Economic Instability Effects Desktop Pricing
The past year has seen a decline in the cost of refurbished PCs due to economic instability, however ITAD industry experts have stated that the market seems to have stabilized – at least for the time being.
Chris Ko, CEO of Mesa, Arizona-based electronics recycler ER2, said he has seen a 30% drop in desktop demand. Laptop demand leveled off as well and is holding steady while pricing fell by 40%. ER2 is headquartered in Mesa, Arizona, and has facilities in Sacramento, Memphis, Nashville, Houston and Council Bluffs, Iowa.
ER2 has about 15,000 laptops in inventory, Ko reported that they had a sell-through rate of 52% in a 30-day period. Indicating that all 15,000 laptops would be sold within two months. He noted that this demonstrates strong demand, despite decreasing prices. “Pricing has fallen,” he commented.
Recent changes in Asia due to pandemic policies, corporate IT shifts related to remote work, and inflation’s effect on consumer spending have all had an impact on used PC markets. To gain further insight into this situation, E-Scrap News interviewed a few refurbishers to learn more about their observations and how resellers are adapting.
On the Verge of a ‘Phenomenal’ Period
George Hinkle, president of ITAD and e-scrap recycling company, Arcoa Group, is headquartered in Waukegan, Illinois. The corporation has processing locations in Illinois, as well as Akron, Ohio and Kenosha, Wisconsin.
Hinkle noted that the prices of used equipment began to decrease in the spring of 2022, but by December they had stabilized. He attributed this to the extremely high pricing that followed the pandemic, due to increased demand for computer equipment needed for remote work. This resulted in a “phenomenal” 2021 year for Arcoa, according to Hinkle.
“It dropped from something that was very unusual,” he said. Arcoa had projected a drop in used equipment pricing in 2022, but the mid-2022 decline was sharper than the company anticipated, he added.
Albert Lozano of ITAD company Digital Green Global, based in the West Coast, reported that his firm has been selling used equipment almost exclusively through e-commerce platforms. He noted that most customers are from North America and that overall, secondary markets have remained consistent.
In 2022, Digital Green managed to process an impressive 1,000 tons of material, mostly for recycling. Additionally, they sold over 25,000 used electronics during this period, not including harvested components or recycling commodities. Based in California, and Texas, the business primarily serves corporate customers. Recently though, Lozano noted that used consumer electronics have been selling at a slower rate than usual, and that prices are around 10-15% lower than before the pandemic. On the other hand, he added that markets remain good for laboratory testing equipment and server equipment.
A significant portion of Digital Green Global’s revenue, generated from the sale and shipping of recovered memory to Asia, has been greatly diminished due to China’s coronavirus restrictions. This sector was once a major contributor to their profits but has now nearly come to a standstill.
Impact on Client Profits
For ER2, the market changes means that customers are making less capital per item.
“It’s our customers themselves who, from a revenue-share standpoint, are getting less because we’re not getting as much value back, but they’re understanding of that,” Ko stated.
He said the company has also altered its restrictions on what’s worth refurbishing, because even though older products still sell, the lesser prices mean it’s often no longer worth the cost. “It starts to become no longer viable to refurbish everything that could be reused and that’s the problem,” Ko stated, adding that for ER2 the breakeven amount is around $80.
“Any device that can’t sell for more than that is one that the company would lose money on. Right now, that means laptops that have a sixth-generation or older Intel core processor don’t make the cut”, he said.
Arcoa’s foundation lies in the resale of office copiers and printers, and according to Hinkle, the demand for different types of devices has varied. He noted that while there has been a decrease in demand for laptops and desktop PCs, the market for printers and networking equipment remains strong.
Additionally, components such as RAM and processors have seen drastic changes due to ties with Asian markets; prices have dropped significantly. However, Hinkle did mention that since late spring/early summer when pricing was volatile, the market has stabilized.
“From what I can tell, I think the markets have leveled off for us,” he commented.
