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Intel's Per-Chip Cost Averages $40
Fedorpheux writes "According to a report by the analysts at In-Stat, Intel's average cost per chip is about $40. These same chips, such as the Pentium 4s, can cost consumers up to $637. This $40 average cost has remained rather steady since 2003. This cost does not include money spent on marketing or development, but it does explain how Intel can continue its profits even in this era of quickly dropping prices in computer hardware."
I wish they'd pass these low costs on to us peons who pay out the ass for their processors.
Wishful thinking.
see sig. see sig run. run sig run.
So what are we paying for with that $600 or so above the cost price? Are marketroids so expensive?
...R&D costs will almost ALWAYS top manufacturing costs...
1. Profit!
The higher the technology, the sharper that two-edged sword.
Yeah, well I'm betting R&D costs a ginormous amount of $$$.
"As you say - certain behaviors minimize the HIV risk and writing Slashdot tripe on Friday night is by far the most secu
I could almost pay the SCO license for that much, either way I'm getting reamed.
1. Make chips for $40
2. Sell for $637
3. PROFIT!!
Who woulda thunk it?
I don't think I have ever seen a P4 for that much. Looking at pricewatch, it looks like almost all variety of P4s can be had for under $300.
does not include costs for marketing and development
Which, given that a product's true cost includes not only the per-widget cost to make the item, but also the amoritize costs of slaries & benefits, facilities used in production, third party contracts, marketing and advertising and probably a lot more that I'm too tired to think of right now, makes this number pretty useless, no?
I'm not sure why this surprises anyone. Intel and Microsoft make hefty profits on the products they sell. People can understand the software side of things a bit more easily than the hardware, I guess.
Sure, there's a lot of money poured into product development for Intel, but at the mark-ups they've had it wouldn't take that long to recoup the costs.
I imagine AMD is doing the exact same thing.
Perhaps I'm just not thinking this through enough, but it seems to me that this seems a lot like price-gouging schemes that crop up around gas stations a lot. I'm not an accountant, but it sure as hell seems fishy to me that over $600 per chip is spent on accummulated research and marketing.
It costs Microsoft $2.63 to produce another copy of Office and $1.94 to produce another copy of Windows XP Professional.
It costs Kernel.org $0.01 everytime someone downloads the Linux kernel.
It cost me $0.50 to write this stupid message.
Do you have any idea how much these manufacturing facilities cost? Here's something else you might not know: it doesn't cost apple 300 bucks to make an iPod either! Gasp!
Religion for nerds. Stuff that really matters
I spend $5 on a single pair of boxers that last me over 6 months. That's less than $0.03 per day. The best part? I can sell them for $25,000 on eBay by simply claiming Brad Pitt farted in them.
"This cost does not include money spent on marketing or development"
Yeah, that would have been too... Honest? Thorough?
So what's the per-chip cost WITH all of the overhead?
"Ask not what your country can do for you." --John F. Kennedy
Does that $40 per chip include fixed costs or development? I'd suspect it's rather pricy to design a microprocessor and set up for producing it.
/. sensationalism.)
(I don't work for Intel or anything. They probably are pulling a huge profit margin anyway, but I do suspect that this is more
It probably doesn't count the cost to build the fab, either. The last time I checked, building a sub-micron fab cost roughly eleventy billion dollars....
I don't know exact figures on the price per chip, but I had always thought that, on average, chips cost more around $100 apiece. I really want to know where they got the $637 figure from.
I can hardly see how this $40 figure means absolutely anything at all if research and development is completely ignored...especially for something as complex as a CPU.
The 1000% profit from higher-end server and Xtreem gaming CPUs go toward research and development. This is good because eventually those CPUs will be priced at the consumer level. I don't see how else Intel could afford to keep developing new architectures.
This cost does not include money spent on marketing or development
Yea... way to leave out the most expensive part. You think designing a microprocessor is cheap?
"This cost does not include money spent on marketing or development"
And guess what development is the biggest expense in making chips. That statistic is pretty meaningless if used to determine whether intel charges fair prices for their chips.
Nonsense...complete nonsense. To not factor in R&D costs is intentionally misleading and once again people are falling for it Please RTFA and not just the headline. Don't our schools teach critical thinking anymore?
Futhurmore, the article indicates that chips are shrinking. They in fact are not shrinking "a la Moore's law". They are packing more in on a single chip.
It costs MS fractions of a penny per cd (or dvd, i dont even know, im an FOSS slut). Does that mean this is where all they're profits are from?
R&D for ANY company are astronomical. My lab designed radios that cost around a grand to manufacture. The R&D costs were being measured in hundreds of thousands, and thats still cheap.
is that the chips can only get cheaper. I would hope so anyway. the more chips they start selling the less they need to sell them for to make money, so they can afford to lower the price.
I would also like to see what AMD's per chip price is. their chips are realy expensive, atleast the X2's.
And another thing u cant forget about is the fact that they also have to pay for research and dev, and other things long before they have to pay to build them. These costs are probobly many times more then the initial run on the chips.
-EL
Calculating the chip cost this way but leaving out "marketing and development" is like saying that your car's cost is simply the cost of the fuel to run the engine, about 15 cents per mile. Neglecting the fact that you had to spend many thousands of dollars to buy the car in the first place, and continue to spend hundreds of dollars to maintain it, et cetera. Do we have to endure trolling on the front page posts now?
One simple rule for its versus it's
Dropping R&D and marketing, you'll get for microsoft:
price of CD: ~1$
price of office/windows XP: 340$/170$
profit: lotsa %!
What kind of gibberish is that? The average currency in my pocket is worth $15.37. The value of the currency in my pocket is as high as $100. How come my currency is undervalued? Who writes this crap, anyway?
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make install -not war
AMD
And how much does it cost Microsoft, or any software vendor, to make a disc (their product)? Pennies, I would imagine. The real costs aren't in parst (unless you are building cars), usually, but in research.
I just know that somehow the rest of the money goes to Israel.
Why does this surprise anyone?
It's not like there's a competetitor that's been selling similar (and currently better) chips for way less than Intel does... it's not like this might clue people in that Intel had a huge markup due to thier brandname saturation...
oh... wait...
