Original equipment manufacturer
An original equipment manufacturer (OEM) is a company that purchases parts and equipment that may be manufactured by another company. For example, Foxconn, a Taiwanese electronics company, which manufactures parts and equipment for OEMs including Apple, Dell, Google, Huawei and Nintendo.
The term is also used in several other ways, which causes ambiguity. It sometimes means the maker of a system that includes other companies' subsystems, an end-product producer, an automotive part that is manufactured by the same company that produced the original part used in the automobile's assembly, or a value-added reseller.
When referring to auto parts, OEM refers to the manufacturer of the original equipment, that is, the parts assembled and installed during the construction of a new vehicle. In contrast, aftermarket parts are those made by companies other than the OEM, which might be installed as replacements after the car comes out of the factory. For example, if Ford used Autolite spark plugs, Exide batteries, Bosch fuel injectors, and Ford's own engine blocks and heads when building a car, then car restorers and collectors consider those to be the OEM parts. Other-brand parts would be considered aftermarket, such as Champion spark plugs, DieHard batteries, Kinsler fuel injectors, and BMP engine blocks and heads. Many auto parts manufacturers sell parts through multiple channels, for example to car makers for installation during new-vehicle construction, to car makers for resale as automaker-branded replacement parts, and through general merchandising supply chains. Any given brand of part can be OEM on some vehicle models and aftermarket on others.
Microsoft is a popular example of a company that issues OEM software for its Windows operating systems. OEM product keys are priced lower than their retail counterparts, but use the same software as retail versions of Windows. They are primarily for direct OEMs and system builders, and as such are typically sold in volume licensing deals to a variety of manufacturers (Dell, HP, ASUS, Acer, Lenovo, Wistron, Inventec, Supermicro, Compal Electronics, Quanta Computer, Foxconn, Pegatron, Jabil, Flex, etc.). Individuals may also purchase them for personal use (to include virtual hardware), or for sale/resale on PCs which they build. Per Microsoft’s EULA regarding OEM, the product key is tied to the PC motherboard which it’s initially installed on, and there is typically no transferring the key between PCs afterward. This is in contrast to retail keys, which may be transferred, provided they are only activated on one PC at a time. A significant hardware change will trigger a reactivation notice, just as with retail.
Direct OEMs are officially held liable for things such as installation/recovery media, and as such were commonly provided until the late-2000s. They were then phased out in favor of recovery partitions located on the primary storage drive of the PC (and available for order from the manufacturer upon request) for the user to repair or restore their systems to the factory state. This not only cut down on costs, but was also a consequence of the gradual phasing out of optical media drives on many PCs for sale from 2010 onward. System builders further have a different requirement regarding installation media from Direct OEMs. On versions of Windows which require a valid product key for media download from Microsoft (like Windows Vista, 7, 8, 8.1, 10), OEM keys will be rejected, and the party will be given a notice to refer to the manufacturer.
Economies of scale
OEMs rely on their ability to drive down the cost of production through economies of scale. Also, using an OEM allows the purchasing company to obtain needed components or products without owning and operating a factory.
- "Build Your Brand on HP: HP OEM Partnership" (PDF). Hewlett-Packard Website. Hewlett-Packard. Retrieved 2014-09-27.
- Ken Olsen: PDP-1 and PDP-8 (page 3), economicadventure.com
- Kidder, Tracy (1997). "Book Excerpt: The Soul of a New Machine". Bloomberg Business Week. Retrieved 2014-09-27.
…hence the rise of companies known as original equipment manufacturers, or OEMs—they'd buy gear from various companies and put it together in packages. (Chapter One, paragraph 17)
- "General Info on Microsoft OEM COA's, CDs, Ect". eBay. Retrieved 9 September 2015.
- "OEM Licensing FAQ-OEM Partner Center". Microsoft.com. Microsoft Corporation. Retrieved 1 October 2015.
- "OEM System Builder Licensing Guide" (PDF). Microsoft.com. Microsoft Corporation. Retrieved 9 September 2015.