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How do CPUs cost as much as 1 Big Mac?


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#1 Just_One_Question

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Posted 19 August 2017 - 06:00 PM

Hey, can someone more knowledgeable explain to me how are companies, such as MediaTek, able to sell processors for ~$4?

 

For example, I looked at my local offers and the cheapest new, off-contract, fully-unlocked cell phone with 2 years of warranty costs $14.99. It's the Freeman Speak T120 feature phone. It has 2G connectivity, dual-SIM capability, 32MB ROM, 24MB RAM, microSD card slot (up to 8GB), 1.8-inch TFT display, Bluetooth, 0.8MP camera, 600mAh removable battery, no bloatware and a MediaTek 6261M 360Mhz CPU.

Since everyone along the line is making a profit, albeit small, and we subtract the cost of the parts which are not on the MediaTek SoC, such as the camera, battery and the shell/case of the phone, it means that we could guess that MediaTek is probably charging between $0.90 and $7 for their SoC, which includes 24MB of RAM and a 360Mhz processor. I remember not so long ago, let's say 25 years, that those parts would've cost more than $1000. How are companies, such as MediaTek, able to develop and produce them so cheaply?

Does the cost of developing a CPU mainly involve research and development, but after you're done with that part and have patented your CPU, all it takes to produce it is the price of the parts, labour and other manufacturing costs, such as renting the machines to do it? If this is indeed the case, then how come companies like Intel have pretty much always charged upwards of $40 for their CPUs?

 

Please, those of you, who I know have been into computers for many years, help me understand; I will be greatly appreciative if you did!

Thank you. :)

 

Here's the device.

res_435223fb76adcea549f660c16bd6109b_450


Edited by Just_One_Question, 19 August 2017 - 06:05 PM.


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#2 britechguy

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Posted 19 August 2017 - 06:13 PM

off-contract

 

Bing, bing, bing, bing, bing!!  Used items tend to depreciate considerably.

 

Not to mention that this style of phone cannot be given away (practically) these days in any major market.


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#3 Chris Cosgrove

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Posted 19 August 2017 - 06:27 PM

Got a good graduate school of economics and business administration near you ?  You'll get a much fuller answer if you sign up for a degree course there . . .however . . .

 

It largely comes down to volume and complexity but apart from the direct costs of labour, tooling and raw materials you also have to cost in your development costs. If it costs, say, $US 1M to develop and you expect to sell 1000 units then you need to add $US 1,000 to each unit. If you expect to sell 1 million of the things then you only need to add $US1 to each unit. And once you have exceeded your target sales volume then you can reduce the price significantly in a competitive market to extend the life of the product.

 

As an example of how prices can fall once you have recovered your development costs look at the 555 timer ic that has been around essentially unchanged since the mid, late 1950s. When released they cost about 50cUS each, in 1950 dollars, now I would be surprised if a volume user was paying more than 5cUS each.

 

Chris Cosgrove



#4 Just_One_Question

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Posted 19 August 2017 - 07:10 PM

All very interesting! I didn't know about that 555 chip, Chris - over 1 billion sold, wow! So, ultimately I was correct in my presumption that the cost of selling processors or SoC in the CPU business is mainly that of finding guys (presumably computer engineers) to design and develop the product and after that big, hard part it's the classic good-ol manufacturing and assembly, etc.? :)

 



off-contract

 

Bing, bing, bing, bing, bing!!  Used items tend to depreciate considerably.

 

Not to mention that this style of phone cannot be given away (practically) these days in any major market.

 

It's not used; it's new. By off-contract I mean that it is not encapsulated as a special offer by some telecommunications provider, such as Verizon in the US. I don't know exactly why, as I haven't researched it, but that type of offers never really became too popular in Bulgaria (although they still are to a certain extent and are even growing);  when you buy a new phone, most people get it without any association with a telecommunications company, meaning that you can use it in the whole world with any SIM card and cell phone service provider. I don't understand, why are phones being sold specifically locked to a given company in America, what is the idea, I am curious? I have seen on the Apple website that when you want to order an iPhone, for example, they give 5 options - unlocked without a carrier, AT&T, Sprint, T-Mobile and Verizon. What I find strange (probably because I don't get it and am missing something in the idea) is that whichever one of the 5 options you choose, the 256GB iPhone 7+ in jet black always costs $969. :)

And by the way, I haven't checked the data, but aren't most countries in the world still fully supporting 2G mobile service? Because if they are not, I am going to have to buy a new phone soon, it would appear, as mine is only 2G as well. :lmao:


Edited by Just_One_Question, 19 August 2017 - 07:10 PM.





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