The biblical quotation, "There's nothing new under the sun," applies equally well to the computer business as to most other spheres of life. In fact, one facet of the usually cyclical computer business that's been experiencing a continuous boom for the past decade is PC and PC parts recycling, including parts for Sun and other Unix-based workstations.
The reason: corporate computer buyers have grown increasingly reluctant to invest in new models for the millions of employees who use their machines mainly for word processing, record keeping and other routine tasks for which 386 and even earlier chips are adequate. Therefore, American business has been relying, more and more, on the estimated 3,000 companies that supply guaranteed, refurbished PCs and parts recycled from older computers. Began as reconditioning centers
The refurbished computer parts business goes back about 20 years to the pre-PC period when most large business computers were leased, not owned outright. The large computer leasing companies, most of them headquartered on the East Coast and in the Chicago area, had a continual need for parts for upgrades and reconfigurations. As a result, several so-called "recon centers" sprang up, mainly in New York, New Jersey, Pennsylvania and in the Chicago area.
However, with the emergence in the early 80s of the small and increasingly powerful DOS-based personal computer, which quickly became a corporate necessity as well as an essential component in millions of home offices, the need for PC parts increased dramatically because the marketing of newer models, rather than parts supply, became PC manufacturers' main priority.
Moreover, IBM's decision to allow unfettered use of the DOS operating system by any and all manufacturers meant that young techies in college dormitories, like Michael Dell, could literally build their own PCs for a fraction of the price of brand name PCs. This led to a virtual explosion of demand for new and used parts.
As a result, entrepreneurial computer dealers began to cannibalize discarded older computers, realizing that CPU components and other parts were far more valuable than the units themselves. They even found a ready market for black-and-white monitors, which were discarded in vast quantities when color monitors were introduced.
The high tech junk yards capitalized on a major vulnerability of the computer manufacturers, many of whom, until recently, regarded parts supply as a cost center operation that kept corporate customers loyal to their brand, rather than a profit center. Unlike their refurbished parts competitors, manufacturers were reluctant to accept obsolete PCs for recycling, and this tended to gradually lose them the business of the computer service companies. Service providers increasingly bought refurbished rather than new OEM parts from suppliers who were happy to accept obsolete product for recycling.
OEM parts often unavailable
Usually, computer service companies' contracts require them to replace worn-out parts with OEM parts. However, OEM parts for many older computers are no longer available. Service companies generally trade in worn out parts to the parts dealers who recondition them and then sell them back, in working order, to the service companies. In this respect, the used computer parts business is one of the world's most environmentally friendly operations.
Today, many of the thousands of dealers specializing in used computer parts operate as cottage industries. They advertise their wares in several specialized trade magazines and broadsheets, as well as on the Internet and other cyberhighways. These dealers' business, which requires little capital to start, is exploding because OEM parts, when they're available, are invariably far more expensive than warranted, refurbished parts.
But do large corporations with hundreds to thousands of PCs want to deal with poorly capitalized parts suppliers that operate from garages and basements? Generally, corporate purchasing managers deal only with well capitalized, stable vendors that can supply quality computer parts quickly and steadily. However, some mom and pop-style firms have done well supplying corporate customers and will probably continue to do so, particularly with local and long-term accounts with whom they have satisfactory relationships.
A move toward larger companies
But the business is tending to coalesce among larger suppliers, some of which have gone public to raise capital and others, like my company, which have been acquired by bigger firms that can supply the funds needed for improved inventory, testing and repair facilities and expanded marketing.
Two recent examples point out the coming of age of the refurbished computer parts industry. Earlier this year, Aurora Electronics of Irvine, Calif., stunned the industry by paying $33 million, most of it in cash, for Century Computer Marketing of Marina del Rey, largest of the "high tech junk yards," with 1993 revenues of $39.4 million.
Century's management told the press that the acquisition would enable them to provide customers with one-stop shopping for new and used parts, depot repair services, inventory management and recycling of trade-in computer equipment.
And in March, PC Service Source Inc. of Carrollton, Texas, another high tech junk yard that had expanded dramatically through aggressive marketing, easily raised $9 million in an initial public offering. Commenting on the IPO, Stephen Schweich, a security analyst with the San Francisco-based stock broker, Robertson, Stephens & Co., said, "The smaller companies [in this industry] are going to be hard-pressed to compete." And Dataquest computer industry analyst Steve Clancy told the press that the industry still has a "Wild West image," although mergers and acquisitions will benefit customers through lower costs and more consistent service.
What has made the larger computer parts resellers attractive to their corporate customers, and thus to investors, is their ability to provide more than parts. They are positioning themselves as full-service recycling, service and repair businesses at a time when corporate America faces a critical need to cut computer costs and recycle non-functioning and outmoded equipment that's using up valuable storage space.
However, in spite of this move toward larger computer parts companies, many of the mom and pop-style operations are doing well and will probably continue to prosper because they are specialized and have established excellent relations with their customers. These relationships are based on their ability to supply needed parts quickly because these dealers know their customers well and anticipate their parts demands.
Recycling of Unix-based workstations
Corporate users of Sun and other Unix-based workstations should be pleased to know that they have a small but well sustained marketplace among the refurbished computer dealers. A workstation of this type that might have been purchased for $80,000 no more than five years ago now has a market value of $20,000 to $25,000 if sold by the user.
Monitors used in these systems that originally cost $1,800 can now be sold for around $500. However, in order to get these prices, a seller must be certain to trade with a dealer who has a specialty in Unix-based workstations and therefore a ready list of buyers for the equipment. An unspecialized used computer dealer would tend to offer much lower prices.
By the same token, companies that are looking for quality refurbished parts for their Sun and other Unix-based equipment should research dealers carefully and use only those who have a specialty in the equipment and know it well. They can do this by examining the ads in used parts magazines like Compu-Mart, Computer Direct and others. Many of these dealers also advertise their services via Internet, which is increasingly becoming a major outlet for used computer parts information.
Evaluating a used parts dealer
How should a corporate MIS manager or other executive charged with the responsibility of getting maximum value from his firm's computers choose a used parts reseller? There are several ways to determine a dealer's professionalism and integrity.
First, the dealer should ask a series of detailed questions about the unit in which the customer plans to use the part he's ordering: "Who is the manufacturer?" "What model is the unit?" "What is the model's present configuration and its final, desired configuration?"
Even for something as simple as random access memory (RAM), the dealer should inquire not only about parts numbers but the number of slots filled or open, whether the memory has a silver-colored or gold-colored edge and why additional RAM is being added.
Prospective customers should keep in mind that parts are not necessarily interchangeable. A commonly used item such as a 3.5-inch, 1.44-Mb floppy drive may not be interchangeable because of differences in mounting rails, eject button size, bezel or internal cable connections. After all, used parts dealers don't want parts returned because customers' needs were incompletely assessed due to sloppy questioning.
Well-managed used parts dealers keep a database, cross referenced by parts numbers and applications, which they continuously update. Some of these applications were unknown to the manufacturers and emerged later as dealers talked with their customers about innovative applications.
The comprehensive, constantly renewed bank of information that dealers maintain enables them to recommend less expensive, yet compatible, parts for units or applications for which these parts weren't originally intended, but where they work perfectly. This kind of knowledge obviously helps customers to save money. It also helps dealers to anticipate the parts their customers will need, and therefore keep them in inventory for immediate future delivery.