When old is new
By DAVE GUSSOW
© St. Petersburg Times, published January 8, 2001
As in car negotiations, the buyers may be in for sticker shock. But it's not the price of new systems that will surprise people; it's the low value of their trade-ins.
Roger Rohrs, publisher of the Orion Blue Book on computer values, says the price of a new computer could be less than what people expect to get for their old machine.
For example, one of the first 1-gigahertz PCs cost about $3,000 in April from Gateway. Its value as a used machine now is only $855 to $1,258, according to the blue book (www.bluebook.com). After all, a new system with similar specifications now starts at about $1,350.
While consumers may be used to the idea that prices for new computers keep dropping, the trade-in values can be a surprise to people who may have spent thousands on a system.
Once you accept the pricing realities of what the auto dealers would call a "pre-owned" computer, you still have to decide what to do with your used computer: Keep it? Trade it? Donate it to charity?
And for people looking to buy a computer: Is a used computer a good value?
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If a new computer sells for $600 with similar specs to one that cost $2,000 a few months earlier, the used value is bound to be less than $600.
Rohrs has been assessing used equipment since 1973, when he started a blue book for audio equipment. Since then, his Scottsdale, Ariz., company has expanded, with pricing books available for everything from computers and cameras to musical instruments and power tools.
Because computer prices change so rapidly, that blue book comes out quarterly. Rohrs says values are established using surveys and are based on a formula that includes the sales price of a system and how long it took to sell. If a computer takes more than 30 days to sell at a certain price, it's a good bet it costs too much.
Brand names keep a little more value, Rohrs says, because of the name recognition factor. But Rohrs says consumers create their own headaches when buying computers:
People who must have the latest and greatest as soon as it's available lose the most, Rohrs says, citing those who bought those 1-gigahertz machines that sold for a premium in April. If they had waited a few months, or settled for a 750-megahertz system for less money, they could have slowed the depreciation.
Some buy faster, more powerful computers for what they think will be better Internet access. But they stick with slow, dial-up phone connections instead of switching to cable or digital subscriber lines, and they don't enjoy the benefits of their investment.
Some people buy more computer than they need. If someone isn't going to surf the Internet, slower and older computers will handle tasks such as word processing and spreadsheets.
"If they did their homework correctly and bought it at a very fine price, it won't drop as quickly as someone who didn't do their homework," Rohrs said.
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If new computers are cheap, then that must make used machines even better values for buyers, right? Rohrs thinks so, but not everyone agrees.
Kevin Knox, an analyst with the Gartner Group research company, says the market for used PCs is shrinking because new, low-end PCs can be purchased for less than $500. "When you have that price point on a new system, it's tough to justify going out and buying something used," he said.
Back to the 1-gigahertz example: The owner trades it in or sells at the wholesale price between $855 and $1,258, depending on condition. Even though it seems to contradict Rohrs' rule on prices, the blue book lists its retail price at $1,850, about $500 more than a new machine.
Rohrs calls this an example of the market moving faster than the book. When that edition of the blue book went to press, the used retail price was high, but he expects it to be lower for the next one, as will the wholesale prices.
Instead of selling old computers, Knox says, many people are donating them to charities or moving them to another room in the house for others to use or to network.
The slowdown in the used computer market and sinking computer values are reflected in the problems encountered by the Computer Renaissance (www.compren.com) retail chain, which started buying, selling and trading used computers in 1988.
It became a financial headache for Minnesota franchiser Grow Biz International, which sold it in October to Jack Hollis of Hollis Technologies of Lakeland for $3-million. Hollis is the son of former Publix Super Markets president Mark Hollis. Jack Hollis, who left Publix in 1998, owned five Computer Renaissance stores, including in Tampa and Clearwater, before buying the chain.
John Morgan, chief executive of Grow Biz, which also runs the Play It Again Sports chain, among others, says the used format didn't work for computers.
"If you locked up a Computer Renaissance store for a month, the value of the inventory would go down dramatically," Morgan said. "If you locked up a Music-Go-Round (which sells musical instruments), the inventory would be worth at least what you paid for it, maybe more."
While Hollis and his associates did not return phone calls about their plans for the chain, the stores have loyal customers. Dee Baucco of Clearwater says she saved time and money by buying three used computers, with no wait for an ordered computer and no shipping costs.
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A handful of bay area businesses advertise that they buy, sell and trade used computers, but it's not a big part of their sales.
"There's not as great a supply as there used to be," said John Gentile, owner of Cyber Exchange in Clearwater. Cyber Exchange gives store credits for used machines, allowing people to get used software and hardware, but not cash.
Gentile, who has been in business five years, says he checks out the systems and loads a legal copy of Windows before he puts a machine on the shelf. While some dealers won't take anything older than a Pentium machine, Gentile says the earlier 486 computers still can be useful.
For some customers, a used computer is an opportunity to test whether they need a computer. "They tend not to have a clear use in mind," Gentile said. "They feel compelled to get one and see what's going on. They're not sure they'll enjoy it, and they don't want to commit more than they need to for the purchase."
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For computer companies trying to boost sagging sales, trade-ins or donations are a way to entice interest.
In 1998, Gateway (www.gateway.com) started its Yourware program, allowing customers to trade in machines after two years for a credit toward a purchase. The first customers eligible to participate started trading in about six months ago. Their reaction?
"They are somewhat surprised at what their computer is worth," Gateway spokesman Greg Lund said. Gateway, which uses the blue book to determine values, decided to pay double the listed values "to cushion some of that surprise."
Gateway won't release how many people use the Yourware program; Lund calls it a significant share of the company's customers. Gateway also started a program this year with Goodwill, the Salvation Army and other charities to give customers a $100 credit toward the purchase of a system if they donate their old Gateways. It has since expanded to allow other brands for a $50 credit.
"We're looking at huge numbers of systems in homes, closets and garages," Lund said. "If they all went to the landfill at the same time, we'd have a bit of a problem."
Dell started its DellExchange program (www.dell4me.com/dellexchange) in December, allowing people to trade or donate equipment. Or, they can use Dell's Web site to auction equipment.
"Some people are comfortable (with auctions)," Dell spokesman Bryant Hilton said. "Some wanted a different solution. There is an element of waiting for the auction."
It uses TradeUps (www.tradeups.com/home.asp) to set values of the used equipment. For a 2-year-old Compaq that cost $2,200 new, Dell offered $229 on trade, compared with a blue book value of $347 to $522, depending on condition.
Hilton did not have numbers for how many people have used DellExchange, but he said its charity partner, the National Cristina Foundation, reported doubling the traffic at its Web site (www.cristina.org).
And, for those thinking of donating a machine for a tax write-off, be aware of one other thing: The Internal Revenue Service uses the blue book, too.
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- Times news researchers Kitty Bennett and Caryn Baird contributed to this report, which includes information from the St. Paul Pioneer Press and the Lakeland Ledger.
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