Design is probably *the most expensive* part of the chip design, and I wouldn't be surprised if that raises the number by $300 per chip. Intel has a very aggressive marketing budget as well, so add another $100 per chip to pay for that. After that, ventures into other products besides CPUs cost money, failed products especially so, and I can't imagine what that costs, but their bread & butter product will have to pick up the tab. Then of course Intel will have pensions to pay for, and the list goes on. It's amazing, but any corporation I can think of has expenses that are way above and beyond the basic cost of manufacture of their product.
Coca-Cola's Per-Can Cost Averages $0.04.
So what?
eleventy billion dollars....
Only if you build it on the Brandywine.
"I'm not impatient. I just hate waiting." - My Dad
...the per-disc cost of a copy of Microsoft Windows, not counting research, development, marketing, advertising, packaging, employee salaries and benefits, IS ONLY $0.01!!! OMG WE'RE GETTING FLEECED!! M$ IS TEH EVIL!!
"Ask not what your country can do for you." --John F. Kennedy
This is also how they can pay for the talent they need to develop and innovate.
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[insert funny
Chip fabrication plants cost billions of dollars each. I suspect $40 is just the incremental cost of producing each additional chip and does not take into account the cost of building the fab and hiring and training the staff to produce the very first chip off the "assembly line". The brief article also mentions $40 doesn't take into account the fact that many of the chips produced are failures (not meeting performance criteria). Nor is $40 likely to include R&D and marketing costs. Or the cost of employee benefits plans. Or the cost of employee severance packages.
even on ebay, and at least my sun e450 never goes down. x86 sadly sucks, and my 3 gig intel p4 can demonstrate that for you any day of the week. Apple and Sun have really hit the nail on the head with making their own hardware. That really is the way it must go, and all we need is more companies with their own R&D designing and supporting their own hardware. Not off the shelf crap for server apps.
When sun releases a home built x86 amd workstation (not the farmed ultra 20) I will have to pick one up.
That's pretty much a ridiculous way to describe things. Saying that it costs X to produce something, but ignoring the actual overhead is completely sophomoric, and an obvious attempt to pander to the corporations=bad and profit=bad crowds (never mind that only a large, profitable entity could possibly produce things like Xeon or AMD-64 chips and keep coming up with and delivering more, better, faster). It's like the people who think that they only cost their employer what they see on their pay stub. There's a little more to it, folks!
Don't disappoint your bird dog. Go to the range.
Intel's recurring costs are irrelevant to its business model. The bulk of the cost is in R&D and the fabrication plants. R&D at Intel is about $5 billion per year and the company has almost $16 billion in plant and equipment. Worse, Intel's fabs aren't really a long-term assets in the traditional sense. Unlike most manufacturing companies, Intel's plant and equipment goes obsolete on a time scale not that different from the chips. An old 130 nm fab or one using the old 8" wafers is increasingly obsolete. Even today, Intel is looking to replace its 90 nm fabs wiht 65 nm fabs in 2006 and 45 nm fabs in 2007. And at $1 to $3 billion for each new new fab, the money comes from chips.
The only way to pay for all this expensive equipment and R&D that is obsolete with a few years is to maximize revenue on every fab line. In that regard, Intel is in the same boat as the pharmaceutical and airline companies -- low recurring costs but huge upfront investments.
I'm not saying that Intel isn't hugely profitable only that the "cost" of a chip is much much higher than $40.
Two wrongs don't make a right, but three lefts do.
It's a bit like saying that it only costs $5 to make 30 pills of a prescription medication that they sell for $30. Sure it may cost that much to make the pills from raw materials. However, it takes a lot of money to invent the medication, test it, and then get it approved by the FDA. Those costs aren't represented in the amount it costs to mass-produce the medication itself.
Diagnosis: you are paranoid. As luck would have it, you're also being followed.
Wow, no wonder some companies hate revolutions and advancements. You would think that tech. companies would always aim for the next step but now that you look at the numbers it's different. Once you invested all that money to R&D, you would want to just sit and make a ton of those high margin products. This may explain why Microsoft or other tech companies aren't always so keen on exploring new ideas.
EvilCON - Made Famous by
Yeah, that is like ripping on computer game companies for the fact that the cost to produce a game CD is only $5 when they are charging $40-50 for the title. It completely ignores all development and production costs.
I agree that Intel severely overcharges for their flagship processors, but I don't think these findings are going to support our argument at all.
Nothing disturbs me more than blind loyalism towards some unrealistic and over-idealistic notion of one's nationality.
A typical iPod costs $200-400. How much do you think it costs to manufacture? Probably $20 or less. A Chanel handag? $60 to manufacture, but costs $3,500 to purchase at the retail level. The markup is absolutely ridiculous, but Intel is no different than Chanel or Apple and most other companies.
For he today that sheds his blood with me shall be my brother.
"This cost does not include money spent on marketing or development"
Which translates into: "Nothing to see here except a fine example of bullshit reporting which actually doesn't contain any useful information. Made up to get people riled up about something that isn't actually relevant while keeping any reader ignorant or paying homage to aleady delusional ideas on how things work out there in the real world".
Morons.
this comment is provided "as is" and without any express or implied legibility or congruity [...]
One word: Oligopoly.
Small number of firms, HUGE barriers to entry, similar but branded product.
D
I've worked for Intel in the past (I was running cable for an engineering lab) and talking with the engineers, it's not mystery why they have to sell their CPUs for so much. They have setup "dark facilities" across the country that are totally automated to produce these processors. The facilities alone cost tens of millions. Let's not forget teams of engineers that spend years developing new lines of processors. Then there are the marketing gurus that have to promote the processors. I really wonder how much profit they're actually making even with such high prices.
First, average cost does not really tell us what the cost of a particular chip is. Does one chip set cost $200, one cost $100, another cost $50, and all the legacy costs $10? I mean a low end computer can be had for a few hundred dollars, and the chip itself can be had for mere dollars in quantity, so the cost to produce has to be a few dollars. This would mean the top end chip might costs a few hundred, or more, to produce.
Second, comparing an average to a maximum is about the most devious thing a person can do. Again, the top product might cost a few hundred dollars. The average offer taken price of a chip might be under a hundred dollars, again noticing that a computer can be had for a few hundred dollars.
Finally is this number fixed, variable, or simple material cost? Does it take into account the higher rate of defects on new products, and higher risk of returns? Is this a number with any credibility whatsoever?
