “kind of flourishes in any condition. When times are good, customers are opening their wallets. In bad times, they may be forced to purchase secondary equipment. During bankruptcy or downsizing, there’s going to be an influx of equipment. I’ve been doing this for several years, and I can’t say there has been one season where it’s been bad.”

Prices in the secondary equipment market are moving targets, and keeping track of today’s price on a particular item requires vigilance and a knowledgeable network of buyers and sellers. The day-to-day work of right-pricing an item is perhaps DNI’s biggest business challenge. The processes DNI has in place to meet that challenge year in and year out is also a major reason for the company’s success.

Regolizio says, “We receive a stream of emails from other brokers trying to sell equipment.” The volume of requests to sell or purchase a certain type of equipment will cause a readjustment in price. DNI then has to communicate its current market prices to customers and sellers.

Markets & Strategies

Yankee Group’s Hochmuth says, “Even as new networking technologies come along, there still are customers who don’t want cutting-edge [network equipment].” Another strategy some enterprises use, even those who buy new equipment for production, is purchasing and inventorying used equipment for spares, Hochmuth notes. The cost is low, and the extra devices are nearby when an existing unit fails.

Regolizio says secondary market items in demand that can be purchased new include the Cisco 7600-SIP-400 and Cisco 7206-VXR/NPE-G1 Router. And buyers still look for legacy products. He says the Cisco 3640 Router and WS-C2950-24 Catalyst Switch are popular secondary-market items.