The semiconductor industry’s great paradox – consumer wants cheaper and faster

[Qianglong]

Looking at the recent troubles of the semiconductor firm one has to wonder about the perspective and paradox faced by this R&D and capital intensive industry.

Consumers always want faster, better and cheaper, yet the process of coming up with devices or chips to meet these requirements needs extremely expensive capital outlay such as new fabs, billions of investment to figure out the next process node improvement, hiring the best and brightest. Yet, prices are always falling and margins are decreasing and many companies in this industry are struggling.

Think of it this way, one can get many items in homedepot that cost approximately the same as a CPU/GPU/ or other high-end gadgets. But the cost of making those items is 100 to 10000 times LESS than what is required to manufacture a semiconductor chip. Customers have no issues buying those but would expect a computer system to cost less than $599.


So I really wonder what is the future of this industry, will it implode or the falling prices will just impede innovation and development?

 

[MisterMac]

Intels chip prices ranges from 40 bucks to 1000 bucks.

Consumer doesn't expect cheaper per say - we've had both in dGPU and CPU relatively stable price ranges.

Sometimes these ranges offered more performance pr. dollar than others - but there's a fixed market.


We are where were supposed to be - ARM might try disrupt it for a "compute unit" for the ignorant 400 USD dell PC guy - but else the stage is pretty much set.

Intel won the x86 war - and is moving forward to the final ISA war.
(Barring a fuckton of hicksup that somehow makes x86 bloated to the point where even Intel can't make it go vroom).

 

[Puppies04]

Some good points OP but you fail to mention the fact that every time we get a process shrink the chip manufacturers get more cpus per wafer which in effect gives them the ability to keep cpu prices relatively stable while making more and more money with the same amount of materials.

What will happen in the future is anyone's guess though, the model I just described only works as long as CPU manufacturers can regularly reduce the size of their transistors and we are fast approaching the point where that is going to be very hard to achieve.

 

[lamedude]

Intel has Xeons, Nvidia has Quadros/Teslas, and AMD has Opteron/Firepros to subsidize the cheap stuff while the cheap stuff provides economy of scale to make everything affordable.

 

[Borealis7]

Some good points OP but you fail to mention the fact that every time we get a process shrink the chip manufacturers get more cpus per wafer which in effect gives them the ability to keep cpu prices relatively stable while making more and more money with the same amount of materials.

which at some point get begated by the increasing cost of research and development going into the shrinking process plus the added cost of building new Fabs and finer equipment.
computer electronics aren't going to get cheaper in the future, except maybe for NAND flash.

 

[BrightCandle]

If the size of transistors keeps shrinking then there is every reason to believe that chips will get cheaper. While each wafer increases in price so does the number of chips coming off of one. Its unlikely that any of the manufacturers would persue a process that resulted in a dramatic increase in price.

Its power density that I worry about.

 

[Sheep221]

Looking at the recent troubles of the semiconductor firm one has to wonder about the perspective and paradox faced by this R&D and capital intensive industry.

Consumers always want faster, better and cheaper, yet the process of coming up with devices or chips to meet these requirements needs extremely expensive capital outlay such as new fabs, billions of investment to figure out the next process node improvement, hiring the best and brightest. Yet, prices are always falling and margins are decreasing and many companies in this industry are struggling.

Think of it this way, one can get many items in homedepot that cost approximately the same as a CPU/GPU/ or other high-end gadgets. But the cost of making those items is 100 to 10000 times LESS than what is required to manufacture a semiconductor chip. Customers have no issues buying those but would expect a computer system to cost less than $599.


So I really wonder what is the future of this industry, will it implode or the falling prices will just impede innovation and development?

The semiconductor, and overall consumer technology industry is definitely not about what costumers want, but companies, every new piece of technology introduced to the consumer market is more and more freedom limiting and consumer abusing, most notably Apple products and partially also Android-based.

The personal computers are also a good money maker, let's say 350 milion computers are sold worldwide per year(for example), if one computer costs $500, and it's CPU $100 average, this will leave total earning of approx 175B, assuming Intel controls 80% of the market and AMD about 20%, it will leave raw income for intel for about 28B and AMD 7B, although the development and increasing FABs space is terribly expensive, it's nowhere near the revenue these companies are making just by selling their products. As the technologies for making electronic parts are long time paid off, they are only processing materials to make parts(the PCBs, covers and all that) mostly made by automated assembly lines, which decreases the value of one piece to few dollars each, while the amount of owned consumers electronics is increasing year by year, almost everyone has at least 2 phones and 2 desktop computers and 1 laptop. What was in previous decades shared by entire family and friends, is now owned by 1 person in good amounts, greatly exceeding the need, and it is caused by low prices, advertising, lifestyle, everything that is controlled by companies who make all this stuff.

Intel has so much money now that they can afford to invest in the pointless projects like ultrabooks and more.
Home depot sells items, you buy for a same price, but once or twice per your life, as you wont be buying new house and furniture every few years just like you do so with phones and computers.
I got my first desktop in 1999, but since then I had like 10 desktop rigs and 3 laptops, and I definitely don't replace stuff often and just because I feel like to own something newer.
So simply the reason why stuff becomes cheaper is beacuse thechnologies are now mostly paid off and much larger amounts are sold.

 

[ShintaiDK]

I dont see consumers wanting cheaper as such. They are willing to pay if the innovation and benefit is there.

The issue is cost are spiralling up on design and processnodes. And that simply limits the amount of companies that can keep up. The latest one being AMD.

AMDs average ASP is 48$ per CPU. Intels is 121$ per CPU.

The key to profit is volume. As long as volume expands, then we can go on.

A uarch like Haswell most likely cost 6billion$+ to develop.

 

[gevorg]

Think of it this way, one can get many items in homedepot that cost approximately the same as a CPU/GPU/ or other high-end gadgets. But the cost of making those items is 100 to 10000 times LESS than what is required to manufacture a semiconductor chip. Customers have no issues buying those but would expect a computer system to cost less than $599.

Many tools that you buy at HomeDepot will last a lot longer than a computer. And consumers are too preoccupied with the idea that computers are being outdated extremely fast.

 

[KingFatty]

I think we consumers have been trained, like pavlovian dogs, to expect smaller/faster/cheaper. And the trainer is the industry itself.

We've had the same concept nailed into our heads over and over again year after year because the industry does it predictably. How could you expect anything else?

 

[cbn]

Deleted.

 

[VirtualLarry]

Computing is a drug, and we (as consumers) have a need to get higher and higher with our computing devices. Higher Ghz. Higher core counts. We just can't stop.