This is what we do know. For the fourth quarter of last year Intel earned about 2 billion on sales of about 9 billion. That is about 20% profit. Because these are intel numbers we can assume the sales are inflated and the profit fudged. However, if even 10% of this revenue went to chip production, at $40 per chip we are looking at 90 million chips, give or take. Did they ship this many? Perhaps. And they did sell them for $80, would that leave any money to pay the fancy salaries and benifits that the average worker, quite greedily, expects.
"She's a scientist and a lesbian. She's not going to let it slide." Orphan Black
While I do agree that Intel chips are very expensive, look at the software industry.
Software CD's cost $0.10 to master in bulk. It's not the CD that's worth the money, it's the development time, research, design, and everything else that goes into it. So while the actual media costs less than a dime to make, it is worth more.
I guess it's similar for Intel chips. They easily pay millions and millions in research a year.
"If you ignore all the other things Intel spends money on, manufacturing a CPU only costs this much." This is the same fallacious argument as claiming that album CDs only cost a record label as much as a blank CDR does in a store- the final manufacturing cost is only a tiny portion of what has been spent to make the final manufacturing possible in the first place. The acquisition of the knowledge of where exactly to put the copper dust on the silicon wafer is what makes the difference between a cutting-edge microprocessor and a worthless sliver of rock; neglecting it is simply stupid.
"The second pill costs six cents; the first pill costs five hundred million dollars." -- Aaron Sorkin, The West Wing.
I'm sure Intel will be happy to sell you the second processor that rolls off any given production line for $40, as long as you also buy the first one, which costs -- what would it be? -- about $200,000,000 or so?
Let me guess... The poster and article author both stayed at a Holiday Inn Express last night?? I mean, talk about a moronic statement.
Before you get all...
... please understand that the little shacks they knock up to research and make the chips cost around a BILLION dollars each.
OMG!!1!
Int3l is teh LamErz!
Ripoff!!1one!!
"Yeah, that would have been too... Honest? Thorough?"
Much like the arguments we have on slashdot about the costs of intangiables like movies, music, games, and books.
In comparison with some specialty software vendors I've been researching for a trucking application, MS software is ultra cheap even at retail. Mapping software for the trucking industry that costs in the $20k range is normal, include trip cost, freight or maintenance integrated features and you jump into the 30 and 40s (and folks pay it by the boatloads cause the competitions software sucks).
As for rolling my own, it'd be nice to have the time to code what they need but I don't want to live with this thing forever or go through the grief of supporting folks that have ever shifting requirements.
Also don't forget that whatever it costs to buy something at a store, the manufacturer doesn't see all of that. They sell to distributors, who in turn sell to retailers. The manufacturer would be lucky to see 33% of the retail price.
Does this really surprise anyone? How do you think they are still able to manufacture and sell chips for $100 bucks when the chips are no longer top of the line? You pay a premium for the latest technology, you pay a lot less for it in 6 months. This isn't just processors, it's every piece of technology out there. And that doesn't even include development or marketing!
Hello and welcome to 10 years ago.
Intel's AVERAGE cost per chip is about $40. These same chips, such as the Pentium 4s, can cost consumers UP TO $637.
Even ignoring the braindead economics of this story, why shouldn't Intel charge hundreds in profits? They don't charge the least they can; they charge the most they can. The reason people pay their maximum prices (whatever they are) is because people can't replace the Intel product in their designs with a cheaper one. The cost of a product relates to its price only when a vendor decides whether to stop making/selling it because it cannot drop prices any lower to compete, because it's hit the cost of selling it. Even that is not a hard relationship, because marketing psychology (loss leader, bundling, economies of scale that cut losses) and contractual obligations can make the cost relatively unimportant.
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make install -not war
It doesn't have to COST more. We can CHARGE more. When you will PAY more.
kulakovich
CD for $1? Nah. You can get CD-R's for $0.19 and they can probably do it even cheaper in manufacturing plants in bulk. The starter booklet that comes with the CD probably costs more.
If you think the $40 doesn't include all expenses I would like sell you a big bridge! Let's not count the Tax breaks and creative account, if you do the costs would be 75 cents or less.
That's because that software is targeted at a small audience, which can afford to pay that money if they need it.
$40 is actually a hell of a lot for a chip. That explains why x86 really is not going to become a contender in low cost devices. OMAP parts etc cost sub-$20 to the customers.
Engineering is the art of compromise.
So what if it costs $40 to produce the chip. It is the research and development that costs so much money. And the profits also go into current R&D which they are extremely pushing now to get the power/watt up.
With margins like that, and considering Intel's involvment with Linux, I wonder when the company will attempt to start a coup against MS. ... Alas, probably when Windows upgrades don't involve upgrading CPUs as well.
random underscore blankspace at ya know hoo dot comedy.
This is exactly the same argument used with commercial software. OMFG THEY SELL IT FOR $300 A MILLION TIMES!!1! OMFG!!
Besides, the chips cost whatever the market will bear. No more, no less. Get used to it - it's called "capitalism" and it seems to have worked until now.
This type of 'article' with interesting 'statistics' only gets play here with the slashbots. No one else finds it scandalous, trust me.
Web2.0: I love when people Flickr my cuil and digg my boingboing until my google is reddit and I start to yahoo
Firstly, companies are under no obligation to charge at a certain relative to how much their product cost to R&D. This is true so long as they are not engaging in predatory pricing (clearly not here), price gouging (there are even more threats than AMD), not to mention price setting (teaming up with other companies to set a fixed cost like OPEC does). The manufacturing costs are irrelavent so long as they are not guilty of the aforementioned.
In fact, they are required by law to set prices at levels they find to be the most profitable as public companies must maximize shareholder wealth. Before you mod someone as troll, expecially someone with a UID of 402, think a little bit about their argument and moderate the others as redundant if you're so eager to call someone a troll who's clearly not. The only post he's attracted so far is one that critisizes the moderators for their behavior, not a flame. It is you assholes who ignited this flame.
Jesus.
cameo wood
You left out that one time I left the pod on the nanoscope while I went to check the SVG tracks and the arm failed to retract before proceeding from wafer #1 to wafer #25, breaking the lot before I could get back to hit the emergency stop button. Sucks too, that was right after a fresh coat of polyimide, two or three steps before the end of the line. Must've been $150k worth of product in that pod. So, yeah, some of that money just goes right into the trash, or becomes a souvenir refrigerator magnet.. shhhh... ;-)
Intel doesn't just make Pentium 4 processors. The $40 dollar average is based on the annual manufacturing costs of their entire portolio.
