Cash for clunkers: Old tech equipment boosts the bottom line

Like most big companies, GlaxoSmithKline had systems in place to help keep track of its computers, servers and other IT equipment.

Even so, equipment would still fall through the cracks -- employees would leave, and managers would forget to call the desktop services group to pick up their computers. Or workers would need extra machines for special projects but then fail to turn them in when the projects were complete. Or people would ask to hold on to old computers after an upgrade to clear off data, and the unit would fall off the roster.

Cash for tech clunkers

Multiply those instances over several years, and you wind up with a big pile of unused tech gear.

That's what Armin Jahromi, service development manager for GSK's IT desktop services group, discovered a few years ago when he decided to take a hard look around the company's physical plant. "There was a lot of IT equipment lying around -- laptops, desktops, monitors, all types of equipment," he recalls.

But where other managers might have envisioned big disposal bills, Jahromi saw another possibility: potential revenue. He rolled up his sleeves and went to work, partnering with PlanITROI, a Denville, N.J.-based asset value recovery company, to recoup cash from end-of-life IT gear.

Over a two-year housecleaning period that involved more than a half-dozen sites housing 20,000-plus workers, GSK's IT department took in an impressive $1.8 million -- that is, 60% of the total amount earned, with the remainder going to PlanITROI.

Refurbish and resell

Many companies struggle with finding the best way to get rid of outdated computers, servers and the like. The days of tossing units out with trash bound for the landfill are long gone, thanks to increasingly stringent recycling laws.

Companies can certainly get a recycling vendor to haul away tech trash, but fees vary widely, and the hassle can be considerable, in part because it's not always easy to determine whether these companies are getting rid of the e-waste in a responsible way.

Now, some organizations are trying an alternative: refurbishing and reselling their old equipment, either on their own or through a third party, to bring money back into the company coffers.

And as the GSK case shows, this can be more than pocket change. For companies that understand the potential returns and implement the right collection policies, the result could mean tens -- even hundreds -- of thousands of dollars.

For large firms, "savings in the millions of dollars isn't that unusual. That's a common number once they have a mature program in place," says Barbara Rembiesa, president of the International Association of Information Technology Asset Managers (IAITAM). "It's a matter of understanding the value [of IT assets] and bringing the value back to the company."

Jahromi's work is a case in point.

He developed a policy whereby older equipment that's still functional and under warranty gets redeployed within GSK; gear that's out of warranty is resold or, if there's no market, recycled. PlanITROI handles that part of the job.

Much of what Jahromi collected during GSK's housecleaning two years ago was fairly current equipment -- generally ranging from three to eight years old -- although the company also collected older flash drives, CDs, monitors, printers, cables, fax machines and even an electric typewriter when it moved one of its data centers.

Jahromi admits that he didn't expect to get much money selling that typewriter, but he was surprised by the amount of money that the IT department was able to get by working with PlanITROI.

Harvest software, reap benefits

When IT pros think of tech gear disposal, they typically envision pallets of old PCs and used laptops. But there's a hidden asset to consider as well: the software loaded onto to all those hard drives.

Many companies don't have enough of a handle on their licensing agreements to know for sure which software must stay with the hardware and which can be taken off a device and reused elsewhere, says Barbara Rembiesa, president of the International Association of Information Technology Asset Managers.

In a 2010 survey conducted by the IAITAM, only 62.9% of respondents said that they harvest software licenses and put them back into the inventory when they prepare hardware for disposal.

"You want to recover that software," says Patricia Adams, an analyst at Gartner.

"If you're a company, you typically have a contract for X number of licenses, and you're entitled to use those. So if you're retiring an old asset, some of that software is transferable to the other devices. Doing that saves money."

The agreement between the firms calls for PlanITROI to keep 40% of the asset value when it refurbishes and resells GSK equipment. (Refurbishing includes installing Windows software with an authorized Microsoft license.)

"It's rare for an IT organization within a company, a non-IT company, to earn revenue," he says. "We now take that revenue and pump it back into the purchase of new equipment. So we're recycling the machines and the money."

Not all organizations are following GSK's example. In a 2010 IAITAM survey of some 150 IT managers attending the organization's annual conference last year, only 56% of respondents said they consider the disposal of hardware and harvesting of software a priority, and only 14.3% listed cost savings or money-making as a matter of high importance for their organization. "As far as companies and the maturity of IT asset management, we're still very young," Rembiesa says. "There are companies that have a good maturity out there; others are just coming on board."

Right now, most firms use disposal companies, she says, and many of those disposal companies turn around and resell equipment on the secondary market -- but the original company often does not benefit from that resale cycle.

"It's up to [the owner of the IT assets] to negotiate a return on any resale," Rembiesa says. "Some disposal companies are giving it back [to the original company], some are not. But with a little bit of due diligence, organizations can find a company that can give them a return."

