The recycling route for resellers

Resellers will soon have to take some responsibility for the safe disposal of used hardware. But it's not all bad news, writes Peter Branton.

Everybody knows that times are hard right now for hardware manufacturers and resellers, and have been for quite a while.

A tough economic climate, hardware moving down towards the commodity end of the market, margins falling. None of this is new, but resellers may soon be facing another wee problem.

Make that a WEEE problem. This year sees some rather unfortunately named legislation from the European Commission. The Waste, Electrical and Electronic Equipment (WEEE) directive will require that IT hardware is recycled safely, rather than just being buried in a landfill site or chucked in a skip.

Before resellers shrug this off as just another example of 'Barmy Brussels' they should bear in mind that they are likely to be the ones who have to ensure that this is done.

The directive places responsibility for the safe disposal of such equipment on the producer or distributor. 'Producers' are defined as not only manufacturers, but anyone who "resells under his own brand equipment produced by other suppliers" or "someone who imports or exports electrical and electronic equipment on a professional basis into a member state".

'Distributors' are described as anyone who provides such equipment on a commercial basis. In other words, resellers.

Who will pay?

According to Claire Snow, director of cross-industry body the Industry Council for Electronic Equipment Recycling (ICER), one of the details that remains to be worked out is how much of the cost of disposal will be met by the supplier and how much by the customer. "It looks like you will be able to split some of the costs with customers," she said.

Whatever is decided, ICER maintained that the legislation will almost certainly be finalised and in place by the end of this year. Companies caught not complying could be hit with substantial fines.

The WEEE directive has not received a lot of attention in the press, with other industries and product sectors facing more pressing problems - literally, in the case of refrigerators, which currently have to be sent abroad to be crushed and disposed of safely under other EC legislation that came into force this year.

While the PC on your desktop may not seem particularly threatening, it does contain some nasty substances, including lead, mercury and cadmium. Add various plastics, cathode ray tubes and liquid crystals and you are looking at a serious environmental issue.

There is a lot of it, too. According to ICER, about 100,000 tonnes of PCs were chucked out in the UK last year, as well as servers, printers and photocopiers. Brussels does appear to have a point.

Along with WEEE, another directive likely to come into force this year is the Restriction of Hazardous Substances directive, which will control how PCs are actually manufactured, and reduce the number of environmentally unfriendly substances that can be used.

However, this is not likely to have any effect until 2007 at the earliest, so WEEE will have a more immediate impact on the industry. Firms will have to find ways of dumping kit safely, whether recycling it or refurbishing it and selling it on the second-user market.

"Until now the cheapest option by far for getting rid of kit has been to landfill it, but that is no longer going to be allowed," explained Ian Watson, general manager of recycling at disposal firm Citiraya UK. "Firms must think now about how they are going to get rid of this stuff."

Data protection issues

Businesses should already have focused on the safe disposal of IT kit, and not just for the sake of eco-friendliness. There are also issues of intellectual property and data protection to be considered. Just ask Paul McCartney.

A computer that contained confidential financial information relating to the former Beatle was sold on the second-hand market by his bank two years ago. The bank had failed to clear the hard drive of the information.

So there have always been problems relating to the disposal of IT kit. Now they are going to be worse, and resellers need to address the issue. However, it's not all bad news.

The WEEE directive is going to be expensive for British industry as a whole. Indeed, the Institute of Directors is talking of UK businesses paying at least £2bn a year to comply with it, which could mean an extra source of revenue for resellers.

The average PC is hardly a gold mine, with the precious metals found in a tonne of old kit being worth about £1,500, according to Watson. However, there has always been a market for second-hand PCs and components, and now that firms can no longer take the easy way out when it comes to disposing of hardware, they will have to pay somebody to take it off their hands.

At least one reseller is treating the changes in legislation as a business opportunity. Wokingham-based reseller Selway Moore decided last year to complement its Sun Microsystems and Hewlett Packard server sales business with a recycling and refurbishment business.

"We have always had a second-user part of our business," said managing director Phil Reakes. "It is good, regular business, as opposed to the new kit market, which tends to be more cyclical and project-based."

Cradle to grave

Selway Moore saw the new legislation as an opportunity, and rebranded itself as a lifecycle management specialist, taking a product 'from birth to death'. "An awful lot of our customers started coming to us asking what the legislation meant, and wanting us to help them with it," explained Reakes. "That was the catalyst for us."

The company now offers a service where it can install and maintain new and refurbished equipment, and remove and safely dispose of it as well.