YOU'RE ALL IDIOTS! *uses the same logic all of the so-called idiots use to back this up*
neglects to mention that the first chip in the line of $40 pentium 4's cost multi-millions in research and development?
I couldn't think of a sig.
Some numbers from their financial report...
For 2004, Intel had a net income of US$7.5 billion on revenue of US$34.2 billion.
Overall tax rate expected for 2005: 31%
(With 2004 earnings as a guide, taxes will be US$10.6 billion)
Their expected R&D budget for 2005 is: US$5.2 billion
Capital spending for 2005: US$4.9-5.3 billion
Overall, Intel pays 31% of their revenue in taxes. 30% in Capital spending and R&D, which leaves 39%, or US$13.4 billion, to pay salaries, benefits, cost of fabrication (not including the facility itself), cover the cost of their bad chips/wafers, and sending some cash to their stockholders.
Reading code is like reading the dictionary - you have to read half of it before you can go back and understand it.
"Intel's average cost for making a chip comes to $40"
Don't forget that Intel still produces chips for embedded systems, including the 8051 family. When sold in large quantities, they go for pennies. Since the article just states "chip," I would assume that it includes all of those.
Think of the automobile industry....
You go to the car dealer and you see a car you like. The car costs $45,000. Wow, you think.
You have a friend who works for the company. You ask him to see what the total cost of materials of that model to the company is. He tells you that it costs (insert company name here) $5,538 in materials for that model.
You call the Better Business Bureau and file a complaint. When making the complaint, you failed to take these factors into account:
1. R&D costs. Millions (and in some circumstances) billions of dollars are spent before the first sale of every model produced.
2. Labor costs. Robots can only do so much. The rest is done by humans which are union members and demand decent wages and benefits (as they should.) From the GM website, "We employ about 317,000 people worldwide and had payrolls of $20.9 billion in 2003." "As the largest private puchaser of health care in the U.S., we spent $4.8 billion in 2003 on health care for employees, retirees and dependents."
3. Operating expenses
Electricity, Heating, cooling, water, sewage, ect., ect., ect.
4. Capital investments
Although technically not an expense, auto companies must finance (or obtain financing) for new plants often costing over a billion dollars each.
5. Legal fees
More than a team of lawyers (more like a herd), auto compaies know how to cover their asses and avoid major legal problems. Every decision from the size and location of a cup holder to the angle of airbag deployment is reviewed by lawyers.
6. Marketing
Buying ads in every magazine and hiring marketing professionals adds up. It is not as much as salaries and benefits but must be taken into consideration.
7. Profit!!!
The entire purpose of a company is to make a profit. Without profit, what incentive would there be to produce cars? None.
Most companies are not evil. They just want you to buy their product. It is as simple as that.
I have a friend who works in IBM's fabs for nVidia chips and he was explaining to me that when you buy a top end chip, you have to pay for all the failed chips produced in order to get a good one. In the case of the 6800, he mentioned numbers along the lines of 20% when the 6800 was new. Obviously, as the 90nm (or 120, I forget) matured, this number goes up, but even so, they have to offset 4 other failed chips for every chip they ship.
This is probably not as bad for x86 chips, as they can just underclock less well fabed chips, but the point remains: at $40 a pop failure can get expensive fast. The article mentions that the $40 figure doesn't take this into account...it is a fairly big omission, IMHO.
Coupled with them ignoring other huge expenses like the entire cost of the design of the chip, $40 seems kind of high. I wonder if it takes into account the creation, operation and maintenance of the fab facilities. I get the feeling they are simply pricing the cost of raw materials here, and the article is skimpy on details about what exactly IS included.
Take with a healthy dose of salt, I'd say.
Plus R&D and time to test, code and document.
I suppose I should stop ripping people off.
EMail: 0110001101100010010000000110001101110010 0110000101111010011011100110000101110010 0010111001100011011011110110
Alot of people are correctly pointing out the sloppy 'news' reporting by slashdot these days by pointing out the costs or R & D, marketing, etc... that should also be factored into the per-chip cost.
Well here's some Intel Financial Data. Please use it responsibly. Surely somebody with some smarts can use this to determine a 'real' per-chip cost.
"According to a report by the analysts at In-Stat, Average's average cost per CD is about $0.5. These same CDs, such as the Windows XP, can cost consumers up to $200. This $0.5 average cost has remained rather steady since 2003. This cost does not include money spent on marketing or development, but it does explain how Microsoft can continue its profits even in this era of quickly rising of open source software."
the cost of materials is $1.50 the cost of labor is $1.50 the cost of plants and R&D is $37 per chip.
Yeah i might be a little off on those numbers but it's pretty close, how do i know? Apple sells ~4 million apple computers per year, they have abotu 2-4% of the PC market, Intel CPUs account for something like 80% of the market that means if apple is selling a million, intel is selling 20-40 million. intel is selling at least 80 million pentium 4 cpus a year. if the the fab equipment costs 2 bn, (the fab itself obviously costs more) and has to be replaced every year, and you sell 80 million units that's either $25 or $12.50 per chip.
$40 a chip to make a chip, when you're selling anywhere between 80 million and 160 million a year ? I'd believe it.
https://www.gnu.org/philosophy/free-sw.html
The summary mentions the P4 as costing that much, not the Xeon.
The Xeon is a higher end server chip so that price is not as surprising.
My brother worked at intel back in the early 90's. At the time, intel's internal pricing for 486DX2-66's was around $120 for employee "private use," and $20 for "department use." I kind of figure the $20 price tag is probably their cost.
ELOI, ELOI, LAMA SABACHTHANI!?
So, Intel chips are cheap if you don't count most of their costs. Wow, that's some analysis. WalMart's costs are cheap too, if you don't count what they paid to the manufacturer. Drug companies make boatloads of money if you don't count development and marketing costs. This business stuff is pretty easy...
yeah... 'cos magic fairies drop off the master CDs and Microsoft is just a big CD-replicating business.
Last time I spend that much (more, actually) with RedHat I didn't even get a CD.
but not a penny for tribute!
Although the moon is smaller than the earth, it is farther away.
