Why This is Important
We at Real World Technologies believe that every customer has the right to spend their money in whatever way they see fit. We also believe, however, that the customer *also* has the right to make an informed decision. This means that we, as a vendor, are responsible for providing as much information as we possibly can about the products we carry. Given this information, you (the customer) can then decide how to best spend your hard earned dollars. With that in mind, we feel compelled to present the following information about the current K6 processor market
New Product, Old Story
Recently, we have been inundated with calls from customers complaining about our ‘high prices’ on K6-200 processors. When we indicate that we don’t mark our prices up very much, they point to other ‘reputable’ dealers who are offering the ‘same product’ for as much as $100.00 less. Obviously, this is a concern to us and we decided to check things out a bit.
First, we went to many of our competitor’s web sites. Here we found that some are selling their K6-200 processors for mid-$300 prices, while others are selling theirs for mid-$200 prices. At this point, we felt that perhaps we were getting ‘ripped off’ ourselves by the distributors.
We then called both of the authorized distributors for AMD (the *only* two who are authorized to sell to the retail channel), and were promptly told that the mid-$200 price was less than what we could buy them for – even if we bought quantity 500+ !! Obviously the next question is “So how can these other vendors sell them for so little?”. The answer is two fold – grey market dumping and remarked product. This is an old problem being applied to a new product, so before persuing this situation let me provide a little background.
The Grey Market
Semiconductor manufacturers, including AMD, have two distribution channels. The first is the OEM channel, and the other is the retail channel. The OEM channel provides the manufacturer with the most revenue, and provides the most security in terms of their finances. This is because the OEMs have contracts which guarantee huge monthly purchases for up to 12 months in advance, and allows the manufacturers to offer much better pricing to the OEMs (sort of like magazine subscriptions vs newstand purchases).
The retail channel is handled through ‘authorized distributors’ who purchase in quantities of perhaps 10,000 or more per month. These distributors then sell to those who wish to sell as ‘authorized resellers’. Obviously, this market is very volatile and price sensitive which requires that the manufacturer charge a higher price (again, use the magazine analogy above).
Since OEMs are agreeing to quantities many months in advance, there is a strong possibility of over or under purchasing for a given month. To combat this, an unauthorized and unregulated channel has emerged, which is called the ‘grey market’. What happens is that the OEM makes a contract which guarantees they will purchase more product than they could possibly use and then they ‘dump’ the excess to brokers at close to their cost. These brokers then peddle the product to resellers who are trying to compete in the retail market, providing a minimal warranty (30 days, usually) and a very low price.
One very important point to understand here is how the warranty is handled. For OEMs, they only get a 30 day warranty – any additional warranty is handled by themselves. This is the price they pay for getting a lower purchase price. On the other hand, the retail channel typically receives a one year warranty as compensation for their higher price. What must be understood is that in *all* cases the warranty is not between the end user and the manufacturer, it is between the end user and the reseller!! The importance of this will become apparent in a moment
Re-Marks and Fake Product
Right now, semiconductors are worth more than their weight in gold. This makes them very attractive for crooks and scam artists. Most everyone has heard of the theft rings which hijack trucks and break into businesses to obtain these valuable items. Most people have also heard about the practice of re-marking a product, but may not really understand how these get into the system.
The grey market is essentially driven via the brokers, and these brokers are usually only getting a dollar or two per item in profit. This means that they must sell in huge quantities to stay profitable. These people are also not usually experts in what they sell, but are just following the trends of the industry. Of course, some of them have very little integrity, and will do anything to make a buck. Therefore, it is quite easy for an unscrupulous company or individual to sell remarked product to a broker, who then distributes this product to their normal customers.
What this all means is that a ‘reputable’ company may unwittingly buy a remarked processor, and sell it to you – all the time believing they are giving you a good deal. At this point, the warranty issue becomes very important. Since the warranty is between the customer and the reseller, any remarked or fake product must be returned to the reseller. The reseller must then return it to the broker, who then must return it to their source.
Now, consider the fact that an OEM only gets a 30 day warranty. Since the OEM purchases once per month, by the time the product is sold to the broker, the 30 day warranty has expired!!! Now the broker essentially has no warranty from the manufacturer, which is obviously passed right down to the consumer. Therefore, when you buy grey market – you are not getting a manufacturers warranty, but a reseller’s warranty. This means your warranty is only as good as the reseller you are buying from!!
Today’s Issues
Now, to get back to the K6 issue. The answer that we received from the two authorized AMD distributors is that they have had a rash of reports regarding re-marked K6-200 processors. These are K6-166 processors that have been remarked and sold as K6-200s. When we asked about the retail channel pricing, we were told that even in quantities of 500+, the price to us would still be over $300.
On a related note, M Tech called us to beware of a problem regarding K6 processors that had been reported to them. They have been getting reports of K6 processors that were cracking due to excessive heat – an obvious symptom of overclocking. Yet, the customers insisted that they were not overclocking.
We have since requested through our distributors that AMDs security department contact us with information on how to detect remarked processors so that we can pass this information on to you. We have already received information from Cyrix and Intel, but have not yet heard from AMD.
So does this mean that you will definitely get a re-mark if you buy grey market? Obviously not, since there are a great many ‘real’ processors being dumped by OEMs as well. What it does mean is that if you buy from an authorized distributor you will absolutely *not* get a re-mark, but if you buy grey market you have a good chance of getting one. The question is, how much is this certainty worth to you? How much is a warranty worth to you?
What can YOU do?
Your best protection is information, so you should first understand exactly what you are paying for. You may or may not care about warranty, but recognize that if the processor fails and you have no warranty, you will have essentially thrown your money away.
When you are buying a processor, ask if the vendor purchases through authorized distributors and what their warranty is. If they say they do buy authorized, then their warranty should be one full year. If they are not buying through authorized sources, find out how they will handle the situation if you get a re-marked processor, and what precautions they have taken to ensure their product is not remarked.
Think of it this way. If you buy a K6-166 that is remarked as a 200MHz, then you will be overclocking it when you plug it in. Since you could have purchased a 166MHz for about $50 less than the cheapest 200MHz and overclocked it to 200MHz anyways, you just got ripped off when you were absolutely convinced you got the best deal around!!
To sum up, here are a few items to look for:
- 30 day warranty – this is a sure indication of a grey market product.
- Cash Only policy – this is intended to prevent you from getting your money back if the product turns out to be a re-mark or defective.
- Extremely low price – this is the trademark of the scam artist. Don’t make the mistake of assuming the lowest priced vendor is the most honest.
Finally, we will not be able to offer the K6-200 processor at the same price as the grey market since we buy *only* from authorized sources. While we would dearly like to be able to compete in this market, it is ultimately *you* the consumer who will determine how successful the scammers and crooks really are. We will continue to uphold our integrity and principles, even if this means that our sales plummet due to our inability to compete with unauthorized sources. We hope that in the long run, you will find that this is actually a positive attribute, and that you will lobby the manufacturers to either lower their retail prices, or clamp down on the grey market (preferably the former, of course).
I do wish to make one observation in all of this. In case nobody has noticed, Cyrix does not seem to have this problem. They have priced their retail product so close to the OEMs that the grey market has very little price advantage (you can see this by comparing our prices to those selling grey market). My own opinion is that if all manufacturers followed this practice, the retail market would be much healthier and a safer place to buy.
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