Harry - Re:"Does Intel enjoy any economies of scale for its CPU's vs. the other
competing chips from DEC, SUN et al?"
ABSOLUTELY! As in any manufacturing industry, a given article requires investment money to design and tool up for manufacture. The total investment must be made up by PROFITS from selling the articles in question before a positive return on this investment occurs.
The cost to design a state of the art CPU can be about $100,000,000 - this was the number Intel gave several years ago for the Pentium (I think) design process.
The wafer fab process development must be tacked on to this as does the cost of the manufacturing wafer fab sites.
Simply put, the profit per chip =
Profit/chip = selling price/chip - manufacturing costs/chip - R & D/chip.
Once the R & D is done, this cost is amortized over the lifetime production of the CPU Chip. Manufacturing costs/chip - the more wafers pumped through a fab, and the higher yield per wafer, the lower is this number.
Intel is scheduled to ship about 45,000,000 Pentiums this year. That is a colossal number. At an ASP of $250, this amounts to revenue of $11,250,000,000. That is $11.25 Billion.
If the ASPs are higher, the revenue will be higher - obviously.
For reference, I think that SUN sells less than a million CPUs (workstations + servers) each year. Their principal supplier - TI - has to make a profit per wafer to recover their costs, and SUN gets whatever profit they get from selling the CPU + BOX + Software.
HP is probably working in about the same range - less than a million units/year. They fabricate their own CPUs.
Thus, the ability to recover the fixed costs plus R & D investment centers around the total number of units to be produced. Right now, nobody is even in the ball park with Intel for high end CPUS. (Note - low ASP microcontrollers are manufactured in this volume by TI/MOTO/Hitachi, etc. - but these sell for a few dollars/unit - a lot less than a Pentium!)
Intel, by virtue of the market palce , sells their chips at a handsome profit per chip. They will make $4,000,000,000 profit this year alone.
Assuming that 75% of this profit comes from CPUs, that is $3,000,000,000. Divide that by 45,000,000 units and you get: $67 NET profit per chip after taxes.
These numbers reflect my own assumptions and wild *ss guesses, but they should provide a good figure of merit of the kind of money Intel is making.
The $3,000,000,000 profit represnts the cost of about 2 1/2 wafer fabs. So, Intel can construct and pay off the cost of these 2 1/2 fabs in ONE YEAR. After that, the bricks and mortar and wafer steppers are paid for and the cost of the chips next year will be reduced accordingly. (Although I'm sure Intel uses much more conservative accounting procedures than this.)
Who else can reduce their costs this fast?
As for HP - they saw the dollar signs on the wall and realized their PA-RISC processor was too costly to continue on their own. So, they threw their lot in with Intel. My bet is that 3 - 5 years from now, HP will be in a more dominant position in the workstation/server market than they are in today, with the P7 and its off spring. Today, they have to sell PA-RISC boxes to one set of customers and x86 boxes to another set. In the future P7 marketplace, they can sell the same box to everyone, realizing greater economies of scale - especially since Intel will be absorbing the manufacturing costs.
Paul |