Does not include marketing or development. Hell, lets forget marketing alltogether. Development. Like how Intel's Chandler fab facility (Ocotillo campus) cost $3 billion. Or how Intel sinks billions into R&D. Why, when you average those numbers out, it's easy to see why a brand new PIV 3.6 retails for $430, but a one year old PIV 2.6 is $115. Go to 2 years, and you have your $40 processor.
Who gives a shit how much a processor costs to manufacture. You're not paying the cost of silicon and copper. You're paying the cost of all the expertise, blood, sweat, and motherfuckinbeers that went into making it possible.
The average currency in my pocket is worth $0.00. The value of the currency in my pocket is as high as $0.00
and YOU want YOUR money back?
As per Data provided by Capital IQ, INTC (Intel) finished FY (Fiscal Year) 2005 with a profit margin of a Profit Margin of 22.45% and an operating margin of 29.82%... $40 a processor? Guess that figure discounts MOST of what INTC spends to get 1 processor in your white boxen.
Profitable? Sure, great as I own INTC stock! Thanks INTC! Keep those thousands of employees at work!
Price gouging? Heck no.
Old chips are rather cheap. A quick pricewatch search shows orignal P4s as being $40 and less. Even a fairly modern chip like the P4 2.4ghz based on the prescott core (what runs my computer) is listed at about $120. Please remember that's including Intel's markup to make a profit (the whole point of business) and the markup of the reseller.
However recouping lots of R&D takes a long time. It's not like you've made it back after a couple hundred sales or anything. Also other cousts have to be accounted for, marketing costs, but more importantly operations costs. It simply costs money to have a company.
Really the processor companies are not ripping people off. Perhaps Intel gets away with charging a bit more for their name, but overall AMD keeps them honest. AMD would love for nothing more than Intel to start gouging consumers, because in to that gap AMD would step.
Looking at the production cost and acting like you are getting ripped off is stupid. It's the same as going to a reseraunt and complaining you could make the same meal for less. Sure, if I go to a deceant place I'll pay $25-30 for a nice NY strip dinner with a couple sides and so on. At home, I could do it for $10 probably. However at home, I have to go to the store, get the steak and all the components for the sides, marinade and grill the steak, prepare the sides, then serve and eat. Also, I have to know the recipie to make it good. What I'm paying for at the resteraunt is to have an expert make my food, someone serve me, a nice atmosphere, etc. The materials cost is well less than half, and I'm fine with that.
So you aren't paying for the materials to make your chip, you are paying for the materials, the people who operate the equipment, the equipment itself (extremely expensive) the facalities fo rhte equipment (more expensive), the research, the researchers, the hardware for the researchers, the admins, the testers, the tech support, the management, the advertising, and so on.
Marketing! Intel spends a huge amount of money on advertising.
$40 is Intel's averag while $647 is the consumer's most expensive price. That's not a comparison of anything related.
"The average American lives to be 70 and one guy in Timbuktu lived to be 145!" Would you care about that? Does it mean anything? Oh, and then they say that the guy in Timbuktu... we counted his birthday twice some years.
This submission is so pointless, I can't believe I'm wasting my time replying!
Not only did the article specifically state its figure did NOT include development costs, but the guy above you said they spend $5 billion in R&D. Divide that by your 80 million/year figure, and you get $62 per chip, just for R&D.
Free Hans!
Uh, the $40/chip value doesn't include R&D in it. You're values of $1.50 for cost of labor and $1.50 for R&D are way off. Are you familiar with how fabs work? I don't know much about them, but have learned some in a VLSI course I'm taking, and it is an extremely intensive process. It takes weeks to make just a single chip (granted the process is pipelined, and many chips are in the pipe at the same time). There are countless tons of chemicals involved in making your little ounce or two of silicon. I could see $40 as a decent cost to pay for the refined silicon, the chemicals involved, the masks (I assume the cost to create a mask is ammoritized over the run of chips it creates, but each mask costs millions for new technologies), the testing facilities, etc etc. It's just a really expensive process. Once you add in the billions it costs to build a fab, and the billions it costs to design a new processor (not too mention the costs to create a new microarchitecture). The price we pay for chips seems very fair. If you told someone 10 years ago that you could sell them a dual core 3.2 GHz chip for only $600 they'd scoop them up by the millions. Of course that's not really fair to compare in an industry governed by moores law. Phil
...go out and code a DirecTV software reciever for me. I'll pay you 10% above the actual cost of the CD which you are to deliver it on. What do you say we just round the price up to 6 cents? Swell.
Analysts peg iPods with something like a 20% profit margin and the shuffle with almost 40%.
There's no real incentive to sell below costs. Sure, it helps the itunes music store, but not enough to justify giving these things away. I'm pretty sure Apple makes a profit on everything it sells.
He, he: "20-40 million" "at least 80 million" "80 million and 160 million a year"
"Unfortunately a business in a vacuum doesn't say, "We spent 2 billion dollars developing product X and we've made our investment back-- time to sell it at cost.""
Fortunately the unquenchable thirst of geeks for the latest toys ensures that R&D will never be paid off.
"It takes competition to drop prices."
Keep buying those toys, and the prices for the previous generation will drop.
These kind of numbers are pretty-much meaningless. If you don't consider all of the business' costs, you're basically just throwing things out at random in an effort to make the per-chip cost look much lower than it really is. Most companies require all of their business units to stay in business. The costs of advertising, R&D, management, and construction of infrastructure are not trivial, and the company would not survive if they did not spend money in these things. If Intel really had a 90% profit margin, their stock would be worth a lot more than it is.
Oh gee, not including development costs. It's not like that costs anything. Microscopic devices with millions of parts which must work together nearly flawlessly almost design themselves!
it goes to bribing computer makers to NOT use AMD!
$40 is quite high considering that manufacturing, parts and labour costs about $2 per cell phone to nokia.
the exclusion of R&D costs.
But wait a minute. How much does a Windows CD cost?
not to sound like i am in anyway a proponent of the **AA, but this is like saying it cost of a music cd under $1 to stamp a cd, print the cover art, and put it in a jewel box. you can't leave out recording costs, promotion, etc. there is still an arguement that audio cds is overpriced, but who decides how much profit is too much? the market, assuming you don't have a monopoly. back on topic, the blue man group doesn't perform for free..
"We make higher margins on those than the US Treasury does making dollar bills".
The margin on today's chips is nowhere near that high.
