Robust Sales of Used Cisco Networking Gear Suggests Upturn

By Drew Robb
January 27, 2011

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What is the difference between a Toyota Prius and a Cisco WS-X6704-10GE blade?

Not a lot when it comes to resale value trends. The Prius earns kudos for its price in the secondary market as well as its environmental friendliness; the Cisco 10 Gigabit Ethernet (10GbE) blade is also in great demand in the used market.

“A growing number of organizations are fueling network upgrades to 10GbE, thanks to an abundance of Cisco 10GbE network interface cards on the secondary market,” said Chris Stone, director of brokerage and acquisitions at Network Hardware Resale (NHR). “Cisco WS-X6704-10GE blades are among the best sellers on the secondary market currently, with sales of these products growing by 82 percent in 2010.”

With more users buying new 10GbE gear, that means that older 1 Gb and 2 Gb equipment is landing in the used stockpile. Similarly, previous-generation Cisco Catalyst 6500 Series switches are losing ground in many companies to Cisco’s newer platforms like the Nexus 7000 Series. Consequently, there is high availability of second-hand Catalyst WS-C6509-E chassis and WS-C6506-E chassis.

Stone believes that pre-owned networking equipment sales gained momentum last year. Increasing numbers of companies resumed buying and selling equipment in order to support network upgrades and expansions. This was helped by the fact that some Cisco customers experiencing prolonged delays in receiving products due to component shortages. As a result, some users began investigating secondary sources. For example, Cisco’s ASA 5500 Series of Adaptive Security Appliances were in high demand during the shortage.

“While the secondary market traditionally catches people’s attention due to the savings, this was an instance where product availability ruled supreme,” said Stone. “The four most in-demand security products that our customers were asking for were the ASA 5510-SEC-BUN-K9, ASA 5520-BUN-K9, ASA 5505-50-BUN-K9 and ASA 5505-BUN-K9.”

But savings remain a big reason for interest in pre-owned goods. Stone remarked that there has been a shift in the cost equation in the past year. In the first half of 2010, prices on the secondary market plummeted following a cycle of restricted buying throughout 2009. Since that point, users have been able to buy current and previous-generation Cisco gear at up to 90 percent less than the cost of new equipment – depending on the item.

“Since June, equipment supplies have continued to grow, which drives more pricing stability,” said Stone. “For many providers in the secondary market, equipment supply is at an all-time high, which keeps prices highly competitive.”

NHR experienced a brisk fourth quarter as usual. But the first quarter of any given year is often slow. That won’t be the case this year. Due to favorable pricing, and an uptick in platform migrations and system upgrades adding to the stockpile of previous-generation gear, expectations are for another strong quarter.

“There are many positive indicators that the economy will continue its recovery, but saving money will never go out of style,” said Stone. “This year, we expect to top 2010, which was a record sales year.”

Due to the economic downturn that began in 2007, budgets remain tight. This has forced more companies to take a second look at used goods. Stone expects to see increased buying and selling of hardware as more companies grow comfortable in the secondary market. Specifically, he predicts that customers will be buying increased amounts of Cisco routers in the 1800, 2800 and 3800 series.

Other products that remain strong sellers due to their excellent residual value include the WS-SUP720-3B supervisor module for Catalyst switches. While the list price is $28,000, you can expect to find it secondhand for about 75% off list price. The WS-SUP720-3BXL, supervisor module with a list price of $40,000, is available at around 70% off list. The $40,000 WS-X6716-10G-3C (Catalyst 6500) sells pre-owned at less than 50% of list price.

“Because OEMs continue to shorten their product lifecycles, putting increased pressure on end-users to upgrade sooner than they may want to or can afford, this puts more equipment than ever on the secondary market,” said Stone.

New and Used Networking Combo

Stone considers healthy sales in the secondary market to be a barometer of overall health in the networking industry as a whole. This is supported by a recent research report by IDC.

“The residual value of Cisco networking equipment technologies remains high, which creates a healthy secondary market for used equipment,” said Jennifer Koppy, research manager for Valuation Services and Technology Financing Strategies programs at IDC.

“We’re seeing greater reliance on this alternative channel as savvy IT equipment buyers continue to purchase a combination of new and used gear to get the most from their IT investments.”