Refurbished desktop computer

There's no trouble finding IBM, Compaq, Hewlett-Packard and other brand name desktop computers on store shelves these days. Unfortunately for resellers of new equipment, not all of these PCs are fresh from the box.

There's a flourishing business in selling refurbished computers, servers, monitors and printers. CPU power vastly exceeds the needs of most mainstream software like Microsoft Office, and the market is flooded by hardware from bankrupt companies linked to the dot-corn meltdown. So thrift-conscious consumers and businesses are willing to settled for used PCs.

That also means it's an increasing challenge to those trying to sell the latest in technology.

Here's why:

"We've been able to pick up some top-notch equipment at some bargain basement prices because of the number of Ottawa high-tech companies that have gone out of business," says Elliot Finkelman, a director of The Leading Edge, an Ottawa retailer which specializes in refurbished computer gear.

Among his prizes: 600 IBM Celeron 466 Mhz desktop computers with 128 MB of RAM, which he disposed of for $199 each.

Ouch. That's got to hurt someone's bottom line.

But Finkelman and others shrug. There's a growing number of people who only want to surf the Internet and write letters, they say. For these buyers the price of bleeding edge PCs is too sharp.

Seeing a niche, some retailers moved in. Buying from brokers such as CDI Computer Dealers Inc. of Markham, Ont. and Encore Asset Services of Woodbridge, Ont., some of whom offer limited warranties on the equipment, many have given up on new hardware.

"We've had some resellers who've converted their full operations to do practically only used equipment, for the simple reason it's easier to make money--higher margins," says Saar Pikar, CDI's vice-president of sales.

"We have some 2,000 square-foot customers that do over $500,000 business with us a year."

"I think you're going to see used equipment becoming a bigger part of the overall market" he adds, "simply because (new) computers are not losing as much value a they used to."

Keith Pitts, president of Encore, sees another reason why the supply may expand. "There's been a lot of procrastination over the past 18 months in terms of technology refresh," he says. "There are a number of major organizations out there--banks, government--who have moved their desktop technology from a three year to a four year life cycle. That product's going to have to come out eventually. Somebody is going to have to take that product and put it into the secondary marketplace."

And if not in North America, then Africa, India or the Baltic states, he adds. Pitts figures a full 60 per cent of what he sells leaves the country for overseas.

Before resellers dump their unopened boxes of Pentium 4s for refurbished stock, the tale of Logic Box, a Mississauga, Ont. retailer of refurbished computer equipment is worth telling. The narrator is Hassan Jaffer, of Jaffer and Associates, a bankruptcy trustee.

"Logic Box did a wonderful business for a number of years," he says. "Then profits got squeezed as a result of changing market conditions, including the fact that the price of new computers have continued to decline. Also, the economy hasn't been the greatest for people to continually change their hardware."

He also believes that some manufacturers are getting into the refurbished business themselves, polishing up equipment returned on lease and undercutting resellers like Logic Box.

(Jaffer didn't mention any names, but those thinking of getting into the business should note that IBM Canada, for one, sells some of its refurbished and ex-leased hardware on its Web site, in addition to disposing of used equipment through brokers and IBM partners.

According to Belinda Tang, general manager of IBM Global Financing in Canada, online disposal of refurbished hardware depends on the demand. "If people are more into buying off the Web then we will pass more product through that channel.")

These are among the reasons why Logic Box became one of Jaffer's clients in December. An attempt to restructure the business failed and it went into bankruptcy in February. Its leading creditor, a bank, sold its security to a numbered company, which hopes to resume business.

The refurbished computer industry, of course, began about a month after the computer industry itself gave birth.

True, resellers of computers have been rising and falling since the IT industry began. Come to think of it, the refurbished business started shortly after. But it really took off after major manufacturers and finance companies began leasing PCs and notebooks.

How big the industry is in Canada isn't known. Encore estimates it sells 2,500 to 3,000 pieces of hardware a month, but says it has done as much as 12,000. CDI says it sells almost 12,000 PCs, servers notebooks, monitors and printers a month across North America to individuals and resellers. About 40 per cent of its supply comes equipment leased to corporations by its parent, Relational Funding of Chicago, while the rest comes from OEM manufacturers like IBM.

To get an idea of what it takes to be a supplier, consider what CDI does to incoming equipment: first, it puts 20 PCs or notebooks in a vacuum room at a time to suck out all the accumulated dust. Then it tests and audits each unit to check its configuration and working condition to produce an audit report for the leasing company, which wants to know if anything has been removed by users. Hard disks are formatted to erase any data, after which units are upgraded if necessary and then given a cosmetic inspection. Machines that fail are prepared for disposal.

In all CDI has 75 employees, which can take from four hours to a week, depending on the volume on the production line.

Pikar figures half of the equipment goes to resellers like The Leading Edge, while boards of education buy the other half. But some major corporations also buy direct from CDI for employees who don't need top-line equipment.

"The good-enough computing phenomenon is really helping our business," he says. "People realize there's no need for the latest and greatest. Instead of getting one for the home they can get three."

However he speculates that suppliers could see competition from leasing companies, who may see the value of getting into the refurbished business themselves.