Tariffs on China cause new data center equipment prices to increase

Networking and server equipment are among those affected by the U.S. tariffs on China, causing OEMs to increase their prices. There are ways, though, to offset the increases.

Tariffs on China cause data center equipment prices to increase
Pepi Stojanovski (CC0)

As if the end of the year doesn’t present enough challenges for IT professionals, now there is the added concern coming from the Trump administration regarding the tariffs that were imposed on China back on Sept. 24.

Companies including Cisco, Dell, HPE, and Juniper Networks all called for networking and server equipment to be dropped from the tariff regulations, but they were unable to persuade the U.S. government to do that.

“By raising the cost of networking products, the proposed duties would impede the development and adoption of cloud-based services and infrastructure,” the group told trade regulators before the tariff was imposed, according to Reuters.

Once the tariffs went into effect, many of these original equipment manufacturers (OEMs) were quick to implement price increases on their offerings, and unfortunately those increases are being passed onto consumers.

Cisco slapped a 15 percent price increase on several of their products on pretty much day one. Juniper Networks put a 3.5 percent increase in place on networking products and is scheduled to bump that up on Jan. 1, 2019. And Arista Networks started a 3.3 percent increase on all hardware products starting Oct. 1. Those are just a few of the OEMs that have changed their pricing.

Even if your organization can make it through the end of the year unscathed, there’s a bigger threat looming. The current 10 percent tariff imposed by the Trump administration is scheduled to jump to 25 percent in January 2019, leading to the likelihood of even higher costs being passed onto the customer.

How to combat equipment price increases

If the price of your hardware is going to increase, maybe there are ways to offset these costs in your maintenance and support investments. Check out this recommendation from a recent research paper from Gartner titled, "Employ These Four Best Practices to Reduce Network Maintenance Costs": “Recommendation: Actively employ alternatives to traditional vendor-defined options to better manage costs by analyzing specific network support needs to identify opportunities, such as self-sparing and balancing coverage levels to align with business fluctuations.”

There are two very astute observations in this recommendation. Let’s first discuss the self-sparing option, then later we’ll address how to balance coverage levels.

In the case of self-sparing, secondary market hardware should definitely be considered. You can get quality refurbished gear for significant discounts off list. This can eliminate some hardware support costs and enable you to have a reliable, hot-swappable spare at the ready.

The reliability of secondary market hardware

There used to be this misguided notion that new hardware was much more reliable and had a much lower failure rate than refurbished gear. But that’s not the case at all. In fact, the exact opposite is true.

network equipment lifespan

Frank Kobuszewski

The above graph shows the higher failure rate of new network hardware and how that rate decreases once the hardware has been successfully in use for a while. The curved line of the graph shows the mean time between failures (MTBF) of the hardware.

Failures tend to occur very early in the life of hardware or very late. These new hardware failures, many arriving dead on arrival right out of the box, can be concerning. Most new hardware is only spot-checked to test functionality. Maybe one in 50, or even one in 100, new OEM devices is tested off the line to ensure they’re working.

Time is on your side with refurbished equipment

Another report from Gartner — "Know When It’s Time to Replace Enterprise Network Equipment" — says, “Most network equipment is designed to have MTBF greater than 100,000 hours (roughly 11 years), with a general trend toward increasing MTBF due to simpler and standardized design elements.”

Manufacturers typically refresh their product line every 12-24 months and will be happy to tell you why you need to upgrade to their latest offering. Since the MTBF and lifespan for network equipment is getting considerably longer, so is the time to upgrade.

An investment in secondary market hardware, and its long MTBF timeframes, means you can get quality hardware that you can rely on at a significantly reduced price. And that’s a great way to stretch your budget in the face of OEM price increases.

Don’t be so tariff-ied!

A different report from Gartner — "Recent Cisco Networking Price Increases Demand Deeper Discounts" — says, “Gain leverage by seriously evaluating and considering alternate suppliers, including the used and refurbished equipment market.”

As OEM prices, whether Cisco’s or others, continue to rise because of the tariffs and become restrictive to your equipment needs, it’s important to realize there are available options. The secondary market provides such options to service your infrastructure with secondary hardware that allows organizations to achieve the same levels of success and reliability that’s expected from and OEM.

While there is still some uncertainty as to how the Trump administration’s tariffs on China will play out, it’s realistic to believe that prices will continue to increase and that your budget will be affected. In fact, one report has stated that the new round of taxes against goods from China could occur as early as December and target the rest of the imports from China, about $257 billion worth, per the report.

Regardless of when or if, the secondary market can provide a good alternative to the price increases imposed by the tariff. This will allow customers to have a swappable spare piece of hardware at the ready.

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