That's a good question: what do hosts do with their old machines when they upgrade? I know when they go out of business a firm buys all their equipment and then sells the entire lot on eBay: I've gotten a few good deals myself
Equipment to most providers is worth nearly nothing after 2-3 years.
Especially when you're speaking of providers that are not interested in offering $50/month dedicated servers due to support and infrastructure quality constraints. (AKA, not willing to pollute their premium DC's)
Equipment is basically something companies know they'll take a loss on for anywhere between 4-6 months, hoping that either the client will stay around that long, or the box will be powerful enough to sell once again at a reasonable rate at some period around that. Be assured your typical high end dedicated server does cost 4-6 times your monthly fees up front to the provider and has very little resale value by the end of your average life cycle.
Most dedicated hosting companies, especially those who's primary focus IS dedicated hosting are EXTREMELY leveraged financially. As in, they have a lot of bank debt with projections towards their point of profitability. This is most especially true of budget dedicated hosting companies. If you opened the books on some of the better known budget dedicated companies you would likely be very surprised. Hardware is nearly as expensive for datacenters as it would be for you to build it yourself.
They aren't usually cutting corners out of greed, it's out of simple logistics.
Not that anyone as a client needs to be particularly concerned with such details, but it's an interesting aspect which seems somewhat unrealized by most.