Newegg drops supplier over counterfeit Intel processors

By on March 9, 2010, 9:55 AM
Newegg has issued an official update on the Intel Core i7 processor fiasco that came to light over the weekend. Turns out that IPEX, not D&H Distributing as initially believed, was responsible for supplying the bogus chips and as a result its contract with the online retailer has been revoked. In an initial statement, Newegg had referred to the issue as one of its partners mistakenly sending out "demo boxes" instead of functional units.

You could tell that was obviously not the case just by taking a closer look at the packaging and wording on the boxes containing the 'chips' in question. The news was first reported by HardOCP, which has now apologized to D&H Distributing for naming it as the supplying distributor, and clarified that it was merely reporting what a source from within Newegg's organization had told them.

In a statement issued to CRN, a senior D&H executive ratified his company has never bought anything other than genuine Intel products, sourced directly from Intel, and said they're glad to see the D&H name vindicated. Newegg for its part said it is reaching out to all customers who may have received the fake processors and has already sent out a number of replacement units. It's not often that a reputable retailer is duped into passing on counterfeit products to customers, but it seems that Newegg managed the situation quite well after all.




User Comments: 51

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Recipe7 Recipe7 said:

First!

It's quite an embarrassing moment for Newegg, but they shouldn't be blamed for the irresponsibility of a certain supplier.

I feel for the buyers of the fake 920s though, but Newegg will take care of them without a doubt.

levar said:

yea I guess they did manage it quite well, sorry for doubting one of my favorite sites. Regardless I'll still make purchases from newegg. LOL @Ainver Welles over at FB "well thats what ya get for going intel instead of amd... AMD for the win once again" AMD is the best :p

TorturedChaos, TechSpot Chancellor, said:

I wonder what it had to be like for the customer service agent that took the first call on these?

Customer "Yah you guys sent me a fake CPU"

Agent "Umm what?"

But I agree NewEgg handled this very well, and it won't slow me down in the future from buying from them.

jon124597 said:

Newegg made the right choice in getting rid of that supplier. If they kept them around I might question their integrity.

Newegg is a great company to deal with though, customer service wise. If I were a part of that whole mix up I would rather it be with a company like Newegg vs another company.

Vrmithrax Vrmithrax, TechSpot Paladin, said:

I loved how in some other reporting sites, Newegg was being blasted for being fairly quiet about the whole thing, and all sorts of cover-up and conspiracy comments were being thrown around. Turns out, Newegg was just doing the responsible thing and investigating what happened internally, before they made a move. Bravo to them, for both axing the questionable supplier, and for immediately taking steps to rectify the situation with the customers involved. I knew there was a reason I use them for most of my hardware purchases.

TomSEA TomSEA, TechSpot Chancellor, said:

"...but it seems that Newegg managed the situation quite well after all." Boy, no kidding. In less than a 24 hour period tracked down the real culprits and canned their butt.

And I'm sure they're setting into place new quality control mechanisms too.

ryan29121 said:

Newegg is an excellent e-tailer. An issue like this will not hurt them.

DJ83 said:

Anyone know more about IPEX, I do feel for D&H as being named as the the problem when they were not. Its always harder to gain reputation then lose it.

ourboyblue said:

I agree with what most here are saying. I'm a newegg customer and I will buy from them in the future.

captaincranky captaincranky, TechSpot Addict, said:

And yet I continue to wonder, "why does Newegg even need a supplier". Being forced to buy through an intermediary obviously raises the per unit cost, and affords a steady source of Income to someone who does very little but syphon money from the system.

The whole affair sounds like some sector of organized crime might be involved, given the fact that it had to be a multi-staged enterprise, rather than a crime of opportunity. (Yeah I know, conspiracy theory)

Given Newegg's past performance and sterling reputation, I not quite sure why so many need to state their intention to continue doing business with them. It should probably be a given.

Newegg had referred to the issue as one of its partners mistakenly sending out "demo boxes" instead of functional units.

"

This approach coincides nicely with the legal premise of, "innocent until proven guilty"

Although the websites involved with the initial reporting of D & H being at fault, should perhaps rethink their reluctance to print a retraction as per D & H lawyers request.

jjbeard926 said:

I stated in the initial story that I was confident Newegg would make things right and that they would not knowingly sell faulty merchandise. It seems Newegg is making a real effort to take care of this situation and once again has made me a loyal customer of theirs for years to come. I have never had a problem with their products or their service and I will always look there first for my computer products. It is a shame that they appear to have been duped though by this vendor. It puts a smudge on their good name.

