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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."
...R&D costs will almost ALWAYS top manufacturing costs...
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?
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.
Copying something once it's made is a lot cheaper than figuring out how to make it in the first place.
Agile Artisans
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
Considering that a HUGE amount of money gets put into research and making/updating the facilities to manufacture these processors, the actual costs are much higher.
Not to mention they have to pay salaries, benefits, etc...
"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
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.
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?
--
make install -not war
additionally, the cost quoted is an average per chip cost. i'm assuming this isn't limited to pentium 4 chips, but includes all chips that intel makes.
they contrast this $40 average cost with the consumer price of a p4, which is probably one of the most expensive chips. the average cost of making a p4 is probably much higher than $40.
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.
In other words, from the accounting standpoint, the variable product costs are $40/unit. There are also fixed product costs, period costs, overhead, etc. Intel certainly has profit margins, but they are sure as hell nowhere near what the blurb or article would lead one to think.
I would actually think that their margins are lower than AMD's, though their profits would of course be higher due to shear to volume.
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.
Who knows what that $600 per chip is spent on. It doesn't matter. If $600/chip is "too much", then where are all the competitors that would rush in and scoop up all this easy money? As far as I can tell, only AMD is willing to try.
Consider how much money was made during the dot-com explosion. Investors were putting huge amounts of money into companies. Yet, with all the "price-gouging" that Intel does, most investors sit on the sidelines passing up the change to get in on these high prices.
So whatever that $600 is paying for, even if pure profit, it's still not incentive enough to get people to start a new x86 compatible processor companies. Apparently those with the money to do that think it's just too much trouble. Maybe that's really what the $600/processor is paying for -- all the trouble it takes to run a processor company.
The other thing is, what exaclty is "price gouging", except a complaint that you don't like the price? I could make that complaint about nearly everything. "Price gouging" doesn't seem to have much of an objective existance.
"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 [...]
Just curious, what do you think they do with all that profit?
R&D and building costs for new, cutting edge fabs go past a billion dollars. Do you think their new 64nm fabs come from the magic wishing fairy?
They're going to have to figure out how to make 64nm chips. This is hardcore applied physics to make the most advanced CPUs in the history of mankind.
Where do they get the money to pull this off? From us. We pay them.
Democrats or Republicans. They are both taking us to the same place and they are not afraid of us anymore.
"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.
Intel's AVERAGE cost per chip is about $40. These same chips, such as the Pentium 4s, can cost consumers UP TO $637.
I remember this particular fable from a book about mathematics. Imagine a person at a job interview:
Prospective employee: What kind of salary might I expect if I were to work here?
Owner: The average salary here is $85,000.
PE: Sir, I will accept your offer for employment.
Then, two weeks later:
Current employee: I have a problem with my paycheck. It's only $769 and change. That works out to $20k a year, assuming a 52-week work year and ignoring taxes.
Boss: So what's the problem?
CE: I thought the average salary was $85,000.
Boss: It is. The owner makes 5 million a year, and the other 5 employees, including me, make $20,000 a year. So, $5,000,000 + ( 5 * $20,000 ) is $5,100,000. Divide that by the total number of people working here, 6, and you get an average salary of $85,000.
CE: Oh.
I'm terrible with numbers, so the above might not add up exactly, but the principle is the same here.
Computers are useless. They can only give you answers.
-- Pablo Picasso
$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.
You stinking capitalist pig! How dare you point out the obvious.
I can't believe how people are so quick to react to this with some neo-socialistic view that the capitalist corporate scum are somehow raping us.
What really boggles my mind is that slashdot is, supposedly, a computer geek oriented user base. Software developers should understand implicitly how much money is spent trying to develop products before one is actually profitable.
Maybe it is the Seinfeld-Kramer idea of "write-offs". Could everyone think that all losses just get written-off into the ether and never affect the bottom line? The fact is the world, hell the universe, is governed by net calculations, not gross.
Exactly. This post ignores salaries, R&D, and the fact that many (most?) of the chips Intel makes are NOT Pentium class chips, but rather, Cell phone and embedded processors.
Hype article, no real news value.
Mooniacs for iOS and Android
The thing is this comparison is extremely misleading.
Look, they averaged the costs overall production. They excluded development.
As a engineer ing this field let me tell you development costs are *huge*.
Moreover, some processors might cost $637 but those process cost a hell of a lot more than the average to manufacture... and that is the price you pay for the processors that come off the line with performance in the second or third standard deviation from the mean. There are not many of those processors (hard to make) + lots of demand => no shortages require high prices. The point being those those applications that can justify the cost are the ones that get the chip. This is about not wasting those chips on grandma's email computer while some scientist needs them--and to make that allocation in keeping with liberalism, i.e., without coercing people + corruption.
Anyone who was moved by this article should read
"Economic Calculation In The Socialist Commonwealth"
http://www.mises.org/econcalc/econcalc.pdf
Intel doesn't just make Pentium 4 processors. The $40 dollar average is based on the annual manufacturing costs of their entire portolio.
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...
I would say your neighbor only understood a small part of the process. Intel, as a whole, has a damn good idea how many chips they can produce a given Mhz, otherwise they could never properly set pricing or meet orders.
Whenever I hear the word 'Innovation', I reach for my pistol.
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 $10 probably. However at home, I have to go to the store, get the steak and all the components for the sides, marinade and grill the steak, prepare the sides, then serve and eat. Also, I have to know the recipie to make it good. What I'm paying for at the resteraunt is to have an expert make my food, someone serve me, a nice atmosphere, etc. The materials cost is well less than half, and I'm fine with that.
So you aren't paying for the materials to make your chip, you are paying for the materials, the people who operate the equipment, the equipment itself (extremely expensive) the facalities fo rhte equipment (more expensive), the research, the researchers, the hardware for the researchers, the admins, the testers, the tech support, the management, the advertising, and so on.
come on, you can't seriously think that making a price lower will put you into a case of anti-trust ?
....
intels anti-trust problem came from the fact that they forced pc makers to use their chips. not any other way around. they didnt lower the cost to anyone, they rised the price for those who sold amd stuff too. this is anti-trust. if they lower the price for all, then it's just fair competition.
but they wont lower the prices and definetly dont want to push amd out of the market. they want to keep the speed/megahertz race going to keep the market alive. if amd would vanish, so would their own market (people dont see a competition, they dont see a reason to upgrade to the next product from the same company if none else is offering anything better).
quite a lot of this extra 600$ still is profit, even after marketing/engineers costs. and most of this profit is probably reserved for the dark age when people are going to wonder if they really want to buy the pentium-25 with it's 333GHz or not
maybe the will, maybe they will not, it all depends if or not the Windows(r) Pasta(tm) Service Pack 42.1 build 33098 demands such cpu power or not.
I'd tell you the chances of this story being a dupe, but you wouldn't like it.
There is very little original ("proprietary") software. "There might be some exceptions, but they are few and far between."
I'm not sure what you mean by "prototype". If you mean an interface, then, a lot of times, copying someone else's interface takes more work than creating your own.
If you mean an idea (like for example the concept of a spreadsheet), sorry to say this, but an idea is something you have in your bathtub, not something you research. The cost of having an idea is 0.
If you mean the implementation of an idea, then, most of the times, "free" software programmers do not have access to it.
In the end, what you said was stupid and is more the result of your political/economical views than actual thinking.
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.