| jonny bravo 2003-09-18, 1:23 am |
| FAQ: What Is The Definition of OEM?
It's important to have a full understanding of the definition for the term
"OEM". Often a computer hardware component is identified as being OEM. OEM
stands for Original Equipment Manufacturer. Semiconductor manufacturers have
two ways of distributing their products. Retail being the one you're no
doubt the most familiar with, and OEM.
If the component is OEM then it means the component is intended to be sold
as part of a complete system instead of as an individual component. OEM
components provide the manufacturer with the most revenue plus a more secure
revenue stream. This is because the OEMs, who are the ones buying the
component, must do so under a contract. The contract guarantees that the OEM
will make large monthly purchases of the component for a number of months.
In return, the the manufacturers provide much better volume pricing to the
OEMs.
Since OEMs agree in advance "how many" of a component they will buy and
"when" they will buy it, it's often the case that they end up with either
too many or too few of a particular component needed in the complete systems
they are selling. This difference is handled in the "gray market".
It's become standard practice for the OEM to agree to a contract knowing
they will end up with more product than they can use. The extra product is
sold at cost to brokers. The brokers in turn sell smaller quantities for a
mark-up to resellers at the retail level. The OEM product is typically
cheaper and has a shorter warranty, often 30 days, and the warranty is
through the reseller, not the manufacturer as is the case with retail
products.
The brokers are nameless, faceless folks, at least as far as you and I are
concerned. It's possible a broker could pull a fast one on a particular
component being sold to the reseller and the reseller would unknowingly pass
on the product to you, the customer. But no trustworthy reseller would
tolerate this kind of deception since it's the reseller who will have to
deal with the returns and angry customers, and it's the reseller whose
reputation will suffer. That's why it's important to deal with a reseller
that prizes his reputation.
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