The Gray Market Dry Up: No More Whitebox AMD Chipsby Kristopher Kubicki on October 3, 2005 3:01 AM EST
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For those of you who follow processor sales very closely (we do), you may have noticed the continual dry up of AMD OEM, "Whitebox" or "Tray", processors. OEM/Tray processors are chips that generally come with very short warranties (90 days to 1 year, through the vendor) and don't come with a fan or certificate of authenticity (COA). After talking to several merchants in the North America, it looks as though AMD has started to officially and unofficially impose a ban on OEM components.
Almost all OEM or Tray products you see at merchants (brick & mortar and online) have some sort of "gray" history. A manufacturer produces whitebox items with the intention that the item will go directly into a system build. A powerful merchant might leverage several thousand whitebox products for system builds, then sell half of them directly to the customer. The merchant wins two fold, generating sales by selling the OEM products cheap (or even at cost!), and then using the rest of the products into systems.
What's the matter with OEM products?
Gray Market products, in general, make distributors and product manufacturers nervous. For starters, OEM products are sold to system builders in bulk with the intention that they will be used in pre-built systems. This makes the merchant liable for quality-control. For example, if a bad chip ships, it's the fault of the system builder, not the manufacturer. The reason why distributors get nervous is because OEM products are usually sold to the system builder directly, and not through a distributor - removing their primary reason to exist. Distributors and manufacturers work in tandem to assure the vendors sell products at or above a predetermined price; this prevents price wars. When system builders sell the chips they bought from the manufacturer on the open market, they don't necessarily need to adhere to the prices set by the distributor or manufacturer.
Removing the distributor from the supply chain can be both a blessing and a curse. Almost all major vendors now have at least some AMD chips drop shipped straight from Singapore. Without a distributor between the manufacturer and the vendor, the customer benefits by getting a cheaper price on that particular item. On the other hand, when a merchant locks into this sort of supply chain, it cannot leverage better deals based on volume. A distributor can purchase tens of thousands of components at a time while a merchant might only be able to purchase a thousand. In the long run, it can be cheaper to buy through a distributor because they get better pricing than the merchant does directly.
Of course there is also the quintessential whitebox problem. We've all heard of the guy who bought a chip, placed the wrong heat sink and/or fan on it, and then went through six months of hell attempting to get their chip returned because it burned out (or one of a dozen other similar horror stories). If anything, these problems are the merchant's responsibility. However, poor performance on behalf of the merchant equals to a poor representation of the product brand as a whole. When an upcoming IT manager hears these horror stories, the poor reputation is stuck on the brand rather than the merchant.
The Final Verdict
As a result of constant price wars between merchants (and even those quasi-vendor-distributor hybrids), AMD is stipulating that all merchants must sell Boxed Retail processors in the future. Intel actually did this several years ago during the late Pentium III days, which is why you don't really see OEM Intel processors anymore. We've been told that vendors who actively promote gray market parts can lose cobrand advertising money. Some merchants have completely dropped OEM AMD chips altogether, although there seems to be an unofficial understanding that existing merchants can flush out their inventory before harsher actions are in order.
The loss of OEM/Tray AMD chips shouldn't hurt the customer too much in the end. There is generally a two or three week difference between when merchants receive OEM vs. Retail products, but we've been assured this lag is diminishing. The cost differential between OEM and Retail chips has started to narrow over the last year as well, but there are still instances where OEM chips really offer a better value. Most new chips are generally retail only, but there are some examples like the "E6" Venice chips that exist almost solely in the gray market area.
While some people may now be forced to spend $10 more on a retail CPU, or end up with an extra HSF, overall the move has to be seen as positive. It's our opinion that improving their CPU reputation by making all chips bear the official AMD COA can only help AMD in the long run.