Hardware Today: Pre-owned Server Purchasing Strategies

Monday Jan 31st 2005 by Drew Robb
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Caveat emptor -- buyer beware -- is an oft-repeated mantra for anyone considering a used car. The same wary eye should be used when looking at second-hand servers.

Used cars are an accepted part of the U.S. economy. According to a report by Remarketing Solutions, 43 million second-hand cars are sold every year, generating a $366 billion market. It's no surprise, therefore, that the big automotive manufacturers are gradually legitimizing the market via their own "pre-owned vehicle" divisions.

The same trend is taking hold in the field of pre-owned servers. Even big OEMs like Dell now have authorized pre-owned programs. Enterprises that consider shopping the Dell Outlet may soon say, "Dude, your getting a pre-owned Dell." The section is hard to find on the Dell site (those not in the know can get there only via the search tool; enter "Refurbished Server" and you'll be able to track it down), perhaps because of concern that it might cut into regular sales.

By its very nature, second hand means not top of the line. Thus, what is purchased will have a smaller processor, less RAM, and less functionality than the most current OEM offerings.

By all indications, the used equipment market has blossomed in recent years. Fueled by an IT spending downswing and the continuation of frugal corporate IT spending, used server vendors are now 10 for a dollar. In addition to the well-known players like C-tech and World Data Products, many small and now not-so-small outfits are found throughout the United States.

"We definitely see growing demand for high-quality used servers," said Lilia Petrova, a sales rep at used equipment vendor Technorex. This firm focused primarily on used telecom equipment until a couple of years ago when it began to see increasing interest in aging servers. Technorex offers refurbished goods from the likes of Sun, HP, Dell, and IBM at 25 percent to 85 percent off the list price, depending on the server's age, condition, and features.

By its very nature, second hand means not top of the line. Thus, what is purchased will have a smaller processor, less RAM, and less functionality than the most current OEM offerings. This alone has a strong influence on customer demographics. You won't find NASA purchasers scouring eBay for component computers for a new supercomputer. Nor will you find banks willing to host their transactional processing systems on used Sun boxes.

Which begs the question: Who buys second hand?

"75 percent of our used server sales are to small businesses who simply can't afford to buy new," said Peter Foley, sales manager at Complete Computer Solutions.

His company has been in the used equipment business for eight years. Initially, it concentrated on PCs and desktop systems. Recently, however, there has been an increased demand for servers and storage gear. CCS offers a price regime similar to Technorex based on the age of the hardware. It specializes in Intel boxes from Dell and HP/Compaq but also has a few Sun, Toshiba, and IBM products available.

CCS' Web site lists more than 100 available models. A Dell PowerEdge 2500 with two Pentium III 1 GHz processors, 1 GB of RAM, six 18.3 GB hard drives, a 24x CD ROM drive, RAID, a 10/100 NIC, and loaded with Windows Small Business Server 2000 is priced at $2,100. At the low end, a PowerEdge 2400 with one Pentium III 866 MHz processor, 256 MB of RAM, an 18 GB hard drive, a 40x CD ROM drive, and a 10/100 NIC is priced at $650.

Organizations that buy second-hand equipment must pay attention to what they are buying, as they face greater risks than those that purchase brand new hardware.

Foley notes that the majority of his refurbished servers are bought by two groups: individuals who want to train on server administration, set up a home network, or attain certification; and midsize to large enterprises.

"A couple of years ago, Fortune-500 companies wouldn't even consider buying second hand," said Foley. "But that has changed, and we are seeing more interest due to the savings."

He admits, though, that these enterprises are not deploying such gear in production environments. Rather, they are using it mainly for testing purposes. Technorex has noticed a similar trend.

"Most large companies do not buy used servers for mission-critical applications," said Petrova. "In our experience, they tend to acquire second-hand servers as a backup, for spares to existing equipment, or for other non-critical roles, such as development machines and departmental intranets."

>> Do's and Don'ts

Beige or Lemon?

Most refurbished servers come in two metaphorical colors — beige and lemon. Therefore, organizations that buy second-hand equipment must pay attention to what they are buying, as they face greater risks than those that purchase brand new hardware. No doubt, there are stories similar to those in the automotive sector: A sys admin buys a used server from a dealer, and before he even finishes configuring it, it breaks down.

"Some small businesses see second-hand servers as a good deal but may suffer later on," cautions Clive Longbottom, an analyst with U.K.-based Quocirca, Ltd.

Here, then, are some do's and don'ts for those considering the used market:

  1. Avoid second-hand outfits that don't offer at least a 90-day warranty. Lemons generally show up within the first few days, so 90 days gives you as much cushion as you probably need.
  2. Check vendor history and customer references. If your vendor can direct you to several of your peers, and they are happy with the service, you are on solid ground. There are plenty of reputable outfits out there, a few scoundrels, and a host of Johnny Come Lately's, which have the best of intentions but may lack the ability to deliver.
  3. Deal with vendors, not brokers. Used equipment vendors typically advertise their existing stock and prices on their Web site. When you call, they can tell you with confidence that what you need is in stock and ship it the same day. Not so with brokers. They may think they have the model you need, but as they have to go through intermediaries, you may end up buying something they can't deliver.
  4. Deal only with knowledgeable individuals. The sales people you deal with should be familiar with basic server terminology and should demonstrate knowledge of the industry. If not, find a vendor you can talk to intelligently.
  5. Don't bet the company on second-hand gear. It stands to reason that you don't load your main database or core applications on a refurbished server. Pay a few hundred (or thousand) dollars more for a new one.
  6. Check origin. Highway bandits occasionally hijack a truckload of brand new servers, and thieves are on record as having snatched some boxes from the server room and waltzed straight out the front door. So verify the origin of the server. If you buy stolen goods, you could lose the equipment as well as the money you paid for it.
  7. Pay attention to software. Pirated software is the last thing you want to inadvertently purchase. Check the licensing of any software included with the hardware. Some vendors may try to sweeten the deal with illegal copies of operating system and application packages.

Server of Your Dreams

Used car makers are getting smart. They target Lexus wannabes with messages like, "Buy the car of your dreams at a price you can afford at a pre-owned Lexus dealer." As configurations are always being upgraded, however, it is unlikely that you will be able to purchase the server of your dreams on the second-hand circuit. But good deals are available if you follow the cautions above, and don't expect state-of-the-art.

The question is, will such deals remain a fixture or will they gradually fade away? CCS's Foley sees a tighter market ahead.

"The quantity and quality of used servers has worsened recently," said Foley. "We used to get a lot of one-year-old models, but most these days are in the three-to-four year bracket."

Longbottom thinks potential customers will soon gravitate more toward commodity Intel boxes.

"As commodity items drop in price, the second-hand market will struggle," he said. "Refurbished Unix servers may become increasingly attractive, however, as that platform starts to fade more from the mainstream."

In contrast, Technorex's Petrova sees a more hopeful future.

"The used server market is increasingly dynamic," said Petrova. "Companies are now getting back to the three-to-five year server refresh cycle, and that means plenty of refurbished business lies ahead."

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