Busted dotcoms now flood markets with used equipment

Peter Henderson

SAN FRANCISCO: The once thriving dotcoms had powerful servers to keep their

Web sites humming but now almost every dead dotcom has one to sell. And the

present equation is something that will not help the robust growth of companies

that are struggling to sell computers in a rapidly shrinking market.

The booming dotcoms have suddenly become a one-time disaster for

growth-addicted technology suppliers who once loved the fast acquisition rates

of those customers who aimed to build the Internet economy and are now going up

in flames. First they quit buying. Then the failed start-ups undercut their

erstwhile suppliers, such as Sun Microsystems Inc. and Hewlett-Packard Co., by

dumping almost-new and high-end equipment at fire sales.

Though the economy began hurting dotcoms months ago, the wave of used

equipment hitting the market has just begun, said DoveBid Inc. president Jeff

Crowe, a capital equipment auctioneer that has branched into liquidating dotcoms

at 15 cents to 30 cents on the dollar.

"The entire industry is in distress and the typical cycle for such

companies lasts around 18 to 24 months," according to Bid4Assets Inc.,

vice-president (marketing), Bill O'Leary. Bid4Assets is an auction house that

has seen dead dotcom sell-off business grow from 20 to 25 per cent in less than

six months.

It has sold $15 million to $17 million of dotcom equipment since October.

However, Sun Microsystems, the No. 2 server vendor in terms of revenue says it

has not been affected by the dotcom sales. "We haven't seen it yet, but

there has always been sufficient market for second-hand Sun products," Sun

spokeswoman Kasey Holman said.

Second hand equipment market feels the pinch



But Brian Clarke, who follows technology equipment prices for IDC, says the
secondary market has gone soft due to the influx of dotcom equipment and that

appears to be adding pressure on the new computer market, though statistics is

unavailable at present.

"There seems to be a glut of used machines which are about six months to

10 months old. Since it is dotcom equipment, it will compete with the new

product market," he said. This is because the dotcoms have defied the rules

of technological obsolescence and are going belly up even before the value of

their super-expensive equipment can diminish.

A high-end computer that sells for tens of thousands of dollars normally

loses about 60 per cent of its original value within a year. But since the

machines go for as little as 15 per cent of retail, a used machine can save

heavy investment, Clarke said. The extent of the problem, however, is unclear

since the sale of used dotcom equipment is like a drop in the ocean compared to

new sales. The weak economy has only added to the problem obscuring the impact

on the market.

IDC Chief Research Officer John Gantz, says the industry data showed there

were only 2,950 venture capital-funded Internet start-ups in 2000. That puts a

limit on how much there is to be sold, as do problems like reconfiguring

machines and limited warranty and support for used products.

But the effect will hit some companies more than others. "If we are

talking about dotcoms in particular, certainly Sun has led the way into moving

equipment into that space, so you would think it would lead the backlash into

moving equipment out of that space. Cisco Systems Inc., (the network

infrastructure maker) is another one," Clarke said.

Merrill Lynch analyst Thomas Kraemer also cites the glut of dotcom equipment

as a reason for downgrading Sun, which was done the previous week, a day before

Sun lowered the bottom ends of quarterly revenue growth rate and share earnings

forecasts to about half of Wall Street expectations. However, Kramer also

sounded an ominous signal by stating that more used dot.com equipment would

flood the market.

(C) Reuters Limited 2001.