October 2009

UNEDA Secondary Market Survey

Used Networking Dealer Survey Results: UNEDA 2009 Results

By: Kim Cullen in conjunction with UNEDA

UNEDA (United Network Equipment Dealer Association) is an alliance of over 300 used network equipment dealers worldwide. Members of UNEDA range from companies with hundreds of employees to small organizations within the secondary market. “UNEDA members represent the entire spectrum of the secondary market, from companies with hundreds of employees and millions of dollars in inventory to small, entrepreneurial organizations. Together their combined yearly buying clout exceeds $2 billion, representing the sale of millions of pieces of equipment to tens of thousands of customers,” stated John Stafford, President of UNEDA and COO of Network Liquidators. UNEDA members must adhere to a strict code of ethics that includes a firm policy against selling any equipment that is not legitimate. These secondary market dealers work together, via UNEDA, to promote industry best practices, ensure standards of used and refurbished product quality and work towards educating the market about the secondary market in general and eliminating counterfeit within the secondary market.

This year, UNEDA surveyed its members to determine trends within the secondary network equipment market, top priorities for the association to focus on moving forward and concerns, fears and issues within the UNEDA membership and secondary market as a whole. 187 UNEDA members participated in the 30 question survey with the following key highlights provided by UNEDA.

Upward trends within the Secondary Market

More than 50 percent of the respondents pointed to the increased demand for, and supply of, pre-owned network gear as key drivers behind their business expansion in 2008. Another trend that bears watching over the next year will be how UNEDA members step up to their perceived need for providing alternative maintenance offerings, a trend cited by a promising one-third of respondents.

“UNEDA can attribute the growth of the secondary market to the individual members growing and driving their businesses to new heights. Although a significant amount of business is always from returning customers, these same customers are recommending UNEDA dealers to their peers” Stafford added.

Additionally, UNEDA survey respondents felt their customer base was becoming more diversified as a result of the economic downturn. Specifically, 40 percent of UNEDA members polled noted that larger enterprises are turning to the secondary market to buy/sell equipment while 39 percent reported an increase in activity from non-traditional end users, such as financial services companies. Also, 38 percent of the respondents cited an increase in first-time sellers/buyers as companies increasingly turn to the secondary market for alternative methods of equipment procurement.

According to Bernstein Research compiled by Sanford C. Bernstein & Co. LLC, in 2008, the used network equipment market was sized at approximately $2.5 billion in size, equivalent to six to seven percent of the networking equipment OEM market (excluding wireless infrastructure). Larger enterprises are buying used equipment more than ever before; in particular, orders from large banks and insurance companies have increased.

UNEDA members buying and selling practices

Several questions were added to the UNEDA survey to provide greater insight into UNEDA member business practices and the secondary market. Specifically, 98 percent of the respondents said they sold to other UNEDA members, 63 percent sold to systems integrators and 52 percent sold to authorized VARs. When venturing outside of UNEDA, 40 percent of those polled reported selling to less than 100 customers over the past year while 32 percent conducted business with 100 to 250 customers outside of UNEDA.

When asked about receivables aging, 54 percent of the respondents cited that their receivables from end users are over 45 days while 70 percent reported that their receivables from UNEDA members are over 45 days.

Why customers buy in the Secondary Market

Responsiveness reigns as the prevailing reason customers choose to do business with UNEDA members, mentioned by 87 percent of UNEDA survey respondents. Responsiveness included overnight delivery, expedited shipping and overnight equipment replacement; all are capabilities that are hard to find when purchasing from OEMs or the authorized channel.

Product availability, rapid delivery and savings vs. OEMs—also received strong mention for why customers buy from UNEDA members. 42 percent of UNEDA members said they enjoyed a high percentage of repeat business over the year, as proven by the statistic that many customers bought on more than 20 occasions in 2008.

What customers buy from UNEDA Dealers

Cisco gear is the overwhelmingly most active brand on the secondary market, sold by 98 percent of the UNEDA survey respondents. Juniper was a distant second, at 58 percent, and Nortel, Extreme and Foundry followed each under 50 percent.

The most popular gear on the secondary market includes Cisco’s SUP720-3BXL, 2800 Series Routers, Catalyst 6500
Series Switches, Catalyst 3750 Series Switches and 7200 Series Routers.

90 percent of those surveyed once again picked network expansions as the top reason for deploying pre-owned networking equipment, followed by production network applications, network sparing, testing and disaster recovery.

Issues facing UNEDA and its Members

UNEDA members rising concern about the growing amounts of fear, uncertainty and doubt (FUD) being spread by manufacturers was noted by 64 percent of survey respondents. A logical outgrowth of this is that 50 percent of respondents said addressing issues regarding pre-owned equipment and Cisco’s SMARTnet maintenance offering was among the toughest issues they face. Dealing with the exorbitant fees for inspecting and re-registering maintenance of secondary market equipment also received concern in this year’s survey. The increased combativeness favored by OEMs, especially Cisco, as the secondary market has continued to gain traction was the top concern of UNEDA members.

On the bright side, the threat of counterfeit equipment in the secondary market seems to be declining. While 50 percent of UNEDA respondents noted the identification of counterfeit gear as a tough issue in a previous survey by UNEDA in 2007, the amount dropped to 40 percent in 2009. Also of note is the fact that 59 percent of those polled reported that the amount of counterfeit gear they’ve identified and intercepted over the past year had declined. UNEDA’s efforts in working together throughout its ranks to eradicate the presence of bogus gear—as well as dismiss from its ranks any companies repeatedly caught selling such equipment has had a positive mark within the Industry. UNEDA has also offered manufacturers an open invitation to join forces in order to stop the proliferation of counterfeit goods and prosecute anyone found selling such equipment.

Finally, in prioritizing the types of things UNEDA can do to help its members become more successful, 59 percent cited increasing public awareness to combat OEM FUD while 53 percent reported the need to establish a cooperative working relationship with Cisco. In addition, 46 percent would like to see the association clearly articulate the legality issues surround software licensing and 38 percent still are interested in the creation of a UNEDA seal of approval for vendors.

81 percent of the UNEDA survey respondents are in favor of adding qualified dealers who meet the association’s stringent requirements for membership. Prospective members must fill out an extensive application to prove they are a legitimate, sustaining operation that sells pre-owned networking equipment within the secondary market. This includes a valid web site, references and warranty information. They must have the endorsement of three current UNEDA members, the ability to pay dues and must agree to abide by UNEDA’s strict code of ethics. “UNEDA members must adhere to a strict code of ethics that includes a firm policy against selling any equipment that is not legitimate,” John Stafford continues, “UNEDA reacts quickly to expel any member that is discovered selling counterfeit or stolen gear. We also work closely with various different law enforcement agencies to identify and prosecute counterfeiters.”

UNEDA is among the associations within the secondary market that work to provide a better light on the sector as a whole. With the help of UNEDA and its members, every legitimate supplier and buyer within the secondary market benefits from less counterfeit products, a greater presence within the equipment market and a voice to gain trust and help from the OEMs.

For more information on UNEDA or to inquire about membership opportunities, please visit their website www.uneda.com.