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Original Equipment Manufacturer (OEM)

A company that resells products or parts of a product of another company under its own branding

What is an Original Equipment Manufacturer (OEM)?

An Original Equipment Manufacturer or OEM is a company that resells products or parts of a product of another company to its own customers while putting the products under its own branding. OEMs usually operate in the IT and computer industries.

 

Original Equipment Manufacturer

 

An OEM is often the direct client of a manufacturing company and its reseller to specific consumers. For instance, a Lenovo laptop computer’s parts aren’t all manufactured by Lenovo because some parts, such as its processor or memory module, may be the products of another company.

 

Original Equipment Manufacturer vs. Value-Added Reseller

Essentially, Value-Added Resellers or VARs sell products from an OEM but incorporate certain added features before doing so. The two share a mutually beneficial relationship as VARs help OEMs sell their products and OEMs entrust their products to VARs, allowing them to sell them with more features that will enhance the operation of the products.

 

Original Equipment Manufacturer vs. Aftermarket

While an Original Equipment Manufacturer resells a product from another company, an aftermarket, on the other hand, are parts of a product that is not an OEM but are made to look like that of the OEM.

In simpler terms, the parts are not original products because they’ve been manufactured by companies, locally-based or foreign-based, that without approval from the OEMs to produce such products. Though cheaper, the products are not guaranteed to function as well as the OEM product or function correctly at the very least.

 

Example of an Original Equipment Manufacturer

To better illustrate how OEMs work, let’s consider an example. Say Company A is into manufacturing memory cards. They will not produce only one type of the product but several versions of it which, of course, include one that will be sold by the manufacturer itself directly to its target market and the other to its OEM. Looking at our example, it is safe to say that an OEM is of good quality as only its branding’s been changed.

Another aspect where an OEM differs from a manufacturer’s product is its warranty, as well as the software and the manual, which is why they are not often included in the package anymore.

 

Other Characteristics of an Original Equipment Manufacturer

 

1. OEMs sell cheaper licenses

It is true that OEMs sell product licenses at a much lower price and there is a reason for that which, without a doubt, is not known to many. It is because the licenses are actually “restricted use licenses.”

 

2. Tech support is different

In the event that a product one recently bought starts experiencing problems, tech support offers a solution. However, OEMs maintain their own tech support, which their product buyers can access but these are not as good as the tech support of the manufacturer. The system is not updated that may make it difficult for it to resolve.

 

3. OEM for hardware

Hardware can be easily bought off the internet, whether from a product manufacturer or through an OEM. However, OEM hardware is usually shipped incomplete of parts such as cables and adapters that are necessary for the installation and operation of the hardware.

 

4. OEM for software

OEM software, like the hardware, usually doesn’t come with a lot of stuff, except for the basic software and its license key for obvious reasons.

 

Benefits of Buying Original Equipment Manufacturer Products

Here are some benefits one gets from buying OEMs:

 

1. Good quality

And why not? After all, an OEM product is still the same product manufactured by the original manufacturer but just uses the OEM’s branding. Though there are cheaper versions, the price of the OEM product reflects its quality.

 

2. Durability

Such products are not only of good quality but are also durable. For example, when buying a spare tire, an OEM is definitely better than getting an aftermarket because one can be sure of the materials used in making it.

 

3. Lifespan

When a specific part of a product gets busted, and one buys an OEM spare part, he is guaranteed that this part will last as long as the one it replaced.

 

Is Buying an Original Equipment Manufacturer Worth It?

Considering the benefits of buying an OEM, it can be said that it is worth it. Just looking at how much a retail version of an MS Windows 10 installer costs compared to an OEM version of the software, one can see how big one’s savings can be. However, users should also manage their expectations.

 

Additional Resources

CFI offers the Financial Modeling & Valuation Analyst (FMVA)™ certification program for those looking to take their careers to the next level. To keep learning and advancing your career, the following resources will be helpful:

  • Economies of Scale
  • Substitute Products
  • Supply Chain
  • Value Added

Financial Analyst Certification

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