N+I - Used Cisco gear a growing market

If you're in the market for a Catalyst 6500 switch from Cisco Systems Inc. but can't afford the sticker price, you're a potential customer for the emerging networking resale market.

Network Hardware Resale LLC in Santa Barbara, Calif., is one of about 20 companies that resell used or surplus Cisco hardware, as well as networking gear from some Cisco competitors such as Extreme Networks Inc. and Juniper Networks Inc., according to NHR's CEO, Chuck Sheldon.

NHR had a booth at Networld+Interop here in Las Vegas this week, right next to one belonging to a competitor, Optimum Data Inc. in Omaha. Other competitors include National LAN Exchange in Orem, Utah, and Recurrent Technologies Inc. in Santa Clara, Calif. However, the largest number of resales of networking equipment and components are probably conducted over eBay, said Zeus Kerravala, an analyst at Yankee Group Inc. in Boston.

Business is growing at NHR, which is privately held and saw US$50 million in sales in 2003, a number that should grow to US$75 million in 2004 and hit $150 million by 2007, Sheldon said. Customers are attracted by the possibility of buying hardware at prices that are 50 percent to 90 percent below original prices, Sheldon said. For example, Cisco's Catalyst 6500 switch with all the bells and whistles might cost $100,000 at NHR, down from perhaps $200,000 at list price, NHR account representative Kyle Jolly said.

One NHR customer, a senior networking engineer at a global telecommunications service provider who asked to be identified only by his first name, Larry, said he has purchased up to $700,000 in used or surplus Cisco gear from NHR in the past two years with no problems.

He bought Catalyst 6509 and 6513 switches to use for customer order processing and similar tasks, and he said he wouldn't hesitate to buy equipment for use in the service provider's network. Larry said his bosses were "concerned at first" when they heard he was considering buying used gear, but he won reassurances from NHR that persuaded them to authorize the purchases. He estimates he has saved up to 70 percent over the cost of buying new, and the boxes are used in production "side by side" with new gear for which he paid full price.

NHR estimates that the secondary equipment market is about $1 billion a year, although Yankee's Kerravala said the number is probably half that.

Sheldon founded the company in 1985 and started selling surplus and used Cisco gear in the early '90s when he was mayor of Hermosa Beach, Calif., a suburb of Los Angeles, a job in which he earned $300 a month. "I needed to feed my family," he said with a smile. NHR now employs 75 people.

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