Beware of Cisco refurbished equipment

Cisco Systems was the darling of the IT industry and the stock market in the 1990s, as it enjoyed phenomenal growth (50 percent or more, year after year) throughout the decade. During this period, Cisco was, at times, hiring upward of 1,000 new employees per month. Then came the dot-com bomb and economic slowdown of 2001. Cisco took a record $2.25 billion inventory charge, laid off 8,000 people, and watched its stock take a nosedive. Now, Cisco has sharpened its teeth and is trying desperately to make a comeback.

With the economic downturn and the particular weakness in the telecom and IT industries, the demand for new network equipment has ground to a halt. Even worse, the bankruptcies of so many companies have not just created a lack of demand; they have also created a tremendous surplus of used and unused new equipment on the open market. This surplus is one of the things that is hampering Cisco’s comeback.

By “open market,” I mean any source that doesn’t come from Cisco’s manufacturing plant or inventory of new equipment. Some examples of the open market are:

Individuals and organizations that sell routers on eBay in the Cisco category.
IT Parade, where dealers join together to sell their products. A search on IT Parade at the time of this writing found 1,886 Cisco items for sale.
The very active ISP-Planet: ISP-Equipment discussion list, where visitors can post that they want to buy or sell network equipment with no commission fee for connecting the two.
Hordes of used equipment vendors like Asset Recovery Center (as mentioned in the Fortune article “Cisco’s Worst Nightmare”).
An individual, like you, wanting to sell your router privately to another individual, like me.

While these options can offer practical solutions for both the buyer and seller of Cisco equipment, any organization that is considering the purchase and implementation of used Cisco equipment needs to know that Cisco is doing everything it can to undermine these sales and make it difficult for companies that purchase used equipment, as I recently discovered.

My company has been looking to replace our aging (and discontinued) 3Com network equipment with current technology that can be serviced and supported by its vendor. We have a wide area network (WAN) made up of about 60 locations. We would prefer to do this upgrade with Cisco equipment. Last year, I quoted new Cisco equipment to do this. The cost was going to be about $500,000.

We decided to start this rollout midyear 2002 and, due to the high cost involved, we planned to have to spread it out over three years. I also looked at Cisco’s “refurbished” equipment offering and decided to go with that instead of new equipment. The refurbished equipment would save me significant dollars, and I could get it through the same channel as my new equipment. The only problem is that many Cisco refurbished parts are often unavailable, so I looked into the possibility of getting used equipment from the open market. I found that I could save my company a few hundred thousand dollars and would be able to complete the project in a year and a half (because of the lower cost) instead of the original three years—a tremendous benefit to myself, my IT group, and my company as a whole.

Although I had read the Fortune article on usedCisco equipment, I never expected that Cisco would treat me as it treated the prospective buyers in that article. After telling my Cisco sales representative that I wanted to buy used equipment, I expected him to try to talk me out of it, but I was naïve and didn’t expect what happened next. He told me the following:

Cisco has taken a hard line on “noncertified” (used) equipment.
Cisco will absolutely not uphold the support and/or warranty that came with the equipment or that was purchased by the previous owner of the equipment.
Noncertified equipment cannot be covered under Cisco SMARTnet maintenance unless my company pays to send it to Cisco, pays an inspection fee, and pays to have the equipment sent back.
Cisco will require my company’s legal team to sign a form releasing Cisco from all legal claims against them in relation to use of used equipment.
If my company does not buy an IOS license for every piece of used equipment I purchase, Cisco will “explore legal action based on nonauthorized use of our IOS software.” (I take this to mean it will sue my company.)

After getting over my outrage, I did some research on this. An equipment vendor requiring a company to have used equipment “certified” before allowing it under maintenance is nothing new. Vendors like IBM have been doing this for years, but it is typically done on a large and expensive piece of equipment—not a router that costs $1,500.

What is unique and not very well known is that Cisco licenses its IOS (the operating system of the router or switch) per company/user, and that license is nontransferable. That means that if you buy a router and sell it to me, I can’t use the software that runs the router, which makes the router worthless unless I buy the operating system from Cisco.

This would be similar to my buying a PC from a retail store, selling it to my brother, and having Microsoft tell me that I can’t sell or give him the Windows software (or any other software on the computer) even though I bought it and have the license, CD, and manual for it.

Let’s take a look at the following example to see how Cisco’s policy affects the price of buying a Cisco 2610 router. Note that the prices are approximated from the time I looked them up and include a basic corporate discount.

Option 1: A new router
New Cisco 2610 router with IP-only IOS license $1,487

One year of Smartnet Maintenance on that router (8x5xnext business day) $390

Total: $1,877

Option 2: A refurbished router
Refurbished Cisco 2610 router with IP-only IOS license $1,126

One year of Smartnet Maintenance on that router (8x5xnext business day) $390

Total: $1,516

Option 3: A used router
Used Cisco 2610 router (“noncertified”) $650

One year of Smartnet Maintenance on that router (8x5xnext business day) $390

Cisco inspection fee for router (not including shipping and handling both ways) $750

IOS IP-only license for the router $400

Total: $2,190

Final analysis

In my opinion, Cisco’s tactics amount to an attempt to put vendors selling used Cisco equipment out of business and to keep companies from being able to buy and sell used Cisco equipment.

With Cisco’s “inspection fee” and the nontransferability of the IOS license, Cisco nullifies the price savings of buying used equipment. Why is this important to network managers, IT directors, and other IT professionals? Because Cisco is trying to take away our freedom to leverage supply and demand. Cisco is trying to take away our freedom to get a good deal when the market makes it available.

This isn’t right, and I believe this strategy will only hurt Cisco in the long run. If and when IT professionals become aware of Cisco’s unfair business practices, customer satisfaction and sales will decline despite the fact that Cisco may have a superior product. My recommendation to Cisco would be to simply focus on creating great products that customers will want to buy rather than try to control the open market.

In the meantime, any organization that thinks it’s going to save some money by purchasing used Cisco equipment should think again. Cisco’s tactics could make it difficult and financially unwise unless you are buying higher-dollar equipment.