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Watch out for Athlon price pirates

Don't drown in the chip channel

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As revealed here earlier, AMD will take pre-emptive action on pricing for its Thunderbird and Duron microprocessors tomorrow.

Its system integrators, PC customers, distributors and dealers have already been notified about those changes, which were brought forward by two weeks.

Some understanding of industry jargon is essential if you want to follow the often tortuous route of an Athlon as it leaves the Dresden factory en route to a PC running Quake III or whatever.

Distributors, dealers, resellers, system integrators and even chip brokers are often described within the industry as "the channel", a piece of catch-all jargon which lumps together some highly reputable companies with some very dodgy firms or individuals indeed.

The AMD prices we published, which you can find here, are distributor prices, that is the official price distributors sell the chips to their own customers. A dealer may be a small outfit, or may be a reasonably large operation.

Most distributors, unless they are specifically set up to do so, prefer not to sell single processors to individuals, but have their own set of customers with which they have a business relationship.

Both AMD and Intel use what they call authorised distributors -- companies with which they have developed a formalised relationship -- and who get to buy the microprocessors with sufficient margin to be able to re-sell them to dealers and system integrators. So the distributor has already calculated its margin, for example, in the AMD prices we published.

Original equipment manufacturers (OEMs), is the industry jargon for companies who make and brand their own PCs. These obviously vary greatly in size, from the Dells of this world to small firms which still try and brand their own PCs, despite desperately small margins.

These customers often have a direct relationship with the Intels and AMDs of the world, and have pricing models which reflect the size of their operation. There is no doubt whatever that a Dell, because of its size, has vastly more preferential prices than a small outfit trading in a small country somewhere in Europe. The OEMs buy their microprocessors in trays, with pricing usually based on a US dollar price per 1,000. Dealers and smaller system integrators are likely to buy boxed and branded processors. Intel, for example, sells its boxed processors in ones or in tens.

Prices obtained by The Register may be either OEM prices or boxed prices -- we will usually say which price applies in any given story.

The situation is pretty straightforward, and somewhat analagous to a baker who uses an authorised distributor to ship loaves round a country which eventually end up in a shop (dealership), where the likes of you and I buy one or two and smear them with Marmite or marmalade.

However, you have probably never bought your loaves of bread on the grey market. This jargon refers to a tranche of individuals or companies who make their living by selling, for example CPUs, which have escaped the authorised routes to market. AMD or Intel CPUs may reach the grey market by one of several routes.

A large PC manufacturer may have committed the firm to buying tens of thousands of processors, and then realised demand, lack of demand, oversupply, unexpected price changes or technology changes sprung on them by AMD, Intel or whoever mean they could end up holding the equivalent of stinking fish or mouldy loaves which they'll never be able to sell.

They therefore flog them at a price to a broker who then attempts to sell them, sometimes undercutting authorised members of the illustrious "channel".

Sometimes stolen microprocessors come on the market as well as re-marked chips, which means that when you're considering buying a microprocessor you really have to bear this hackneyed phrase in mind:

Let the Athlon buyer beware

Over the last week or so, we have seen different prices for a range of AMD processors appearing on different sites.

AMD Zone was told of one set of prices in mid-week where a 1GHz Athlon Thunderbird cost a staggering $629. Over this weekend, they point to a far more realistic Web page, www.tcwo.com, which is selling a Thunderbird gigahertz Athlon for $497 -- far closer to the distributor prices we published.

Ace's Hardware was furnished with another set of prices by a reader, with a 1GHz Athlon priced at $539.

The distributor price we published was $470 -- remember this is the price which includes the middleman's margin. Dealers, who may well build PCs based on these parts, have to build in some margin too.

Typically, the AMD community currently consists of enthusiastic people who want to get the most out of their microprocessor. That can be judged by the hundreds, perhaps now thousands, of Web pages which cater to the gaming and/or enthusiast community.

Many people who read such Web sites may well be constrained by their budgets and often build their own PCs and so do not want to be ripped off. Remember that distributors, dealers and component sellers have overheads of their own and build in enough margin for them to carry on their business and make profits. None of the profits they make will match the money made by the Intels and AMDs of this world. Intel, for example, in its quarterly financial figures, often cites gross margins hovering around the 60 per cent mark.

Most of the "channel" would kill for margins like this.

Given all of this, if you are contemplating buying a 1GHz Athlon this week, and compared to Intel's microprocessors they currently are a bargain, be very very careful you don't get trapped in the maw as the feeding frenzy begins. ®

See Also

Intel thrown into confusion by AMD price cuts

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