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    Lecture 5: Cost, Price, and Price For Performance: Professor Randy H. Katz Computer Science 252 Spring 1996

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    saddamhussain4
    1. The lecture discusses the relationships between cost, price, and performance for computer components and systems. It explains how component costs, direct costs, gross margins, and discounts determine final prices. 2. Integrated circuit costs are analyzed, showing how die size, wafer size, defect rates, and yields determine die and wafer costs. Real-world examples of chip costs are provided from the 1990s. 3. The relationship between volume and costs is covered using learning curves, with examples showing how costs decrease with higher production volumes for PCs versus workstations.

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    Lecture 5: Cost, Price, and Price For Performance: Professor Randy H. Katz Computer Science 252 Spring 1996

    Uploaded by

    saddamhussain4
    70 views29 pages
    1. The lecture discusses the relationships between cost, price, and performance for computer components and systems. It explains how component costs, direct costs, gross margins, and discounts determine final prices. 2. Integrated circuit costs are analyzed, showing how die size, wafer size, defect rates, and yields determine die and wafer costs. Real-world examples of chip costs are provided from the 1990s. 3. The relationship between volume and costs is covered using learning curves, with examples showing how costs decrease with higher production volumes for PCs versus workstations.

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    Lecture 05

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    1. The lecture discusses the relationships between cost, price, and performance for computer components and systems. It explains how component costs, direct costs, gross margins, and discounts determine final prices. 2. Integrated circuit costs are analyzed, showing how die size, wafer size, defect rates, and yields determine die and wafer costs. Real-world examples of chip costs are provided from the 1990s. 3. The relationship between volume and costs is covered using learning curves, with examples showing how costs decrease with higher production volumes for PCs versus workstations.

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    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    70 views29 pages

    Lecture 5: Cost, Price, and Price For Performance: Professor Randy H. Katz Computer Science 252 Spring 1996

    Uploaded by

    saddamhussain4
    1. The lecture discusses the relationships between cost, price, and performance for computer components and systems. It explains how component costs, direct costs, gross margins, and discounts determine final prices. 2. Integrated circuit costs are analyzed, showing how die size, wafer size, defect rates, and yields determine die and wafer costs. Real-world examples of chip costs are provided from the 1990s. 3. The relationship between volume and costs is covered using learning curves, with examples showing how costs decrease with higher production volumes for PCs versus workstations.

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    Lecture 5: Cost, Price, and Price for Performance

    Professor Randy H. Katz Computer Science 252 Spring 1996

    RHK.S96 1

    Review From Last Time


    Given sales a function of performance relative to competition, tremendous investment in improving product as reported by performance summary Good products created when have:
    Good benchmarks Good ways to summarize performance

    If benchmarks/summary inadequate, then choice between improving product for real programs vs. improving product to get more sales; sales almost always wins! Execution time is the REAL measure of computer performance! What about cost?

    RHK.S96 2

    Impact of Means on SPECmark89 for IBM 550


    Ratio to VAX:
    Program gcc espresso spice doduc nasa7 li eqntott matrix300 fpppp tomcatv Mean Before After 30 29 35 34 47 47 46 49 78 144 34 34 40 40 78 730 90 87 33 138 54 72 Geometric Ratio 1.33

    Time:
    Before After 49 51 65 67 510 510 41 38 258 140 183 183 28 28 58 6 34 35 20 19 124 108 Arithmetic Ratio 1.16

    Weighted Time:
    Before After 8.91 9.22 7.64 7.86 5.69 5.69 5.81 5.45 3.43 1.86 7.86 7.86 6.68 6.68 3.43 0.37 2.97 3.07 2.01 1.94 54.42 49.99 Weighted Arith. Ratio 1.09
    RHK.S96 3

    Integrated Circuits Costs


    IC cost = Die cost + Testing cost + Packaging cost Final test yield

    RHK.S96 4

    Integrated Circuits Costs


    IC cost = Die cost + Testing cost + Packaging cost Final test yield

    Die cost =

    Wafer cost Dies per Wafer * Die yield

    RHK.S96 5

    Integrated Circuits Costs


    IC cost = Die cost + Testing cost + Packaging cost Final test yield Die cost = Wafer cost Dies per Wafer * Die yield

    Dies per wafer = * ( Wafer_diam / 2)2 * Wafer_diam Die Area 2 * Die Area Test dies

    RHK.S96 6

    Integrated Circuits Costs


    IC cost = Die cost + Testing cost + Packaging cost Final test yield Die cost = Wafer cost Dies per Wafer * Die yield Dies per wafer = * ( Wafer_diam / 2)2 * Wafer_diam Test dies Die Area 2 * Die Area

