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Original equipment manufacturer (OEM) is the manufacturer that first produced hardware that is then sold to a company that markets the hardware under its own name. Computer companies may need a part or parts for a product and will often purchase the product from another maker. The company will advertise the part or product as its own, even if it was manufactured by another company. This is considered a perfectly legal marketing tool because a contract for resell has been signed by the involved companies.
Another name for OEM is contract manufacturer.
OEMs have the ability to produce hardware at a reasonable price due to mass production. This relationship also benefits the company that purchases that hardware because it won't have to invest design time, labor and other manufacturing costs to produce it. For example, suppose that Toshiba, a company that manufactures optical drives, sells these drives to Apple for its computers. Apple then markets the drives as part of an Apple product. Apple doesn't have to give Toshiba credit for having produced the optical drives by including the Toshiba name in Apple marketing campaigns or by including it on Apple computer packages. That said, it never hurts to mention an OEM giant like Toshiba.
OEMs are well aware that the purchasing company is adding value to their original hardware products when they are resold. In this way, purchasing companies are able to outsource some of their product development.
The origin of the OEM term may derive from the Dutch phrase, onder eigen merk. Translated to English, this means under own brand.