Maximizing the Residual Value of IT Infrastructure
In 2009, U.S. companies face one of the most demanding economic conditions since the great depression. There has been a tremendous change as organizations found themselves caught off guard for the new economic conditions. Companies started to lay off employees in droves and made dramatic cuts in capital expenditures. 2009 was one of those years where Board of Directors, CEO’s and other C-Level executives had to look inside with a stern consternation to face the soul of their organizations and subsequently to make adaptive changes that would lead to survivability not to mention profitability. Tough decisions had to be made.
As we emerge in 2010, there has been signs of economic improvement, job losses are decreasing, GDP is beginning to grow, and corporations are begin to generate profits again, and we begin to navigate the ‘New Normal’ of the global business condition.
But there are hard learned lessons in 2009. From our vantage point, as a dealer in the secondary markets for IT infrastructure; mainly Cisco Systems and Foundry Networks we have seen an increase in first time buyers of secondary equipment as a means of maximizing their IT budget. It has been common in the last decade for organizations to maximize the residual value of their Cisco Systems, Juniper Networks, and Foundry Networks by selling into the secondary market but what has changed is the nature and size of these organizations. In the past there seemed to have been a size limit as to whether a company would engage the secondary market as an outlet to sell their displaced Cisco Systems routers and switches or Foundry Networks load balancers as these organizations would normally have used Cisco Systems Trade Accelerator Program (TAP) or Technology Migration Program (TMP). Now these organizations have realized that the Cisco Systems Trade Accelerator Program (TAP) or Technology Migration Program (TMP) might not provide them the best value in maximizing their residual values.
We love using the car analogy. When you buy a new car and drive it off the lot, it has just lost a substantial amount of value. When its time to get a new car, you can trade it in to the dealership. You know you are gonna get a big haircut in doing this. But it is easy. Or you can sell it to a 3rd party – maybe even on AutoTrader. This takes time but in the end you will get more money. Time vs. Price Maximization – or what we call ‘Velocity’. It is no different with Cisco Systems routers and switches. You will most likely get more money in the open market than by using Cisco Systems Trade Accelerator Program (TAP) or Technology Migration Program (TMP). Most oftentimes a majority of the discounting and value is never even seen by the end user – just realized by the channel partner.
We have seen the evolution of this industry since around 1998 and have begun to see that large enterprise organizations are begin to implement if not already require a means of maximizing their residual values of displaced IT routers, switches, and servers. Today’s best of breed asset recovery, asset remarketing, and IT asset managers are beginning to evolve complex tool sets and business models that would allow organizations to double the residual values of their Cisco, Foundry and Juniper. For organizations that are spending over $10 million a year on network infrastructure, this could be dramatic in terms of savings.
As an example, we know of an organization who gets a fairly good discount off of list for their Cisco purchases of routers and switches. Most of the equipment, after we have analyzed it, has a residual value of approximately 40% of list price in a two year period. This company, when buying equipment, can recapture over 50% of the initial costs of the equipment.