Puiu Puiu said:

At least the one that was really at fault is now paying the price. Newegg actually came out as a winner in this situation getting praises on how well they handled the situation, although it would been better to for something like this to have never happened in the first place.

thebluemeaner said:

I don't really understand what all the fuss was about,What respectable company would sell counterfeit processors on purpose? It was obvious it was some sort of mistake.

Kovach said:

Newegg is doing great over past years, and I don't think that this going to ruin their high reputation and top position. I'm glad that they find the way out in this situation.

Vrmithrax Vrmithrax, TechSpot Paladin, said:

captaincranky said:

And yet I continue to wonder, "why does Newegg even need a supplier". Being forced to buy through an intermediary obviously raises the per unit cost, and affords a steady source of Income to someone who does very little but syphon money from the system.

It all has to do with distribution deals and speculating. Newegg is better off dealing with a supplier, who purchase mass quantities (and often contractually obligated minimum quantities) from the manufacturer. Then online shops like Newegg can purchase quantities of different items in lots, rather than huge bulk quantities, based on the demand from their customers. It's a way to minimize overhead and excess inventory issues, while paying a minimal premium for that benefit. The supplier is the one who takes the big risk, buying large amounts of product and betting that they will all sell for at least the bare minimum they need to stay afloat. If a product turns out to be a lemon, the supplier is left holding the bag, where a vendor like Newegg just has the limited inventory they acquired. So the middleman supplier isn't so much siphoning money, as being paid a small premium for taking fairly big risks, and fronting huge amounts of capital to be able to buy large quantities and get aggressive bulk pricing, which results in per unit savings that is passed on down the line to the vendors, then consumers.

jasonk1229 said:

Good Call on NewEgg!

Guest said:

Newegg chose to source via a grey market supplier. Would seem doing this to blend lower cost supply with the authorized Channel Distributors (like innocent bystander D&H) to benefit their bottom line. The price the sold these i7 920s at wasn't any thing special... $289 in a market with wide availability from $260 to 299. Back to - blending product sourced via the grey market to add to a bottom line would appear to be the practice here.

Grey market sourcing can be risky - and there is definitely history with Intel processors from non-approved channels... remarks, pre-release samples, stolen units, partial functional counterfeits.... and these blatant fakes which slipped through both IPEX and into the Newegg stream and out to customers. instead of counterfeit, could have been something that worked and how many would have been the wiser?

Given intel's efforts to eliminate the grey channels and ensure its customers receive the genuine, full speced, legitimate, and fully warranted product - one has to wonder what conversations Intel may be having with Newegg that they used this IPEX supplier at all.

and even so - there are always deals, overstock, etc to be legitimately taken advantage of out there and nothing wrong with Newegg benefiting from such in general. I'd bet they'll have much better inspection/qc review in the future on product sourced in such a way as to not have this kind of thing happen again. Or better yet - they'll source via the authorized channels Intel has provided.

captaincranky captaincranky, TechSpot Addict, said:

It all has to do with distribution deals and speculating. Newegg is better off dealing with a supplier, who purchase mass quantities (and often contractually obligated minimum quantities) from the manufacturer. Then online shops like Newegg can purchase quantities of different items in lots, rather than huge bulk quantities, based on the demand from their customers. It's a way to minimize overhead and excess inventory issues, while paying a minimal premium for that benefit. The supplier is the one who takes the big risk, buying large amounts of product and betting that they will all sell for at least the bare minimum they need to stay afloat. If a product turns out to be a lemon, the supplier is left holding the bag, where a vendor like Newegg just has the limited inventory they acquired. So the middleman supplier isn't so much siphoning money, as being paid a small premium for taking fairly big risks, and fronting huge amounts of capital to be able to buy large quantities and get aggressive bulk pricing, which results in per unit savings that is passed on down the line to the vendors, then consumers.
I fully see and mostly agree with your points. At some point in a product's life cycle, traffic and demand is fully established. This in when the intermediary becomes less necessary. I also realize it's probably not possible to "cherry pick" when to, and when not to, use a supplier.

It would be interesting to know if, when "end of life" blowouts are happening at Newegg, who has borne the brunt of the cost for these.

Although I'm even still baffled why the supplier has been accused. Working by your account of the retailer/ sales rep firm, relationship/ responsibilities, it doesn't seem likely the Ibex would do this themselves, they're more than likely a victim also.

captaincranky captaincranky, TechSpot Addict, said:

Any Given Sunday........

Newegg chose to source via a grey market supplier. Would seem doing this to blend lower cost supply with the authorized Channel Distributors (like innocent bystander D&H) to benefit their bottom line. The price the sold these i7 920s at wasn't any thing special... $289 in a market with wide availability from $260 to 299. Back to - blending product sourced via the grey market to add to a bottom line would appear to be the practice here.
Hey, you can walk into Microcenter almost 365 days a year, and buy an i7-920 for $199.95. It does beg the question, "where do they get theirs", or possibly, "how much are they losing on each unit they sell".

