When used servers cost more than new

GALWAY, Ireland--Think of the Multis Group as sort of the Antiques Roadshow of the server world.

The Galway, Ireland-based company specializes in refurbishing, and then selling, used servers. Refurbished PCs and servers are increasingly in vogue because remanufacturing represents a more environmentally efficient way to recycle old electronics than harvesting components from these old machines or melting them down for raw materials.

Multis, in fact, plans to open a 70,000-square-foot facility in Union City, Calif., later this month to refurbish and sell servers for North American customers. That marks a reversal in the usual U.S.-Ireland tech relationship.

Unlike refurbished PCs and cell phones, servers maintain a high resale value that can equal or even exceed the cost of new equipment, said Multis CEO and founder Sean Keenan. Why? Manufacturers might produce only a single server model for 18 months to two years. Corporate customers, however, often don't want to migrate to new hardware that quickly. Instead, they move at a three- to seven-year pace. As a result, they often have a need for discontinued equipment.

"Ten to 15 percent of the server market is remanufactured," Keenan said. "Because of the cost of migration, top-end customers will pay a premium for refurbished product."

In the first few years after the release of a new server, refurbished servers might sell for 15 percent less than the servers cost originally, he added. During this time, manufacturers might continue to produce a trickle of the machines and distributors and others might have remaining stock.

But once a server hits the magical "end of life" point, the situation reverses and remanufactured stuff sells for more than it did years before. Multis enjoyed a nice bump a few years ago when the air traffic control bureau in the U.K. needed a bunch of computers to supplement its radar control system. The computers it needed, however, dated back to the 1960s.

Similarly, a medical equipment company needed a bunch of discontinued servers because new servers would have meant going through FDA approval again.

Another run on old hardware occurred when Hewlett-Packard decided to discontinue the VAX minicomputer line it inherited in its Compaq acquisition. Compaq picked up the line when it bought Digital Equipment.

"There was a lot of screaming about that one," said Eamonn Reay, Multis' vice president of business development.

Unlike a lot of refurbishing companies, Multis works tightly with manufacturers like HP and Sun Microsystems. HP, for example, directs its customers that need older servers to Multis. Multis even manufactures some new Alpha servers on behalf of HP. If you go to HP's Web site and buy Alpha servers, you're actually speaking to the Irish company.

"We try to take as much of the quirky business as we can from them," Reay said. Part of the reason for opening the U.S. facility will lay in recruiting more server makers to work with them. The company does not try to contact end-users initially. That tends to antagonize the server makers, who want to try to sell something new first.

Both Keenan and Reay came out of Digital, which inadvertently is one of the primary wellsprings of Irish start-ups. The once-mighty Massachusetts hardware company was one of the original tech immigrants to Ireland. The company, though, started cutting back in the early 1990s. (Reay actually headed up the effort to get redundant employees new positions). The layoffs in turn drove many local entrepreneurs to start their own companies.