ON THE LOW DOWN
OK… How can anyone really benefit from the recession? We all feel it and we are all experiencing it. Don’t try and kid yourself. But business owners and IT Managers can tip the scales in their favor by capitalizing on other companies misfortunes. But you must embrace the paradigm that is occurring… and all to your benefit. Let me explain.
Economics in One Chart
Economics in One Chart
THE ECONOMICS OF THE RECESSION
Many of you are aware of my background in Economics from UCLA. I share with you truths from Milton Friedman, John Maynard Keyes, Adam Smith and my hero… Ronald Reagan (not an economist of course, but a huge proponent of Supply Side Economics). They all point to the basic fundamentals of Economics of Supply and Demand.
It plays out like this: People begin to feel cautious because of various events that can occur i.e. wars, bank failures, stock market declines, gas prices rising, etc. Consumers reign in their spending as they begin to lack confidence. They don’t spend money. Businesses experience the results in decreased revenues. When business revenues decline, their profits will typically decline proportionately. With reduced sales and profits, business must cut back. Their biggest expense is their people; their wages and benefits. So, business start to cut back by laying off their employees and/or reduce the production of widgets, thus saving on its cost of goods sold. With the reduction in production and employees means internal assets become excess to their requirements. Employees are let go and their computers sit idle under their old desks while servers that used to be used for their production environment sit in their Data Center racks, still using electricity but are now unproductive.
You all can see where this leads. Companies, if they are wise and prudent, recognize that they must retire and sell their sidelined IT assets and recover any value that remains as quickly as they possible, before they become worth nothing (at which point they call in a local recycling company who charges 20 cents per pound to recycle their worthless computing equipment).
THE ECONOMICS OF BUYING USED COMPUTERS
Here lies an opportunity for those still in need of corporate computing equipment during a recession. To help you better understand the scope of savings one can make, below is a good “rule of thumb” for the decreasing value of computer equipment over time:
TIME ITEM VALUE % DISCOUNT
TODAY NEW COMPUTER WIDGET $100.00 0%
1 YEAR OLD USED COMPUTER WIDGET $70.00 30%
2 YEARS OLD USED COMPUTER WIDGET $40.00 60%
3 YEARS OLD USED COMPUTER WIDGET $20.00 80%
4 YEARS OLD USED COMPUTER WIDGET $0.00 SCRAP
DISCLAIMER: Variations in values can and do occur in varying amounts based upon the type of IT equipment and the supply and demand of that particular type of equipment in the used marketplace.
THE WISE MAN SAYS…
Savvy IT executives see that it makes real economic sense to consider and buy pre-owned equipment vs. buying new in a recessionary environment. On top of these general percentages, you will actually find even higher percentages off of new as a result of more SUPPLY of equipment flooding the used market with reduced demand. So with more supply and normal demand = Lower prices.
The Sweet Spot is to find equipment less than 2 years old with savings of up to 60% off of new list prices. In fact many servers, storage arrays, networking equipment and phone equipment may still have remaining factory warranties that can be transferred to you and your company! OH… REALLY? More on that next time….