Seriously, though the comments about R&D and marketing costs are on track, but leave out an important one: for each new generation of chip, one or more entire fabs (manufacturing lines) need to be built. Lately this costs $2bn (yes, billion) or more. When the next chip process comes along, the whole plant is essentially thrown away (yes, in reality it gets used for down-rev chips, but the lifetime isn't long). The difference between the actual capital deprecitation of these and the real cost/lifetime is another "hidden" component of chip cost. This applies pretty much equally to anyone making cutting-edge chips, including AMD.
One of the reasons AMD stayed so far behind for so long was that its chips, generally a generation behind Intel (in the 1990s) didn't generate enough profit to build these truly leading-edge fabs. The "treadmill" as it was known at Intel, ran too fast for them to catch up. When the market hiccuped in 2000, things changed. Before that was a truly fine time to own lots of Intel stock options.
-- gnet
Intel's average cost per chip is about $40. These same chips, such as the Pentium 4s, can cost consumers up to $637
... and also such as microcontrollers, flash memory, AGP chipsets, Automotive controllers etc most of which sell for a great deal less than a Pentium 4.
This article compares an average (cost per chip) and a peak (price per P4) and doesn't even include all of the costs.
Everyone is talking about other costs - and they're right. This metric is next-to-useless, and extremely difficult to analyse.
However, even without the extra costs - it's a free market. This means that the company can charge what they like. If they are not a monopoly (and intel may have tried their best - but at least there's some competition now) - then they charge what people will pay, if it's easy to enter the market (and I know it's not), then someone will and outdo them.
That's the beauty of a monopoly-protected free market.
Johns: Well, how does it look now? Riddick: Looks clear.
The lack of quality in this posting beggars belief; /. went down the pan a log time ago, but I've only just realised how far.
All those responsible for getting this 'story' all the way from In-Sat and on to my screen should form an orderly queue and get ready to start sorting peanuts; monkeys, the lot of you!
Shock and horror!
... most often accomplished by trying to steal all the market share you can at any cost, regardless of screwed customers and workers put out on the street.
Intel's business plan includes the nasty evil concept of making money!
How dare they produce a product for less than what they sell it for!
All good companies operate under a plan similar to the airlines, where the whole point is go bankrupt as fast as possible
Why didnt anyone send Intel the memo!
George Bush + Linux = "I will not let information get in the way of the fight against Windows"
Just how stupid are the CNet guys? So if we ignore the major costs associated with chip manufacture, and then compare the average manufacturing cost of a chip with the maximum sale price of a high end chip, Intel has a high profit margin.
How many of the chips sold are $637? A 2.13Ghz celeron-D is $59 on newegg, and I bet Intel sells far more low end chips like that than the $600 chips.
Microsoft don't even do the cd's (i'm assuming based on..). My xp cd that came from DELL, and it's an OEM made in Ireland by "BUHL data service" (Do they make it for international markets also? or are there companies in each country doing the same?), and lots of other vendors have the windows installer on a recovery partition (HP for example).
The price is eventually set by what people will pay, not by any sum of the cost to manufacture, market, or distribute. If Intel owned a tree that sprouted Pentium IV's for free they'd still be able to sell for $600+. Because people will pay that much for them.
Of course I'm exagerating a bit -- companies often do mark up or down according to their costs, but that's just game playing. A good company's goal is to find the highest price that will still outsell their competitors and avoid creating a black market (watch the MPAA or RIAA for a vivid example of how not to do this). And if that price is higher than their total costs, then they're doing well. The greater the differential the better.
Rock on, Intel.
the worth of something is what someone is prepared to pay for it. while people are prepared to pay >$700 a chip, that's what they will cost.....
They make a ton of other chips, some costing pennies I'm sure in bulk. While I agree, the true cost is not factored in like many have said, I would like to remind folks that it's "average" costs. So you can have many that cost $20 to make and $30 to sell, and one that costs $80 to make and $700 to sell.
The real question to ask, what is the mode and median price along with the mean (average) prices....
This cost does not include money spent on marketing or development
Which makes it a completely useless figure. These two must be massive proportions of the total cost over the lifetime of a chip.
las i read itaniums were something like 32 billion in r&d and rather than taking a hit on the cost per chip they are going to have to write off the whole lot.
i would guess now there isnt too much difference in die size between a dual core P4 and an itanium, i know even ms have given up on them but start shiping 2way limited riggs about the same price as xeons and they my still be able to revive some market
Intel is a huge company. They design many chips ; some that do not get sold due to the changing market place. These numbers have to be taken into account as well.
Who cares what it costs THEM to make. In a captilistic society, there is a fair amount of profit tolerance built in.
If you can't talerate the cost, don't buy it.
On the other hand, the 3 hours a YEAR it takes me to pay for a new CPU that I use for a year seems pretty darned cheap to me.
What a moronic article.
How much does a videogame cost to make then? 25 cents? Please..
R&D costs a fortune.
The most widely accepted economic theory, neo-classicaly supply/demand price theory, claims that market prices are set by the equilibrium between what consumers are willing to pay (the demand curve) and what producers are willing to sell for (the supply curve). If you think that the supply curve is not a function (at least in part) of the costs of production, you're a moron. Quite simply, a producer that continually sells a product at below the costs of production quickly goes out of business.
Further, most economic theories that are seriously vying against neo-classical economics, such as neo-Ricardian economics, suggest that market prices are entirely a function of costs of production, chiefly labor.
Either way you slice it, costs are a large part of the final price of a product.
Also, you're quite wrong about a good company's goal being to find the highest price that will still outsell their competitors and avoid creating a black market. In a capitalist system, the goal of any firm is simply to maximize profits. That may or may not entail outselling one's competitors or avoiding the creation of black markets. In many industries, black markets increase the over-all profit of the companies whose goods are being sold illicitly.
That is the cost of making one additional chip given that they've already sunk the money into R&D, chip foundries, etc. It also doesn't probably ignores the costs of selling that chip, negotiating contracts with resellers, marketing, shipping, packaging.
To stay in business, Intel needs to sell their chips for a price higher than the sum of their amortized fixed costs of production, their marginal costs of production, and the average costs involved with selling that chip. They don't have to worry about all of that for chips they use internally because the chips they're selling absorb the fixed costs and they don't have any significant costs of selling the chips to themselves.
Capitalism has litte, if anything, to do with neo-classical supply/demand price theory. One can assume that a greatly different economic theory is true, such as neo-Ricardianism, and still have capitalism.
