Gray Market Will Give Cisco & Dell The Blues


Cisco Systems LogoThe slumping economy will make the going tougher for companies like Cisco Systems (s CSCO) and Dell (s Dell), mostly because failed companies and closing offices will lead to the dumping of servers, switches, routers and such gear on the gray market. The gray market equipment sales could account for about 14 percent of the technology sales in 2009 up from 8 percent in 2008, according to research firm Yankee Group. Network Liquidators has seen the amount of equipment it is getting triple, and most of it is new, CEO Barry Shevlin tells Bloomberg.

Unlike the 2001 bust, this time around, startups have little equipment to offload since many have started to outsource and use cloud services like Amazon (s AMZN) Web Services. The problem this time is that more established companies (including big banks) that bought high-end items that are in trouble. Cisco has been preparing for rough seas for a while now and recently confirmed that it would shut down its business for four days at end of 2008. It has also suspended some events and participation in large trade shows.

Dell, on the other hand, is already facing the prospect of slow demand for computers in 2009. The gray market dumping of its machines isn’t going to help and might put price pressure on the company.



Don’t you mean the ‘used’ market? Gray market goods travel from one region to another, usually from regions with lower wholesale prices to regions with higher wholesale prices. But stuff that’s been installed and then returned to the market is just used.

By the way, expect a lot more black market goods, too – stuff sold as new by other than the manufacturer whose brand is on it. Desperate Chinese contract manufacturers, including the ones who manufacture for OEMs – will be working with desperate parts suppliers to circumvent brand owners and sell their own, part-for-part identical versions of branded goods in the US. Maybe we should call this ‘red market’.

Gadget Sleuth

The PC market has been preparing for (and expecting) a slowdown for years now, and with the economy now, it will definitely happen. Cisco will definitely have to pair down their prices a bit to keep cash coming in.

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