An Evolving Industry
The declining demand for desktops will continue, ER2’s Chris Ko forecasted, due to the rise of remote work. Businesses aren’t bringing as many workers into the office now, Ko said, “and if they do it’s not going to be via a desktop.”
“Those are going to be less and less in the workplace, but I think there’s an interest from schools and worldwide marketplaces,” he said. “In Dubai, India, the rest of the world where they’re not as concerned with mobility because a lot of people don’t necessarily have home internet, so they’ll be viable there.”
The pricing and demand for desktops, which are still popular among educational institutions and international markets, has been declining steadily. Resellers have noted that the cost of shipping items is a contributing factor to this weakening demand in foreign countries.
According to Robin Ingenthron, founder and CEO of Good Point Recycling, the company’s international customers are not doing well. Mr. Ingenthron noted that a few have stopped ordering computers altogether while others have placed orders, but Good Point is reluctant to send out equipment due to past debts. He believes that the stimulus money during the pandemic could be partially responsible for this sudden drop in demand.
“People might have purchased two years of new equipment in one year,” he said, “which is part of what they blamed for the inflation – the overheating of the economy. All that stimulus money.”
Surprisingly, Mr. Ingenthron reports that he is getting a lot more calls for used desktop monitors, and the prices remain fairly constant. This development has taken the company by surprise since he had assumed that the market for desktop monitors was in decline. The recent increase has him ‘puzzled’.
Weathering the Impending Storm
With economists warning of a deepening recession, businesses are preparing for the worst. HP has revealed it will be reducing its staff by 10%, with CEO Enrique Lores telling The Wall Street Journal that “we think that at this point it’s prudent not to assume that the market will turn during 2023.” This comes at a time when inflation is still high, and people are struggling to afford necessities.
According to Mr. Ko, certified refurbishers should be able to offer partially repaired items for those who wish to make their own modifications. This could help keep older models that don’t meet the cost requirements in circulation. However, this is not currently possible under most certification rules.
“Being able to potentially say, ‘Hey, this has been completely tested, the components work, it just needs a battery,’ and then someone might actually be willing to buy that, and they would put their battery in and do whatever they want,” he suggested.
Ko said he thinks pricing for laptops will stay at its current level for the foreseeable future. “I don’t foresee it coming roaring back at all,” due to some residual supply chain issues. He has noticed businesses reducing spending over recession fears.
“A lot of our clients are Fortune 100s and they really have decided to be more conservative on their hiring, and also the same thing on their overall business itself,” Ko said.
Ramifications on the ITAD Market
In a recent podcast, Compliance Standards ITAD research firm’s representative, Mr. Daoud, stated that the PC market has been adversely affected by inflation and increasing labor costs, an issue which will certainly have repercussions for the ITAD sector.
“The number of PCs shipped in 3Q this year was down from last year, confirming that demand overall is shrinking,” he said, calling it “perhaps the most alarming piece of information because the seasonal trend of back-to-school has been broken.”
Contrary to popular belief, Daoud asserted that there is no empirical evidence to support the idea that a decrease in economic growth leads to an increase in demand for used equipment.
“All downturns, starting with the 2008 financial crisis, showed that ITAD companies have also struggled to sustain business and suffered from the downturns, resulting in subsequent consolidation of the sector,” he said. “There is also the fact that the price difference between a refurbished device and a new system has been shrinking and is not so substantial, making it more challenging to convince buyers to endorse used equipment.”
Lozano expressed his belief that a significant recession is on the horizon, yet he remains sure that Digital Green Global will be able to withstand it. With over thirty years of experience in the business, Lozano has gone through multiple economic declines in the past.
“You just have to be safe, play smart and ride the markets,” he said. “Be realistic.” With projections for used computers sales declining in 2023, this statement rings true. It is crucial for companies in this industry to follow the markets and make decisions based off of the forecasted estimates.
