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."

Comments

Trivial Overhead?

[goldspider]

"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?

Re:Trivial Overhead?

[shark72]

"So what's the per-chip cost WITH all of the overhead?"

No need to ask. We can deduce this using some basic Internet research skills and some junior high-level math.

If they amortize overhead equally across all products, you can guesstimate it this way (we'll use a part that costs $600 at retail for an example):

1. 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.
2. Then, subtract the margin made by the distributor (assuming Intel uses two-tier distribution for chips). Distis typically take 5%, so multiply that $480 by 0.95 to get $456.
3. Intel's profit margin last year was 22.45%. For each product they sold, they made an average of 22.45%. Again, assuming that Intel amortizes overhead equally across all products, multiplying $456 by 0.7755 = $353.62.

So, for that $600 part you buy:

1. Intel makes (nets) $102.
2. The distributor makes $24 (gross -- before similar overhead has been applied).
3. The retailer makes $120 (again, gross, not net.)

Re:With tech...

[NutscrapeSucks]

Since (presumably) Intel can produce chips significantly more cheaply than AMD can, the price drops to AMD's cost of production, not Intel's.

That way, AMD is a perpetual break-even operation, and Intel rakes in the cash without worrying too much about the Justice Dept.

How to lie with statistics.

[osrevad]

Intel's AVERAGE cost per chip is about $40. These same chips, such as the Pentium 4s, can cost consumers UP TO $637.

Re:Kinda leaving a little something out...

[Phat_Tony]

I agree.

In other news, an analyst has determined that Adobe's cost per copy to manufacture Adobe Photoshop is about $0.35. This leaves out all research and development costs, such as writing code.

What are they including in this $40 cost, the price for 1/10 of an oz of silicon? If you don't want to include developing x-ray laser lithography or designing the circuit layout for 55 million transistors, I'm sure they are cheap to pump out.

There are lots of companies for whom the marginal cost to them of providing an additional unit is often near 0 - software companies, airlines, informational databases, etc. For such companies, knowing their actual marginal cost of production doesn't give you much useful information.

It should be a dead giveaway that the marginal cost of production on a processor is very low, because the same processor always costs a fortune when it's introduced, and then is sold new for a small fraction if its original price a few years later, just before they pull it from the market. Clearly, they wouldn't lower the prices that much if they were losing money on each one.

Merely building a new chip fab represents a significant amount of money compared to the aggregate marginal manufacturing costs of every chip to come out of the entire plant for it's whole life. The semiconductor industry runs on huge R&D costs and small individual unit manufacturing costs. Pointing that out isn't really news.

Re:Grr

[networkBoy]

Sorry,
    They don't make simple logic chips, nor do they make op-amps.
Intel is not in the business of making discreet components.

If you anre interested the Adjusted gross margin of the company (based on previous SEC filings) is roughly 48-52%. That would indicate that a $600 wholesale chip cost the company about $300 to produce, with the other $300 going to expansion, investment in new tech, shareholders dividends, into a bank account for a rainy day, etc.

I would tend to think that most of the profit is mature tech for which the R&D has been ammortized, such as the P3 chips, Xscale, etc.

I have a fairly reliable way of thinking that the P4 division, while a profit center, is not where the big money comes from. Most of that $400-$600 you spend on a CPU is covering other people's costs. (remember retailer markup)