5 ms·

The assumption the author has made is that each chip has an R&D spend proportional to the revenue that it generates (~20%). This is clearly false. Some chips ar

The assumption the author has made is that each chip has an R&D spend proportional to the revenue that it generates (~20%). This is clearly false. Some chips are relatively simple but sell in huge numbers so the R&D per revenue is extremely low. An SDR is one of the most complex chips you can make with a wide range of expertise going into the design. I can easily imagine $20+ million being spent on R&D for this chip and the market for it is pretty limited (not for consumer products). Even at 100,000 sales the R&D costs alone would be $200 per chip. Pricing for these sort of niche low volume products is guided much more by what the market tolerates paying rather than the production and development costs. A large number of these types of chip never recover their R&D spends.

vvanders 8y ago
Yeah, this is even more true when you get into the realm of RF black magic like an SDR chip.
sleavey 8y ago
To add to this, I imagine chip companies don't look at it as plainly as whether a chip recovers its development costs. If the development costs lead to techniques or designs that can be reused, the next chips will be not only better (due to incremental improvements) but also cheaper.
- derefr 8y ago
  You can calculate a sort of "time-independent cost" of R&D by taking any "innovative elements" that were discovered during the project, and retrospectively amortizing their costs across all the future projects one expects to use them in (maybe with NPV applied to the weightings of the amortization to represent lost opportunity-cost of having that money sit in an investment.)
- civilitty 8y ago
  In my experience designing electronics, EEs and the people handling logistics/manufacturing are extremely risk averse actors who make many decisions based on trust and personal relationships. As a contractor, my deadlines would often only allow for at most two or three prototypes before I had to deliver a working design and that did not leave much room for error. If my client or I had an existing relationship with a vendor that always supplied parts on time, fast samples/dev kits, or if I knew their reference designs to be more reliable than most, then that vendor would be the preferred source for parts even if their other offerings weren't the best or the most cost efficient. You can also often get great pricing for low/medium volume orders if you have built up a history so I've had situations where I had to design a significantly more complex board with a microprocessor that normally cost 10-20 times more than the CPU I would have chosen (from another vendor). The client's supplier for the other most expensive part on the board had too much inventory of a soon to be discontinued processor (that was pin compatible with a newer one, also very expensive) and the account manager's boss was willing to sell us everything we needed at an 80% discount off high volume pricing with pricing guarantees on the newer parts for several years, all to meet some regional sales quota. As another example, microprocessors often have arduous power up requirements where different voltages have to be supplied in a specific sequence within annoyingly specific timing tolerances. In a project using Marvell microprocessors, it was much faster to just use Marvell's power chips and existing reference design than to waste precious time on modifying designs for cheaper chips from other vendors. The power parts cost five times as much as they would had I chosen my favorite vendor but because the board was a mixed signal design it was extremely expensive to make changes and test prototypes. A vast catalog of parts is an especially powerful market force if you are a company like TI that has a well developed software tool like WEBENCH which can spit out dynamic reference designs for most of their power chips. Unless I have an existing reference design from a vendor of a major part (like the CPU above), I usually go straight to TI's tool to design any power supplies I need so I can focus on the meat of the PCB. If TI also has parts that do something else I need on the board I will often just choose them instead of researching other vendors (unless it's a really expensive component) and that compounds as I make more and more PCBs, each time becoming more comfortable with TI parts at the expense of others.
  - zer00eyz 8y ago
    Sales factors (discounts) and vendor lock in's/preferences (with good reason or not). Oddly some of the same stuff happens with drugs! https://tonic.vice.com/en_us/article/pg7ez9/pharma-reps-are-basically-bribing-your-doctor-study-confirms https://tonic.vice.com/en_us/article/pg7ez9/pharma-reps-are-...
arbuge 8y ago
>> I can easily imagine $20+ million being spent on R&D for this chip I would personally estimate around 30 - 50% of that figure. Whatever the number is, it's really funny money in a company such as ADI which sells a large chip catalog. Most of the modules in that chip can be reused in others, and many of them would themselves be reuses of modules from other chips, perhaps with some modifications. So the total R&D cost would in fact be spread amongst many projects and it would be pretty difficult to nail down exactly how much is any one project's share.
cedivad 8y ago
This is not a niche, low volume IC. Its smaller brother is used (I should say was used) by DJI in its Lightbridge video transmission system (that you could find in the Phantom 3/4, that sold in the order of millions). And that's only one product I know of, I'm sure there are many other. I would love to know how much DJI was paying for that chip, especially after they went to the effort or replacing it with an in-house one (no name Chinese startup) in more recent batches.
- rasz 8y ago
  They didnt replace it solely due to cost. China is very good with long term strategic investment. Just the latest headline https://www.reuters.com/article/us-zte-tencent-chairman/tencent-chairman-pledges-to-advance-china-chip-industry-after-zte-wake-up-call-reports-idUSKCN1IS03K https://www.reuters.com/article/us-zte-tencent-chairman/tenc... They have been surgically copying/reimplementing advanced technology for over 10 years now. While its still mainly for internal consumption (cars, electronics), western suppliers are steadily pushed out of more and more niches, and some products do get exported (LCD panels for example).

