Though Pentium 4s can sell for up to $637, Intel's average cost for making a chip comes to $40, according to a report from analysts In-Stat.
The report doesn't consider expenses related to design or marketing, or the fact that high-end chips can sell for more because fewer off the production line can actually run at top speed, but it does shed light on how Intel has managed to maintain healthy margins in an era of price declines. The cost has been steady at about $40 since 2003, according to In-Stat.
Shrinking chip sizes a la Moore's Law plays a big part. Reducing the size of the chips means more processors can be popped out of a single wafer, thereby increasing the potential revenue without incurring massive additional costs. Intel has also continued to build new factories at a rapid pace, In-Stat noted. The chipmaker has three 90-nanometer fabrication facilities and will have four 65-nanometer facilities by the end of 2006. (The nanometer figures refer to the average feature size on the chips; a nanometer is a billionth of a meter.)
"Intel is one of the few vendors that can continue to push ahead alone and uses its technology and capacity as a competitive strength," Jim McGregor, In-Stat analyst, said in a statement.
Still, major technical challenges loom for everyone in shrinking chips from here on out. Though 65-nanometer chips are slated to come out later this year, companies will have to adopt a number of new technologies, such as metal transistor gates, in the 45-nanometer generation of chips, due out in 2007.
Nice profit margin, even if you add R&d, marketing etc...
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Thats actually going to be a rubbish margin still.
Take 1/3 of that price of 600 something. That's how much Intel will likely be selling the chip to wholesalers for.
That means that $40 is a bigger chunk that you might think. Then, consider the amount of money holes that intel has - admin, legal and accounting just off the top of my head. None of these generate income or create new markets. R&D is a huge money hole - but one from which new product may emerge occassionally. Marketing is also going to take up a huge percentage of their income - but this is the only way to continue selling product and create new markets.
So, producing for 20% of sale price, then all of those other departments taking their cut of the remaining 80% - profitability is a lot tighter than you might think.
DEATH wrote:Nice profit margin, even if you add R&d, marketing etc...
I wouldn't discount R&D. The expenses related to designing new fabrication processes are enormous.
"I have also a paper afloat, with an electromagnetic theory of light, which, till I am convinced to the contrary, I hold to be great guns."
-- James Clerk Maxwell (1831-1879) Scottish physicist. In a letter to C. H. Cay, 5 January 1865.
