The Gray Market Dry Up: No More Whitebox AMD Chips
by Kristopher Kubicki on October 3, 2005 3:01 AM EST- Posted in
- CPUs
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.
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mindless1 - Sunday, November 27, 2005 - link
Apparently my take on the article is quite different than everyone else's.I see it as pressure from distributors to promote price-fixing. That is bad for the consumer. Through collaberation some bean-counters have decided that they benefit more financially from doing this. Guess what they mean, bottom line? They can only benefit more financially by adding more middleman markup if it ultimately costs the consumer more. RIght now you might be thinking "usually only $10 more". That's not significant, in fact the cost of the OEM parts is keeping the retail parts LOWER, and without this supply of OEM parts you will no longer have any idea of how much more you're paying.
The only thing offsetting this is the additional cost of 3rd party heatsinks (from an end-user perspective). Individual heatsink purchase is going to negate the current OEM/Retail price advantage but it isn't clear that this situation would persist once the OEM parts are out of the market.
Avalon - Tuesday, October 18, 2005 - link
Most of the people here who buy OEM chips do so because they already have their own HSF and probably plan on overclocking as well, so the extra 3 year warranty is moot.sprockkets - Saturday, October 15, 2005 - link
Is AMD going to sell the notebook versions in retail pkg, or the low heat versions like they did with the Athlon? probably not!xsilver - Tuesday, October 4, 2005 - link
instead of throwing them out, you could use them as extra coolers for your hdd'sduct tape is good if you're not too good with tools
cools my hdd by almost 10deg.
if you have a fan controller you can hook the fan up too
Tonymil - Friday, October 7, 2005 - link
The only thing I don't like about the elimination of the OEM CPU's is the continued growth of SFF, HTPC, and other special use PC's. Typically, these either come with a custom HSF mechanism (think XPC) or are built with the intent of using a special HSF (think ultra quiet for HTPC or ultra cool for overclocking). For this growing population, the extra HSF is a total waste - we have to pay for the HSF, and then pay to ship the heavier package to us!I think that OEM CPU's should be limited in the same manner as OEM Microsoft software. To buy OEM Windows, you have to buy some hardware. So - set this up such that to buy an OEM CPU, you must buy it with an appropriate cooler.
jediknight - Tuesday, October 4, 2005 - link
More choice is almost always a good thing. While, personally, when I built my system last year I opted for the retail chip.. I would like to have the option to go OEM if that suits my needs better.I think this is a bit of a cash grab on AMD's part.
plonk420 - Monday, October 3, 2005 - link
Retail is BS as long as i'm building for myself. someone mentioned that you can just throw the fans in the trash. someone else mentioned that they are "pretty much as good as most you can buy."for one thing, the money i have saved buying retail amounts to two DVDROMs or two CDRWs i can sell with my system (who wants to buy a driveless system?) when it needs to be retired...
as for how good it is, i used the AMD branded HSF that came with my two Athlon 64s, they were louder than the loudest, cheapest Athlon XP HSF i've ever been afflicted with. they were in the system for all of 5 minutes. they work, but they are trash.
Generic Guy - Monday, October 3, 2005 - link
I've bought AMD64's in the retail packaging, mostly for the 3-year warranty coverage. But I also understand people would want CPU-only for, say, dual-processor boards or if they have their own cooling system.I just don't understand why AMD -- you know, the guys who are suing Intel over price-fixing and market maniplulation -- why would AMD now be going down this road to assure 'predetermined price' for vendors. That's not at all reflective of free market forces which AMD has been complaining about Intel. I've noticed that AMD chips have over time been getting more and more expensive, and this will make it even more so. I'm almost leaning back into the Pentium camp, if Intel can get the heat-furnace issues under control.
johnsonx - Monday, October 3, 2005 - link
While I can certainly see a few downsides to this, overall I think this is a good change.You know who might be most upset by this? The HSF makers who sell cheap OEM-equivalent HSF's. The only reason to buy those $6.00 HSF's was when you could get an OEM chip much cheaper than retail and then buy a cheap HSF to go with it. Now the only reason to buy a HSF (aside from the replacing a failed OEM unit) is to get an expensive one that's either silent or good for extreme OC.
Of course, I suppose the cheap HSF maker's market probably isn't primarily retail, but sales to OEMs who of course will still buy OEM chips.
kleinwl - Monday, October 3, 2005 - link
I don't know where you guys are getting the $10 pricing information. Ewiz is $112 for a 3000+ venice, where the retail is $149. Why would I waste the $37 that I would otherwise spend on an aftermarket heat sink. For a low cost build, the cost is significant.