Wagan8r Wagan8r said:

I'm glad to see that they've gotten to the bottom of the issue and dealt with those responsible. Newegg will always continue to be my first and favorite online retailer.

raie_noire said:

Newegg is amazing. They're the only place i buy computer stuff and they're in the right to drop that company.

Serag said:

New is an excellent online retailer, and I would say that for them it'd be a high priority to apply quality control on the choices of suppliers, but they couldn't be blamed for this completely,

And I don't think this would be a serious issue for their sales too.

fastvince said:

How do I know if there were other products that have/had fake parts in them ? I too like Newegg, but this does make me wonder if it happened before and nobody said anything . Newegg knew that it was not because 'demo boxes' were sent. How was this caught ? Did someone open up their computer and see the fake processors, or did NewEgg catch it internally before someone who bought one found it ?

captaincranky captaincranky, TechSpot Addict, said:

How do I know if there were other products that have/had fake parts in them ? I too like Newegg, but this does make me wonder if it happened before and nobody said anything . Newegg knew that it was not because 'demo boxes' were sent. How was this caught ? Did someone open up their computer and see the fake processors, or did NewEgg catch it internally before someone who bought one found it ?
Dear Mr Fast, It seems that the "CPUs", were completely unusable, just "mock ups" as it were. It was probably not possible to install them in the first place. Well, except for those well beyond which we would normally think of as "quite dull of wit". But it's nice to see you gettin' your opinion out there. With Newegg's lightning fast shipping paradigms. do you really think it would be possible for the warehouse staff to inspect every package for authenticity? Not to mention that would be well above their pay grade.

fref said:

Quite a story! I wonder if anyone is going to be arrested. There's actually something I didn't quite understand... Did IPEX make these fake CPUs, or were they also victim of a third party?

CodePhoeniX said:

newegg may have dealt with the situation well, however knowing that Newegg goes to these "no name distributors" lost alot of my trust with them.

For newegg to just drop IPEX sounds to me like IPEX was not too important to newegg.

drasho said:

this is still a pain for D&H since they got the early blame... i hope it doesn't affect their credibility too much

elroacho72 said:

I like buying locally.If you can go to a MicroCenter or in the good old days CompUSA then that's the way to go.The return policies of the on line store are very strict and everything as to go just right to get any problem that comes up resolved.I will continue shop on line(even from Newegg), but for now I am hesitant.As time goes on I think we will have less choice in the matter.

Geek4life said:

Been with Newegg for many many years and never had a problem with them before. Hopefully this does not occur again, many other suppliers out there to do business with. As of now they are still my supplier of chioce, but that could change at any minute.

Wendig0 Wendig0, TechSpot Paladin, said:

Vrmithrax said:

I loved how in some other reporting sites, Newegg was being blasted for being fairly quiet about the whole thing, and all sorts of cover-up and conspiracy comments were being thrown around. Turns out, Newegg was just doing the responsible thing and investigating what happened internally, before they made a move. Bravo to them, for both axing the questionable supplier, and for immediately taking steps to rectify the situation with the customers involved. I knew there was a reason I use them for most of my hardware purchases.

I agree. Newegg acted very professionally, and has had the customer in mind throughout this entire ordeal. They acted swiftly and decisively just as they should have, and will definitely keep me as a customer.

Timonius Timonius said:

Kudos to Newegg for resolving this so fast!

Wolfanoz Wolfanoz said:

Well, at least NewEgg owned up to it. There's definitely going to be some jobs lost on this mistake.

SweetIT said:

"Git 'er done" Newegg!!! That's they way to put forth the effort to demonstrate to others that you expect a particular standard. Don't take lightly to your company name being jeopardized. I love newegg. That's all there is to it!

InsaneVr6 said:

I am sure there won't be any lawsuit's because it seems that Newegg handled everything perfectly. I am glad that they got everything sorted out and you can't blame Newegg for dropping them as a supplier. If I were running a huge technology business like Newegg, I would have done the same thing.

It's better that they cut them clean and don't have to worry about it again, but nobody is perfect so mistakes are bound to happen to anyone.

