At least once a month, I get a customer request to compare pricing of “new” versus “used” hardware. Often this will be purely looking for a lower price, but it can also be due to needing features no longer available new. While the comparison can appear simply a price issue, other contributing factors mean the review becomes wider in scope as we look at the total cost of ownership over a given period. So, should a customer buy “new” or “used” hardware?
The short answer to the question is “it depends” (a.k.a. – the favorite response of IT technicians).
For this discussion, “used hardware” is defined as previously owned and operated servers, hard drives, tape drives, SAN, other features. The hardware is sold to an aftermarket broker who will refurbish, test, and put the hardware on the market. The “used hardware” typically does not come with any extended warranty, beyond a brief period in case of failure within 30 days of purchase. “New hardware” is defined as the same hardware purchased as new from a vendor (authorized reseller, direct from the manufacturer, etc.), and the hardware is considered previously unopened and not yet installed. “New hardware” will come with full manufacturer warranty.
Historically, “used hardware” is much lower in purchase price, when compared with “new hardware”. Most customers will see this lower price and simply determine “used hardware” is the better deal. And in many cases, this proves true. However, purchase price is not the only piece to consider when looking at the total cost of ownership.
For example, a customer is comparing the pricing on a current model server. “New hardware” price is $10,000 and includes a 3-year 24×7 warranty. The same model server “used” from an aftermarket broker has a price of $4000 and includes no warranty beyond 30 days from purchase. On the surface, the “used” server appears over 50% lower price – and technically this would be true. However, further investigation shows the annual maintenance (after warranty) on the server is $125 per month, or $1500 per year. To truly compare pricing on both servers, we need to add 3 years of maintenance to the “used” server, or $4500 additional. Now we are comparing $10,000 for “new hardware” with $8500 for “used”. The large difference in purchase price now becomes much smaller when comparing the total cost of ownership. With only a total of $1500 difference between “new” and “used”, the decision becomes less about price alone.
Another example is a customer who is running an older model server, which has long been withdrawn from the market. In this case, an aftermarket broker is often the only available option for hard drives, adapter features, and other needed replacements or additions. This customer may have discontinued hardware maintenance years ago; and replace hard drives as they fail (customer does have disk protection running on their server). When new, the drives were $800 each, but now can be purchased for $50 each on the used market. So, not only can the customer no longer get the drives new, but they also save on maintenance costs by replacing a failed drive themselves or with support from a local service provider. For further discussion of maintenance, see my previous blogs on Does IBM offer maintenance in “less than 1 year” increments? and Are there alternatives to IBM maintenance?
My recommendation is to consider the total cost of ownership when comparing “used hardware” and “new hardware”. In cases where the purchase is features or drives for an older discontinued server, “used” is usually the best (and only) option. However, when looking at current models of hardware, a total cost of ownership over a given period can reveal little (if any) difference in price. The “new” hardware price with warranty needs comparison with the “used” hardware price plus maintenance coverage to achieve coverage for the same warranty period of the “new” hardware.
Market prices for “used” hardware can fluctuate on specific server features (memory, drives, adapters) based on supply and demand. I have seen scenarios where a specific memory feature has dropped in supply levels on the “used” market, driving the “used” price above the “new” price. When looking at “used” hardware, the customer should also consider how many “moving parts” are in the device itself. I have also seen customers buy “used” tape drives, only to have constant failures due to the mechanical nature of these drives. While older tape generations will often mandate a “used” tape drive, it can be a good idea to consider how mechanical is the needed device. Moving parts wear out in older equipment, whereas new hardware has much less “milage” equating to less headache.
One other consideration is the “new/open box” option. In this case, the product has the “original seal broken” on the product packaging, however the product itself has not been installed or configured. This option will have a lower price when compared to “new”, and typically include full manufacturer warranty. In our next blog, we will look closer at this and other similar options.
We would welcome an opportunity to help you compare a “used” versus “new” hardware purchase, so reach out to Arbor Solutions to see how we can find the option that best fits your business needs. Contact us.
For further details on the IBM contract increments, see our blog Does IBM offer maintenance in “less than 1 year” increments?
For further details on the IBM contract increments, see our blog Are there alternatives to IBM maintenance?