PlanITROI is one of a number of companies working in this space. Redemtech, TechTurn and Arrow-Intechra are others that will give part of the proceeds back to the originating IT group.

In addition, the large computer equipment companies offer services that help their customers recapture some of the residual value of their old technology.

IBM, for example, offers a "fair market value lease" in addition to its more traditional full-payout lease, says Linda Demmler, director of worldwide sales for IBM's Global Asset Recovery Services.

Where companies with a full-payout option lease their equipment to own, she explains, the fair market lease allows them to pay a lower amount upfront and then, at the end of the lease, gives the equipment back to IBM, which can then refurbish and resell it on the secondary market.

Value can vary

Several factors can affect how much, if anything, an organization can get back when working with a vendor to sell on the secondary market, IAITAM's Rembiesa and others say. The biggest issue these days is the age of the equipment.

Many companies have been holding on to their IT assets for as long as possible, stretching out their refresh cycles to avoid having to spend during the down economy (see "The average life cycle of common hardware," below). But Rembiesa points out that they won't be able to get much, if anything, for PCs and servers if they're too old.

"The resell value depends on a few factors, including technology advances. The rule of thumb would be that anything over five years would start costing and would not have much resell value," Rembiesa says.

The average life cycle of common hardware

Cell phones 2 years

Laptop PC 3 years

Desktop PC 4 years

Server 5 years

Networking gear 5 years

Monitor 8 years

Source: Redemtech Inc.

The challenge, Rembiesa and others agree, is finding the sweet spot where the equipment is too old to justify supporting but still young enough to resell.

When RJ Juliano joined Brandywine Realty Trust four years ago, he looked at tax codes, maintenance costs and other factors in trying to develop an asset management plan that fit with the company's practices and policies.

Juliano, who is CIO of the Radnor, Pa., firm as well as a member of the Society for Information Management, noted that Brandywine counts most IT equipment as an expense, not an asset. He also considered his company's tax position and its margins when deciding how to optimize the value of technology as it neared its end of life.

Brandywine now has a mix of options to help get the most residual value out of its older equipment. Some pieces are refurbished by staffers and reused in-house for either backup or less critical functions. Some are kept for spare parts to use in more current equipment; others go to vendors like Five Stars Telecom, which gives him credit to use toward future purchases; and some are donated to charities. (See "Junk tech gear helps charity," on the next page, for one charitable option.)

Juliano can't say exactly how much these efforts have saved the company but notes that it's "not insubstantial." For example, Brandywine has earned about $100,000 in credits over the past four years by selling equipment back to vendors, he says.

Organize your assets

How can companies ensure that they're reaping the maximum return on their assets? By centrally managing their IT gear, which gives them insight into their entire inventory, says Redemtech President Robert Houghton. (For more information, see "Life-cycle management explained.")

Junk tech gear helps charity

IT leaders at Memorial Hospital in Chester, Ill., were deploying a new server when they learned that their vendor, Ottawa-based KOM Networks, had a Junk-A-Juke program that allowed clients to get rid of their old IT equipment for a charitable cause.

Memorial's IT director, Becky Bunselmeyer, says the hospital had accumulated three pallets' worth of PCs, monitors, keyboards, dumb terminals and printers that were obsolete.

They weren't worth anything on the secondary market, Bunselmeyer says, and electronic recycling options weren't readily available in that region.

So the hospital signed up for the Junk-A-Juke program, which hauled away the material at no cost and then donated the scrap value to the charitable organization Feed the Children.

Beyond that, IT managers can maximize the price they get by taking certain simple steps, Houghton says. For example, recovering user passwords when equipment is turned in can speed up and simplify the refurbishing process.

Another important step is to collect all necessary components and handle simple fixes in-house. Including the AC adapter with a laptop, for example, can boost its resale value by $20 to $40. It might not seem like much, but an organization reselling hundreds or thousands of laptops during a refresh cycle could see a considerable difference in cash or credit.

GSK's Jahromi says those steps are well worth the trouble. After seeing nearly $2 million in returns from clearing out old equipment, he has instructed his IT department to make sure equipment doesn't sit around idle and is either put to use, sold or otherwise disposed of.

Beyond that, Jahromi is fine-tuning GSK's refresh cycle to ensure that it doesn't extend so long that old equipment isn't worth anything.

Over the past two years, in response to the recession, the firm extended its refresh cycle from three years to four, but it decided against five years because that extra year would have significantly diminished the value of the equipment on the secondary market, Jahromi says.

Hitting that "sweet spot" is something of a challenge, but it's one Jahromi says he enjoys. "This is where the science of it comes into play," he says.

Pratt is a Computerworld contributing writer in Waltham, Mass. You can contact her at marykpratt@verizon.net.

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