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For decades, Zurich- American Insurance Group has replaced old computers by buying new ones.

But the insurer recently introduced a new program to lease desktop computers for its 1,200 employees. One big reason for the switch: Zurich doesn't want to be stuck with finding a home for old machines.

"We do worry about disposing of our older computers," admits Edward Vesper, a senior consultant who oversees Zurich's equipment buying and trading. "It seems like it's getting harder and harder to find people who want them. And we don't have room to store them."

Indeed, technological advances have encouraged corporate personal computer users such as Schaumburg, Ill.-based Zurich to upgrade hardware more often. At one time, older machines typically were recycled to staffers who were computer neophytes or to "light" users who spent most of their days pushing a pencil. Now, however, virtually every office worker is computer-literate, and each wants to run the latest Windows software on blazing-fast equipment.

Schools and low-budget non-profit organizations no longer are the dumping grounds they once were, either.

"Most high schools today are running very sophisticated computer labs," says Robert Keizer, a senior financial planner at Lucent Technologies Inc. in Lisle, Ill., who buys and sells computers for 9,000 employees in the Chicago area. "They don't want our old 386 machines at all."

Fortunately, the market for used computers hasn't run dry. A few resellers around Chicago still will pay for personal computers that aren't too antiquated. Meantime, a growing network of salvagers has cropped up to take unwanted equipment and recycle its component parts.

Recycling is critical, in fact, for certain materials in a computer-such as beryllium in color monitor tubes-that are deemed hazardous waste by the Environmental Protection Agency and thus not fit for an ordinary landfill. A corporation like an insurance company, with 1,000 surplus computers, for example, has serious disposal concerns.

"The EPA has found computers sitting in garbage dumps, copied the serial numbers and gone back to the manufacturer to find out who they were sold to," says Michael Rushakoff, president of Oxford Metals Inc. in Chicago, a leading salvage firm. "Once they find out who the owner was, they fine them. The bigger the company, the bigger the fine."

What are the guidelines for disposal? Roughly this: There is virtually no reuse market for old IBM XTs and 286s. There is only marginal demand today for 386s that were mainstays in many offices as recently as 1993. More and more companies are switching to the latest Microsoft operating systems-either Windows 95 or Windows NT-that require plenty of hard-drive speed and memory to work properly.

Chicago Computer Exchange, a storefront operation in Chicago's Hyde Park neighborhood, maintains an inventory of 1980s-era computers and monitors, but co-owner Paul Erling acknowledges that demand for such equipment is drying up. "There are still people out there using old XTs, and therefore we keep some old boxes around so they will have extra parts if they need them," he says. "But the problem is when these old machines break down, there aren't many people around who know how to fix them. And you can't buy the older software that runs on them anywhere. On a 10-year-old machine, if something isn't working right, it's not as though you can call a Microsoft 800 number for help."

The maintenance hassles are one reason why non-profits have quit accepting older computers. "They've found that too many of the machines donated to them don't work anymore," Mr. Erling says. "The problem is that too many companies put their old computers in storage for a couple of years before donating them. If they'd recycle them right away to other users, they'd find more interest."

Ironically, even if the oldest computers have no value on the resale market, they actually are of some value to scrap dealers. Early generations of IBM-compatibles had more gold, aluminum and other precious metals in their connectors that current models. Manufacturers have since figured out ways to make computers with far less valuable raw material.

Another paradox: The cheaper clones of yesteryear also hold more value than such brand names as IBM and Compaq. The latter were produced in an integrated fashion. Their components resist separation and adaptation to other systems today.

Computer Recyclers Inc. in Elmhurst, Ill., won't take old Apples-"They won't run any of the new software," says Gene Tauber, general manager-but it does accept 386 machines. A 386DX running at 40 megahertz with 4 megabytes of RAM and a 100-megabyte hard drive will run Windows 3.1 software adequately. The company will pay $175 to $200 for a machine, spend four hours reconditioning it and then resell it with a monitor for about $400.

Older personal computers are another matter. Until last year, Hobi International Inc. in West Chicago, Ill., picked up 286 computers free for disposal. This year, however, Hobi is charging clients $15 per machine.

"It's a cumbersome process to disassemble them," says Cathy Hill, president of Hobi. "We send the monitors to Canada, where a company takes the lead out of the glass and recycles the material. Circuit boards from the 1970s had so many metals that we could get $16 a pound for them from scrap dealers. For boards made in the '90s, we get more like 16 cents a pound."

Some companies have initiated employee sales programs, offering surplus computers to workers who once used them at their desks. It's a good idea that hasn't worked well in practice, experts say. The machines are sold without warranties, and rancor often develops once the machines break down at home, which they inevitably do.

Elementary schools are another outlet. Lucent, for instance, donates computers to institutions where employees are active on PTAs or school boards. Again, the problem is reliability. Few schools have any expertise to fix or recondition old machines that nobody else wants.

"The problem is that new computers are so cheap to buy today," said Lucent's Mr. Keizer. "People want the latest, and they're willing to forget all about the old stuff they once depended on."