HP authorizes used 3000 distributor plan

HP is authorizing a new channel for used HP 3000 systems this month, giving resellers and HP reps a way to offer hardware that has been certified as legal and refurbished with a one-year HP warranty (Base support on hardware).

The new services will come from Phoenix 3000, a wholly owned subsidiary of HP 3000 distributor Client Systems. Phoenix will purchase used HP 3000s from HP as well as the open market, then test and certify the systems and operating systems before reselling them to HP resellers.

Client Systems president Pat Maley describes Phoenix 3000 as a “manufacturing operation” instead of a broker or reseller. “We’re working pretty hard to keep Phoenix a manufacturing operation, not a value-add operation,” Maley said. “The value-add needs to come at the next level. Phoenix is really like [HP’s] Roseville, not like entities that are already in the field.”

But because Phoenix will be testing the HP 3000s that it sells to resellers, the company will be able to offer HP supportability at the time of sale. This kind of supportability is guaranteed by brokers currently working the HP 3000 market, but customers need to arrange the support inspection and pass it on their own after buying the used hardware.

Phoenix will be able to sell HP support services with the systems it moves out to the two North American 3000 distributors (Integration Alliance and Client Systems) and HP’s Enterprise Account Operation — reps for the largest of HP 3000 customers such as State Farm and Long’s Drug. The support services include an HP Customer Engineer to do the system installation.

Perhaps most significant to the HP 3000 division, Phoenix reports the serial number and license count of the system back to CSY. “It’s like a new birth certificate for the system,” said Phoenix Director of Operations Walter Booth. “HP’s Hardware Support Division puts the system in its SWAT database as well, so those two divisions are communicating with each other using us a tool. That’s what we’re doing to re-legitimize the secondary and tertiary channels for 3000s.”

A testing and warehousing facility

The Phoenix operations are taking shape in a suite adjacent to the Client Systems offices in southeast Denver, where Booth is setting up a test bay and refurbishing facilities. Booth, who came to Phoenix this spring after working at distributor Intelligent Electronics, said the company will be providing a new licensing document for HP 3000 buyers.

“We turn HP’s document into a Confidence Confirmation Certificate, which gets laminated and rides with the box,” Booth said. In a pre-operational area of the Phoenix offices, systems that Phoenix takes in are disassembled, and boards are pulled and cleaned in a Branson 8510 ultrasonic cleaner. Some systems have covers repainted and front bezels replaced, and rear bezels are cleaned as completely as possible. The system’s label with serial number resides on the rear bezel, so it can’t be removed or replaced.

All hard drives are replaced with newly refurbished or new drives. HP Service Notes are implemented on every machine. Service Notes is the HP engineering change data base that brings every machine up to current performance revision level.

Systems are then reassembled and HP’s ODE test for drive, memory and component functions is run on them — and then a 24-hour burn-in test is run. “If for any reason that test shuts down because of a failure, we stop, identify the reason for the failure, and restart the test cycle,” Booth said. Only after 24 hours of endless test routine with no failures will a system be approved for sale to distributors or HP.

Systems that fail several times will be disassembled for parts, Booth added. A second ODE test run is performed and the system is shrink wrapped, and then awaits an order. The 3000 can be modified at this point to meet an order’s requirements for additional components, such as memory or disk, which triggers another test.

Phoenix systems come with other kinds of extras, Booth pointed out, like disposable electrostatic wrist straps to safely handle systems during installation. CE logbooks, cables, jacks, line-cords and a terminal are all included in a Phoenix shipment.

Stock from HP and others

During a mid-May tour of the facility, Phoenix had 53 HP 3000s in stock, inventory purchased from HP as part of Trade Up and Trade-In programs. CSY provided the systems, but Booth said Phoenix will be buying 3000s from any source that can show a legal license, including end-user customers.

“We intend to purchase from those sources that can verify they have obtained their materials legally,” Booth said. Brokers need to show the proof of licensing to Phoenix, which will pass the materials to the HP 3000 division (CSY) to verify a legal transfer.

Booth said Phoenix will be getting much of its 3000 stock from HP in the form of traded-in systems. But he acknowledges that he will need to be buying stock from brokers and the end customer — and added that 3000s have been in short supply since the HP crackdowns of this spring.

“3000s have been pretty scarce out there, even though there are some shown on some Web sites,” Booth said.

One of that division’s former employees has been named in an HP lawsuit, alleging that Deborah Loriau took bribes from third-party broker Hardwarehouse to rig system licenses and prices that routed most of EMRD’s 3000 inventory to Hardwarehouse.

Phoenix 3000 is only dealing in used 3000 equipment at the systems level to begin with. Brokers report that a much larger part of their 3000 related sales are in components, such as memory boards, IO cards and disk drives. HP doesn’t usually take individual components in trade, so Phoenix will be shopping on the open market for components.

Comparing and competing

Phoenix won’t be competing directly with existing brokers or with HP’s own reps for sales to the customers. By selling only to North American distributors and the HP EAO operations, the operation is a supply chain for HP 3000 authorized resellers, a group of companies that was complaining about broker activities in the spring of 1998. Resellers said some brokers consistently were beating the hardware prices the resellers could offer: sometimes by selling used hardware, and other times by illegally configuring systems.

“They came across loud and clear that their businesses were being hurt by the brokers,” said CSY general manager Harry Sterling. “They knew for a fact there were some practices going on that were not the practices they believed needed to be followed for transferring licenses or buying systems and reselling them. They knew of some brokers who were not following those practices, and they pretty much demanded we get involved, because they knew it was hurting their ability to compete.”

McCloskey said that Client Systems’ resellers “can name numerous deals in which the brokers impacted them, and some say all deals had a broker component. They said that ‘The brokers are killing me.’ If you can create a user license level on demand, think of how competitive you could be.” HP charged three brokers — Hardwarehouse, Abtech and Diablo — with illegal use of its SS_CONFIG tool to create such license levels.

A substantial number of HP 3000s sold on the used market today are trans-shipped, a process where the 3000 is sent directly from one customer to another with no checks or licensing required. Brokers and used hardware dealers who protect the customer in such transactions offer a complete refund if the system fails to qualify for HP support.

HP is, in effect, setting up a new “factory-authorized” source of used HP 3000s, similar to a used Lexus operation that Lexus runs alongside its new car dealerships. The Phoenix 3000 operation feeds systems ready for HP support to resellers and HP, but it doesn’t make buying other used systems any less legal. What remains a requirement for HP 3000 ownership of supported systems is a transferrable license for the systems — something every Phoenix 3000 box will have.

“If you don’t have a legal license that you can transfer, you’ve just turned your HP 3000 hardware into just hardware,” McCloskey said. “And then you’re going totally outside the HP support family.”