Cisco still trying to defend its aftermarket turf

Cisco Systems wants to get the word out to its channel partners about the opportunities offered by its Certified Refurbished Equipment program, but one analyst says when it comes to the aftermarket the manufacturer just can’t compete on price.

A thriving business has emerged for many non-Cisco resellers around the refurbishment and resale of used Cisco gear. One of the largest players is Network Hardware Resale (NHR), a Santa Barbara, Calif.-based company that made US$138 million in 2006, mainly through the resale of used Cisco gear.

Mark Tauschek, a senior research analyst with London, Ont.-based research firm Info-Tech, said the aftermarket, which has been estimated at several billion dollars worldwide, represents a significant lost revenue opportunity for Cisco, mainly through foregone support and maintenance revenue.

“It’s a big deal for Cisco since probably 20 per cent of their overall revenue comes from SMARTnet, and support and maintenance,” said Tauschek. Resales are “totally legitimate, totally legal. Cisco hates it but there’s nothing they can do about it.”

Cisco has had a refurbishment program of its own since 2001, when it was flooded with lease returns from dot-com bankruptcies. Today it takes in equipment from Cisco Capital, trade-ins, stock rotations and other sources, repairs and refurbishes it, and offers it for resale through its global channel partners.

Benson Chan, senior manager for world wide business development and marketing with Cisco Capital Remarketing, said his firm doesn’t view the program as protecting its turf from companies like NHR but rather as a way of offering more choice to customers.

“The non-authorized resellers are making a certain play in certain areas, but it’s really about enabling more Cisco sales from our perspective,” said Chan. “It’s about protecting our customers and providing safe alternatives when they’re unable to buy new Cisco equipment. And it’s about selling more Cisco equipment.”

Chan pointed to a number of advantages Cisco’s aftermarket program holds over non-authorized resellers, such as certification of the equipment by Cisco engineers, access to firmware and software upgrades and optional ongoing SMARTnet support. When you buy from a non-authorized partner, said Chan, you don’t know what you’re really getting.

The software upgrades are particularly important, said Chan, noting more and more of the intelligence resides in the software, and the software license no longer transfers with the hardware.

On the channel side, Chan said while some of Cisco’s “more sophisticated” channel partners are making strategic use of the refurbished equipment program and are seeing success, the vendor still has work to do getting the word out.

“We’ve seen varying degrees of adoption. The partners that understand it do very well with it,” said Chan. “We’re going through a lot of partner training now to teach then when and how to use the program.”

Info-Tech’s Tauschek said Cisco is clearly trying to get control of the secondary market, and a large reason why that secondary market is growing by leaps and bounds is because Cisco gear is just so expensive, making the cost-savings offered by the aftermarket quite compelling.

He gives the example of a network manager with a number of older generation switches deployed that are no longer available from Cisco. The manager can purchase a few spares on the aftermarket for $800 that can be swapped-in if there’s a failure, rather than replace them with a new $10,000 switch.

“Instead of paying 15 to 20 per cent per year for SMARTnet support and advanced hardware replacement, you’ve paid $800 for a spare switch that likely won’t have to be used any time soon,” said Tauschek.

While Cisco’s certified refurbishment program makes the equipment “like new” Tauschek said aftermarket resellers are developing their own sophisticated process and warranty options, adding Cisco just can’t compete with the aftermarket resellers on the biggest factor: price.

“The market has gotten too big; it’s going to be hard for them to make a significant dent in it, even if they were really competitive on pricing,” said Tauschek. “And they’re really not.”

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Jeff Jedras
Jeff Jedras
A veteran technology and business journalist, Jeff Jedras began his career in technology journalism in the late 1990s, covering the booming (and later busting) Ottawa technology sector for Silicon Valley North and the Ottawa Business Journal, as well as everything from municipal politics to real estate. He later covered the technology scene in Vancouver before joining IT World Canada in Toronto in 2005, covering enterprise IT for ComputerWorld Canada. He would go on to cover the channel as an assistant editor with CDN. His writing has appeared in the Vancouver Sun, the Ottawa Citizen and a wide range of industry trade publications.

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