Sun sales hit by its own secondhand hardware

Several new and second-hand resellers of Sun kit have told silicon.com that the Unix giant is struggling to sell in a market saturated by used boxes from failed dot-coms.

Sun, which until recently claimed it was 'the dot in dot-com', denies that it's beset by such problems. It says slowing growth is due wholly to the wider economic downturn.

However, Erik Witvrouwen, sales executive for Belgian hardware broker Logstat, said he knows of a lot of Sun hardware sitting in warehouses without buyers. "This is coming from dealers overstocking when the market was good, and from dot-coms spending VC money on hardware which was then barely used," he said.

As an example he said an unnamed client of Logstat's had approached it trying to sell a high-end E10000 Starfire server bought the previous year for $2m. The prospective seller decided against this, however, when informed the current rate for such an item was just $80,000 to $100,000 - less than one twentieth of the price.

Witvrouwen's comments were backed up by others, including Manny Pinon, sales director for reseller Norwood Adam Distribution. "They've got over-supply in the marketplace, and with the larger dot-coms now ready to bust it's getting worse. They're going to have to devalue the stock at some point to sell it," he said.

Analysts agree that Sun will have to lower its prices further. Phil Dawson, programme director at analyst house Meta Group, said: "As soon as their financial year ends in July we expect Sun to start aggressively discounting across the board."

However, Witvrouwen added that Sun's position compared unfavourably to that of secondhand IBM hardware, which was still fetching good prices.

This week it emerged that Sun will close for a week in July, taken by many as a tacit admission of poor demand. This follows hot on the heels of poor results from the company which just a year ago was reporting stellar growth built on incredible sales of its hardware. The results showed profits just half the level a year ago, following on from a profit warning in February.

Ian Meakin, Sun product marketing manager, denied it is experiencing any kind of excess inventory problem, or any problem competing against its own secondhand products. He said: "There's no question it's a tough market right now, but we don't see a big secondhand market as the problem. Only a small percentage of our customers were ever dot-coms."

Sun UK MD Shanker Trivedi admitted there is always a degree of competition between new equipment and second-hand products, but refused to say whether this is currently any worse than usual. "This is not a metric we measure," he said.