Further, you're entirely leaving out the supply side of supply/demand price theory. Most economists hold to some version of this theory. But the theory holds that prices are set by the equilibrium between what suppliers are will to sell for and what consumers are willing to buy for. But again, this isn't the premise behind capitalism, it is the premise behind a single economic theory and one that has yet to be empirically proven.
Capitalism, in a nutshell, is merely the belief that the owner of the means of production is entitled to control the fruits of production. This says nothing about how prices in the market are set.
You know what? Those $80 Nike sneakers on your feet cost $2 in material and $1 in labor to make (took that out of my ass), $3 to ship to the US, and the rest is marketing, design, inventories, and profits. Mostly marketing. Nike's doing well but they're not Microsoft.
Now look at Microsoft... cost of manufacturing one more cardboard box with plastic CD inside... almost nil. All the cost is in development and marketing.
More money gets spent on sales in many companies than on any other single item, especially when you're selling commodity stuff. CPU's are commodities.
This isn't news.
"I have never let my schooling interfere with my education." - Mark Twain
does that $40 include
.18 micron to .13 micron to .09 micron to .06 micron
1. the billions spend on each new wafer plant? (from 200 to 300)
and
2. the investment to upgrade processes :
and
3. the millions and billions spent on R&D to improve thermal properties and new transitor technologies to solve leaks (e.g. SOI)
Not that I'm trying to stand up for Intel, I really have no feeling for them whatsoever.
But the stats quoted in this article are a load of crap. The average cost is $40, but chips retail for up to $637. Why don't they compare apples to apples here? Either talk about average cost and average retail, or talk about max cost and max retail. Better yet, include the sliding scale with the low and high end. Notice also that they don't say which chips. Is this only CPU's? Or does it include every chip they make (like Centrinos)?
It's pretty likely that Intel makes 100 or even 1000 times the number of tiny low power chips than they do their most powerful processors. Having a Centrino WiFi onboard only raises the cost of a laptop by about $50, so the cost to Intel is probably something like $20, maybe less. And perhaps a single Xeon 3.6 Ghz costs them $500. If they make 999 Centrinos and 1 Xeon, what's their "average" cost now? $20.48.
Starting to look quite a bit different, isn't it? Maybe $637 for that Xeon isn't such a terrible price afterall. Maybe some news article writer wants to make you think you're getting screwed by skewing some figures.
Like I said, I'm not defending Intel. The figures quoted in the article are just crap, that's all. Let's have someone do some detailed research as to Intel's costs and then give us full disclosure and let people make up their own minds as to wether they're getting screwed or not.
I propose a new headline for this story: In-Stat a Group of Morons, according to In-Stat.
Despite what EULAs say, most software is sold, not licensed.
Frankly, if it only costs $40 to make a processor, I'll throw an extra $10 on top and make myself a really sweet one. Huh? What do you mean that's not how much it really costs to make a processor?
OK, maybe we Slashdot readers can get together and pool our money. If we get ten thousand people, then we've got almost half a million to work with. What? That still won't work?!! I'm beginning to think the $40 per processor quote is bullshit.
Frankly, I sit in a fairly comfortable chair and I write code for a living. Many of the problems I solve take little time, require only basic equipment, and involve no manual labor. However, to imply that the cost to produce that code is extremely low would mean you must ignore the years I spent in college and on-the-job gaining the experience necessary to do the work. Otherwise, I'd be making minimum wage and any monkey could walk in off the street and do it.
80 million was a low estimate 160 million was the high estimate. the point is it does NOT cost $600 for intel to produce and sell a CPU. Was that 5 bn for this year alone? or was it for the 4 years they've been selling P 4 CPUS? if it was for this year alone your number of $62-31 per chip remains valid, if it was the 'total development cost of the current p4 chips' then that development cost is being spread across multiple years sales, and the product has a life cycle of 18-24 months.. then the cost falls to somewhere in the $40-10 per chip range.
0 050908corp.htm
;) there is no way in hell it cost intel more than $100 to make that chip, including R&D costs. and yes I know they have to 'hand pick' chips that will run that fast because they were on the best silicon and were etched flawlessly. They price them at $1,000 a chip in part so that they can realistically supply as many 'Extreme' chips as people who are willing to pay $1,000 for them.
i appreciate being corrected but, no-one really did a very good job of pointing out that the total cost per chip is averaging out well below the average selling point of pentium 4 chips. intel is minting money, because people are willing to pay $600 for a 'good' perfomance chip.
here, read the profit and growth expectations from the horses own mouth http://www.intel.com/pressroom/archive/releases/2
Double digit growth, and they gross 60% profit. 60% that means for every dollar they take in only 40 cents is going to operating costs, including marketing etc. nothing wrong with that, just pointing it out. some people on the internet are making profit selling prescot 2.4 ghz chips at $112 a chip, that means intel is selling them at or below that price. Even if you consider that a large volume of the chips intel sells are the 'slow' chips they are not taking a 'loss' on any chip they sell, not with the profit margin they're showing.
So are people paying $1,000 for a Pentium 4 d Extreme being ripped off? of course
Also they could be trying to avoid undercutting AMD because they probably could easily, if they decided to stop minting money and just ruthlessly price everyone else out of the business. Simultaniously AMD is bitching about Intel having the power to Set prices artificially high etc. when if intel decided to say got for a 10% profit margin they would say drop the average price of a chip to $120, while still maintaining some sort of tier structure to make sure they could supply enough high speed chips.. and AMD would be borrowing money to sell chips at the price intel could, because unlike intel they only have 8-16 million chips a year going out the door...while the R&D costs remain largely the same.
intel mints money with every chip they sell, no matter if those chips cost $40, $76, or $96 a chip to produce...
https://www.gnu.org/philosophy/free-sw.html
Mendocino != Deschutes
Mendocino has 128k L2 on core, Deschutes has 0k L2 (the regular Pentium IIs had external cache chips on the CPU card).
They'd pay 31% of _net income_ in taxes, or 31% of $7.5 billion, not 31% of revenue.
So, taxes would be about $2.3 billion, not $10.6 billion.
The Blue Man group of Las Vegas has recently announced that they make upwards of $40 per chip Intel sells. When asked for a statement, they responded: "Do you know how much blue paint costs these days????"