RockandRepublic said:

Good thing I haven't bought a thing from Newegg, I guess.

rufio said:

good job newegg! probably one of the BEST online retailers out there. AND they handled this well, respect to them.

zyodei said:

I think you ought to tweak the "Related Stories" algorithm -

Related Story, NewEggs deal of the day..from 2004!

pipopaz said:

Right decision and glad to hear that D&H's name has been cleanse, this is an amazing customer service response from newegg

Flannelwarrior said:

Were the conterfeit procs bricks, or were they just cheaply specced imitations in i7 packaging? Were the criminals responsible hoping the counterfeits would not be discovered? Or have they already profited and can't not be found / held responsible?

Anyway, great job on Newegg's part, catching and resolving the issue.

JMMD JMMD, TechSpot Chancellor, said:

Glad to see Newegg stepped up and did the right thing. I can't imagine the first phone call that a customer had to make to try and explain what they received in the mail. I'm sure people were like "WHAT??!?!?".

klpowell said:

So, my theory that I presented in the original story is confirmed. Working one on one with D&H for a few years when I manged a retail shop led me to have a hard time believing NewEgg's story that D&H was to blame. I dealt with many distributors and IPEX was never one of them, there is proably a reason for that. D&H will have a nice liable suit against NewEgg after this past weekend.

SweetIT said:

Response to CodePhoenix RE: Newegg

newegg may have dealt with the situation well, however knowing that Newegg goes to these "no name distributors" lost alot of my trust with them.

For newegg to just drop IPEX sounds to me like IPEX was not too important to newegg.

CodePhoenix- it isn't entirely fair to Newegg to say that IPEX was dropped b/c they weren't important to them. The distributor made a critical mistake and that had to be dealt with. IPEX obviously had some type of stability for Newegg to even consider having them as part of their process. Maybe this will teach IPEX a lesson to have more verify what they are shipping is correct. You can't blame that on Newegg. I have even more faith in the company now that they have handled their business this way. I guess it all comes down to opinions, they're like noses everyone has one.

captaincranky captaincranky, TechSpot Addict, said:

So, my theory that I presented in the original story is confirmed. Working one on one with D&H for a few years when I manged a retail shop led me to have a hard time believing NewEgg's story that D&H was to blame. I dealt with many distributors and IPEX was never one of them, there is proably a reason for that. D&H will have a nice liable suit against NewEgg after this past weekend.
Yes, you were quite correct with your initial assessment. However, Newegg stated the "CPUs" in question were demo boxes. That's a bit different from flatly stating that, ""we received counterfeit CPU s from D & H". I suspect that feathers were ruffled, but with an account the size of Newegg, they might be "ready to make nice". Some of the other sites that had a bit more "adventurous" approach to reporting this fiasco might not fare so well.

"There was >> proably << a reason for this", is really an ambiguous statement. It's sort of like saying that you're prescient, but not even committing to that. Something that a lawyer / fortune teller would swear to, but not with a real bible.

I would suspect that all three business establishments were victimized, by a fourth party, "to be named later"! (We can hope right)?

matrix86 matrix86 said:

Oh Newegg, if only other business could be like you. Newegg has to be the best example of good business practice. I mean yeah, their video blog on youtube isn't really the best (sometimes not worth watching) but the way they handle business just seems flawless. Always quick to respond and quick with RMA's and here they are apologizing for putting the blame on D&H...this is great PR for Newegg, lol.

If the "demo boxes" really were just a mistake, then someone needs to go back to school for missing spelling errors on at least 1 of 300 boxes. Do they not inspect everything before it gets sent out to big companies? I bet they will now, lol. I still think someone made fakes and took off with 300 i7 processors.

SweetIT said:

CaptainCranky- they will probably behave like our politicians do and stand around and point fingers at one another. I had not looked at the situation like you did until I read your post. Then I can see where fingers could get pointed in several directions. You have great insight in sharing your perspective.

buttus said:

Wow. That is quite a price to pay over an error. One strike and you're out.

buttus said:

Wow. That is quite a price to pay over an error. One strike and you're out.

Yoda8232 said:

Bad bad bad HardOCP, bad bad bad bad bad IPEX. Newegg can and should handle this as I said before.

captaincranky captaincranky, TechSpot Addict, said:

Wow. That is quite a price to pay over an error. One strike and you're out.
Wow. That is quite a price to pay over an error. One strike and you're out.
That's nice buttus, but-us dun heard you the first time. Is there an echo in here...here.....?

I would venture a guess that during the course of a year, Newegg eats way more losses than this one CPU incident. It's more of a trickle, trickle situation. People send back product that they broke, and claim defective product. People return stuff because they bought the wrong thing, People send back product because they're too stupid to make it work. And you know what? Newegg is really good about it, although I personally can't figure out why.

bcnu147 said:

My son only orders from New Egg. He says they have the best return policy he has found -- and he is a tech.

I have also dealt with them and found them to be everything he said.

Viva New Egg!

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