vvanders 8y ago

Yeah, this is even more true when you get into the realm of RF black magic like an SDR chip.

sleavey 8y ago

To add to this, I imagine chip companies don't look at it as plainly as whether a chip recovers its development costs. If the development costs lead to techniques or designs that can be reused, the next chips will be not only better (due to incremental improvements) but also cheaper.

derefr 8y ago
You can calculate a sort of "time-independent cost" of R&D by taking any "innovative elements" that were discovered during the project, and retrospectively amortizing their costs across all the future projects one expects to use them in (maybe with NPV applied to the weightings of the amortization to represent lost opportunity-cost of having that money sit in an investment.)
civilitty 8y ago
In my experience designing electronics, EEs and the people handling logistics/manufacturing are extremely risk averse actors who make many decisions based on trust and personal relationships. As a contractor, my deadlines would often only allow for at most two or three prototypes before I had to deliver a working design and that did not leave much room for error. If my client or I had an existing relationship with a vendor that always supplied parts on time, fast samples/dev kits, or if I knew their reference designs to be more reliable than most, then that vendor would be the preferred source for parts even if their other offerings weren't the best or the most cost efficient. You can also often get great pricing for low/medium volume orders if you have built up a history so I've had situations where I had to design a significantly more complex board with a microprocessor that normally cost 10-20 times more than the CPU I would have chosen (from another vendor). The client's supplier for the other most expensive part on the board had too much inventory of a soon to be discontinued processor (that was pin compatible with a newer one, also very expensive) and the account manager's boss was willing to sell us everything we needed at an 80% discount off high volume pricing with pricing guarantees on the newer parts for several years, all to meet some regional sales quota. As another example, microprocessors often have arduous power up requirements where different voltages have to be supplied in a specific sequence within annoyingly specific timing tolerances. In a project using Marvell microprocessors, it was much faster to just use Marvell's power chips and existing reference design than to waste precious time on modifying designs for cheaper chips from other vendors. The power parts cost five times as much as they would had I chosen my favorite vendor but because the board was a mixed signal design it was extremely expensive to make changes and test prototypes. A vast catalog of parts is an especially powerful market force if you are a company like TI that has a well developed software tool like WEBENCH which can spit out dynamic reference designs for most of their power chips. Unless I have an existing reference design from a vendor of a major part (like the CPU above), I usually go straight to TI's tool to design any power supplies I need so I can focus on the meat of the PCB. If TI also has parts that do something else I need on the board I will often just choose them instead of researching other vendors (unless it's a really expensive component) and that compounds as I make more and more PCBs, each time becoming more comfortable with TI parts at the expense of others.
- zer00eyz 8y ago
  Sales factors (discounts) and vendor lock in's/preferences (with good reason or not). Oddly some of the same stuff happens with drugs! https://tonic.vice.com/en_us/article/pg7ez9/pharma-reps-are-basically-bribing-your-doctor-study-confirms https://tonic.vice.com/en_us/article/pg7ez9/pharma-reps-are-...

arbuge 8y ago

>> I can easily imagine $20+ million being spent on R&D for this chip I would personally estimate around 30 - 50% of that figure. Whatever the number is, it's really funny money in a company such as ADI which sells a large chip catalog. Most of the modules in that chip can be reused in others, and many of them would themselves be reuses of modules from other chips, perhaps with some modifications. So the total R&D cost would in fact be spread amongst many projects and it would be pretty difficult to nail down exactly how much is any one project's share.

cedivad 8y ago

This is not a niche, low volume IC. Its smaller brother is used (I should say was used) by DJI in its Lightbridge video transmission system (that you could find in the Phantom 3/4, that sold in the order of millions). And that's only one product I know of, I'm sure there are many other. I would love to know how much DJI was paying for that chip, especially after they went to the effort or replacing it with an in-house one (no name Chinese startup) in more recent batches.

rasz 8y ago
They didnt replace it solely due to cost. China is very good with long term strategic investment. Just the latest headline https://www.reuters.com/article/us-zte-tencent-chairman/tencent-chairman-pledges-to-advance-china-chip-industry-after-zte-wake-up-call-reports-idUSKCN1IS03K https://www.reuters.com/article/us-zte-tencent-chairman/tenc... They have been surgically copying/reimplementing advanced technology for over 10 years now. While its still mainly for internal consumption (cars, electronics), western suppliers are steadily pushed out of more and more niches, and some products do get exported (LCD panels for example).