By Allison Francis
A byproduct of the wholesale shift of compute workloads to public cloud: billions of dollars’ worth of secondhand data center hardware joining the stream of so-called “gray market” gear being sold each year without official manufacturer authorization.
Not that every used switch or server is suspect. There’s a huge difference between the gray market and the secondary market, say experts. A lot of the confusion and FUD is purposeful — and comes from OEMs who would prefer that customers purchase new gear with fat margins.
“There’s a legitimate market for secondary gear; that is, used equipment, or equipment that’s still operational but may be outside the manufacturer’s support or warranty windows,” said speaker and analyst Greg Ferro, co-founder of Packet Pushers Interactive. Some VARs have run long-term, profitable side hustles around secondary equipment.
Curvature, a provider of third-party maintenance that certifies pre-owned gear, says customers can see 75 percent savings on hardware. It and other IT asset disposition providers, including Arrow, Ingram Micro and ITRenew, take steps to ensure the previous owner’s data is wiped, that the gear is tested for quality control and that firmware is up to date. They provide certifications, support and warranties.
In contrast, gray marketing, also known as “parallel importing,” is the sale of legitimate, brand-name products that have been diverted from the OEM’s authorized network of distributors. According to the Alliance for Gray Market and Counterfeit Abatement (AGMA), a nonprofit that also addresses counterfeiting and software piracy, the value of gray market products in 2007 averaged $58 billion, representing somewhere between 5 and 30 percent of total IT sales and impacting supplier profits by $8 billion to $10 billion.
For partners looking to save money for themselves or customers, the distinction between “pre-owned” and “diverted” is critical.
As more customers start shedding unneeded hardware, partners need to be aware of red flags on the buy side and have a plan to help dispose of or resell assets securely and responsibly.
Gray market activity has one primary driver: price disparity. Global IT vendors establish regional pricing schemes to compete in various markets. Sometimes, as with prescription drugs, there is enough cost incentive to drive product across borders. A device in APAC may cost significantly less than in the EU. That creates what AGMA calls a “pricing corridor.”
There are many ways products enter the gray market. According to AGMA, the most common are:
Frank Kobuszewski, president of the technology solutions group at CXtec, points out that networking and server equipment is affected by the U.S. tariffs on China, boosting the incentive to cross borders. Cisco has raised prices on some products by 15 percent; Juniper and Arista are following suit.
In some cases, excess, aged or manufacturer-discontinued products sold by OEMs or distributors as lower product class — take as-is, no return, no support — and equally discounted are sold as new to unsuspecting customers. Experts recommend that partners …