"The key is understanding what equipment people have in the first place, so asset management is where you start," said Reakes. "This can be, in effect, an audit of IT equipment; finding out what is leased and not leased, and so on."

Having decided what equipment is available, the next step is to decide what to do with it. The logistics of taking it away become more complex if some equipment is deemed to have value and needs to be transported securely. "You can't just send a bloke round in a van if the kit still has value," Reakes pointed out.

This raises the question of how much value there is in second-hand IT hardware. According to Steve Haskew, chief executive of recycling firm Manta Business Solutions, the second-hand PC market has inevitably mirrored the fall in price - and margins - of new kit.

"Four or five years ago it was quite easy to get a reasonable price for a second-hand computer because new machines were selling for £1,000 plus. We were selling machines for £400 to £500. Now that new machines are so cheap, the price just isn't there anymore," he said.

Second-hand value

However, Reakes disagreed. "The second-hand market is much better than people think," he insisted. "It is true that even a heavyweight PC bought a couple of years ago for £2,000 is going to go for no more than a couple of hundred now, but there is still a market. One of our partners is still selling 486-based systems."

And, while machines decline in price as soon as the next-generation model is available, components from PCs and other hardware often remain unchanged through several iterations of a machine, so the shelf life can be much longer than might be expected, Reakes argued.

A recycling firm will look to see what equipment can be refurbished and sold on, then it will look to strip any useful components out of kit that cannot be sold in one piece. The final stage is to see what precious metals or plastics can be retrieved, and the remaining kit will be disposed of according to WEEE rules.

For older PCs, or ones that have little residual value, this process can cost as much as £85 per machine, according to Haskew. If it can be refurbished and resold, however, it can be a useful asset to its company.

While some firms are reluctant to buy second-hand kit, Reakes claimed that it can be more reliable than new hardware. "The majority of problems you get with a PC are because it is defective on arrival, or needs to be bedded in. You are less likely to get that with a refurbished model," he explained.

Since chucking old PCs in a skip is no longer an option, some firms are mothballing them instead; keeping them in internal storerooms rather than paying to get rid of them. However, this means that the machines lose any residual value they had and will almost definitely cost money to dispose of safely.

"Deciding on the actual end of the life of a machine is very difficult. If you recycle your kit quickly then you are going to get much better residual values," said Jon Godfrey, consultant at Technical Asset Management. "It's like buying a car: the longer you hold on to it, the less value you can get for it when you sell it."

One company that Godfrey visited decided to get rid of its old PCs only when the disabled toilet they were stored in was suddenly needed by a visiting politician.

Selway Moore is by no means the only channel player to recognise the worth of the lifecycle market. Computacenter has bought its own recycling business, while distributor Tplc also operates a recycling arm.

"The key message we want to get through to the channel is that there is money to be made in end-of-life hardware," said Nigel Fitton, partner services business manager at Tplc.

Reseller fears

However, there does seem to be some channel reluctance to fully embrace the business benefits of recycling and refurbishment. One argument is that it can compete with the new kit market, taking sales away when they are needed most.

"The two markets operate very differently," explained Fitton. "You would expect to get different customers for second-hand kit than you would for new. What we are trying to do is make resellers aware of the service we offer in the disposal of hardware. The legislation means you have to do this anyway."

There is also a lot to be said for something - anything - that can potentially increase the size of the IT market right now. More machines can mean more sales, software, services, peripherals and so on. Microsoft, for example, has backed refurbishment initiatives in the US.

So why are resellers reticent? "A lot of resellers are still focused on shifting tin," said Godfrey. "Because the WEEE legislation hasn't bit yet, the penny hasn't dropped. While the law will mean they need to be focusing on end-of-life, most of them are still looking at the beginning of the cycle. However, many of them are going to be operating in this market soon, whether they like it or not."

Snow agreed. "It doesn't matter what view you have on WEEE, it's coming. You just have to live with it," he concluded.

SUMMARY:

• The EC's recycling directive comes into effect this year, which will require most resellers to ensure that IT hardware they sell will be recycled safely.
• It's not all bad news, as some resellers have already turned the directive into a business opportunity.
• Firms should also consider the problem of intellectual property when disposing of kit.
• The second-hand PC market has more value than it often gets credit for.
• Resellers are still sceptical about the benefits of recycling and refurbishing, but many will soon be operating in this market.

CONTACTS:

Selway Moore 0118 979 5590
www.selwaymoore.com

Computacenter 01707 260 000
www.computacenter.com

Tplc 01925 432 579
www.tplc.co.uk

Citiraya 01294 277 760
www.citiraya.com