There's no point whining about Intel's prices. Do what I do and buy AMD or VIA. You'll often get a better (more powerful and/or lower power) chip into the bargain.
GCHQ Quantum Insert installed. If only our tongues were made of glass, how much more careful we would be when we speak
[1] This does not include research and writing costs.
When they first make a chip, the product yield sucks. As they refine their methods, it goes up. How old is P4 technology? At least a few years I think, and that has given them plenty of time to get decent yields. Also take into account how little the CPU market has changed in power compared to previous years (My AMD processor is only a little cheaper then it was 3 years ago when it was new), and how they haven't really had need to bump the speed too much (Vista will probably change that). I recall hearing 3/4 good chips was supposed to be a decent yield (not all the chips that are made work). And these numbers are also including Celerons, most of which sell for under $80 retail (newegg). Considering how well budget WalMart systems sell, It would be no surprise if they accounted for at least half of their sales.
In undeveloped countries, the consumer controls the market. In capitalist America, the market controls you.
Take the price you pay at retail and subtract the margin the retailer makes. For example, if Fry's makes 20%, multiply $600 by 0.8 to get $480.
Okay so Fry's adds 20% to their cost. That means that they take the cost $x$ and multiply it by 1.20 to get retail.. So, the retail cost $r$ is given by $r = 1.20*x$. Solving for $x$, you find that $x = r/1.20$. So, to undo this operation you must divide by 1.20 or, as you are trying to do multiply by 1/1.20 which is 0.83333.... not 0.80.
If you can't find an understanding of junior high math on a geek site like slashdot then things have gotten pretty bad. Contrary to what the general public things, it is *NOT* cool to me mathematically illiterate.
You are not a beautiful or unique snowflake -- but you could be if you got off your ass.
Not only does it leave out R&D and marketing costs but it also leaves out yield issues of faster parts.
R&D costs for a processor are extremely expensive and not at all insignificant. Sure, the Pentium 4 has probably grossed enough money to pay off it's own R&D but the fact of the matter is the current set of chips has to pay for the R&D of the next generation chips.
Since both AMD and Intel are always trying to build the latest and greatest chips the R&D cost is pretty consistant and pretty high at all times. It probably almost always eclipses the actual manufacturing costs of a mature product.
Not to mention the millions of dollars these companies spend on advertising.
My last point is simple economics... if you are charging too much people won't buy it so if people are buying it them must not be charging to much.
http://www.intel.com/jobs/Israel/
the point is it does NOT cost $600 for intel to produce and sell a CPU.
No, Intel makes a profit which it then re-invests or distributes to shareholders. Everyone should know that, it's what a company is supposed to do.
Was that 5 bn for this year alone?
Yes, this year alone.
they gross 60% profit. 60% that means for every dollar they take in only 40 cents is going to operating costs, including marketing etc.
Note: Gross, not net. 2004 Net was $7.5 billion Intel pays out over 30% of their income in taxes.
So are people paying $1,000 for a Pentium 4 d Extreme being ripped off?
That depends on your point of view, I guess. However, the law of supply and demand: the yeild on EEs IS lower, Intel can only make so many of them, so they are more rare - therefore they are higher priced.
Besides, if Intel sold these things for a lot less, then everyone would be screaming that Intel was trying to put AMD out of buisness...
And as far as 'minting money' goes... analysts were disapointed with the margins in Q2!
"Giving money and power to government is like giving whiskey and car keys to teenage boys" P. J. O'Rourke
Between science (hey d00d, I cooled off my dorm room by blowing air over ice cubes) and economics (hey, Intel makes like totally obscene profits cause like d00d, it only costs $40 to make a chip), one has to wonder what exactly parents are getting for their money today sending junior off to the University (other than sensitivity training and self-esteem).
Final 2006 "Proof of Global Warming" US Hurricane Count -> 0
And Coke doesn't charge $1 per can. Grocery stores, gas stations, convenience stores and vending companies are the ones charging $1 per can. The price per can that the Coke company charges is almost always determined as function of costs. Costs + Mark up = Price, where Mark up is the normal profit margin of a given industry which is almost universally figured as a percentage of the amount of money invested into production, R&D, marketing, etc.
Sure, the company charges whatever they can, but if that number is less than the production costs, the company won't stay in business very long.
As you just proved, low UIDs does not guarantee intelligence. I was suggesting that in a context like this, people with >1000 UIDs have been around a long time. Lots of posts read, lots of posts posted. Lots of silly shit like trolling out of their system a long time ago. By now they're probably frustrated with how slashdot's gone downhill since they signed up, now he makes a great point and gets modded troll. They, people with ultra low UIDs, deserve a second glance before they are modded down, especially when the modifier is troll. How can you fucking argue with that. In conclusion, go fuck yourself. Parenthetically, nice UID.
The whole reason for the arbitration is because Intel breached a contract it had with AMD to cross licence patents. Intel willingly allowed AMD the right to make x86 clones, it was not forced to by the government. Intel likes to tell their their employees that they were forced to by the government but it is simply not true.
"AMD and Intel concluded an agreement, the details of which remain largely secret, which gave AMD the right to produce and sell microprocessors containing the microcodes of Intel 286, 386, and 486. The agreement appears to allow for full cross-licensing of patents and some copyrights, allowing each partner to use the other's technological innovations without charge."
http://en.wikipedia.org/wiki/AMD
The standard profit for every industry is calculated as a percentage of costs of production. If costs are mostly the same for producing a given commodity, all of the firms selling that product will be making the same approximate profit at the margins. If a firm tries to sell at a margin higher than their competitors, consumers will switch to competing products that are lower in price. If a producer is selling at a rate below their competitors, they are not maximizing the amount of money that they might make. Hence, the actual price you pay at the market is based directly on the costs of production.
This process drives technology. If a firm can acquire a genuine technological advance for reducing costs over its competitors, it can either reduce the market price (until its competitors catch up) to increase its market volume and make more money because the standard profit on a greater market share is a greater volume of money, or keep the market price the same and enjoy a higher profit than most of its competitors for a period of time. In either case, the competitors will eventually catch up.
But of course, this only works for commodities. In some cases, the actual market for a product more closely represents a monopoly. For example, few people buy Nikes because they are the best athletic shoe on the market for the best price. By and large, the people buying Nikes are buying them because they are Nikes. Hence, Nike can set the price of its shoes without regard to the price of any competing products because there are effectively no competing products.