    Die Yield = Wafer yield * {1 + Defects_per_unit_area * Die_Area

    RHK.S96 7

    Integrated Circuits Costs


    IC cost = Die cost + Testing cost + Packaging cost Final test yield Die cost = Wafer cost Dies per Wafer * Die yield Dies per wafer = * ( Wafer_diam / 2)2 * Wafer_diam Test dies Die Area 2 * Die Area

    Die Yield = Wafer yield * 1 +

    Defects_per_unit_area * Die_Area

    Die Cost goes roughly with die area4

    RHK.S96 8

    Real World Examples


    Metal Line Wafer Defect Area Dies/ Yield Die Cost layers width cost /cm2 mm2 wafer 386DX 2 0.90 $900 1.0 43 360 71% $4 486DX2 3 0.80 $1200 1.0 81 181 54% $12 PowerPC 601 4 0.80 $1700 1.3 121 115 28% $53 HP PA 7100 3 0.80 $1300 1.0 196 66 27% $73 DEC Alpha 3 0.70 $1500 1.2 234 53 19% $149 SuperSPARC 3 0.70 $1700 1.6 256 48 13% $272 Pentium 3 0.80 $1500 1.5 296 40 9% $417
    From "Estimating IC Manufacturing Costs, by Linley Gwennap, Microprocessor Report, August 2, 1993, p. 15
    RHK.S96 9

    Chip

    Other Costs
    Die Test Cost = Test Jig Cost * Ave. Test Time Die Yield Packaging Cost: depends on pins, heat dissipation, beauty, ...
    Chip 386DX 486DX2 PowerPC 601 HP PA 7100 DEC Alpha SuperSPARC Pentium Die cost $4 $12 $53 $73 $149 $272 $417 Package pins type 132 QFP 168 PGA 304 QFP 504 PGA 431 PGA 293 PGA 273 PGA cost $1 $11 $3 $35 $30 $20 $19 Test & Assembly $4 $12 $21 $16 $23 $34 $37 Total $9 $35 $77 $124 $202 $326 $473
    RHK.S96 10

    Cost/Performance
    What is Relationship of Cost to Price?

    Component Costs

    List Price

    Component Cost

    15% to 33%
    RHK.S96 11

    Cost/Performance
    What is Relationship of Cost to Price?

    Component Costs Direct Costs (add 25% to 40%) recurring costs: labor,
    purchasing, scrap, warranty

    List Price

    Direct Cost Component Cost

    6% to 8% 15% to 33%
    RHK.S96 12

    Cost/Performance
    What is Relationship of Cost to Price?

    Component Costs Direct Costs (add 25% to 40%) recurring costs: labor,
    purchasing, scrap, warranty

    Gross Margin

    (add 82% to 186%) nonrecurring costs: R&D, marketing, sales, equipment maintenance, rental, financing cost, pretax profits, taxes

    List Price

    Gross Margin Direct Cost Component Cost

    34% to 39% 6% to 8% 15% to 33%


    RHK.S96 13

    Cost/Performance
    What is Relationship of Cost to Price?

    Component Costs Direct Costs (add 25% to 40%) recurring costs: labor,
    purchasing, scrap, warranty

    Gross Margin

    (add 82% to 186%) nonrecurring costs: R&D, marketing, sales, equipment maintenance, rental, financing cost, pretax profits, taxes discounts and/or retailer markup List Price Average Discount Avg. Selling Price Gross Margin Direct Cost Component Cost

    Average Discount to get List Price (add 33% to 66%): volume 25% to 40% 34% to 39% 6% to 8% 15% to 33%
    RHK.S96 14

    Chip Prices (August 1993)


    Assume purchase 10,000 units
    Chip 386DX Area
    mm2

    Mfg. Price Multi- Comment


    cost plier

    43

    $9 $35 $77

    $31 $245 $280 $965

    3.4 3.6 6.1

    486DX2 81 PowerPC 601 121 DEC Alpha Pentium

    Intense Competition 7.0 No Competition

    234 $202 $1231 296 $473

    Recoup R&D? 2.0 Early in shipments

    RHK.S96 15

    Workstation Costs: $1000 to $3000


    DRAM: Color Monitor: CPU board: Hard disk: CPU cabinet: Video & other I/O: Keyboard, mouse: 50% to 55% 15% to 20% 10% to 15% 8% to 10% 3% to 5% 3% to 7% 1% to 2%

    RHK.S96 16

    Learning Curve
    production costs

    volume

    Years time to introduce new product


    RHK.S96 17

    Volume vs. Cost


    Rule of thumb on applying learning curve to manufacturing: When volume doubles, costs reduce 10%
    A DEC View of Computer Engineering by C. G. Bell, J. C. Mudge, and J. E. McNamara, Digital Press, Bedford, MA., 1978.

    40 MPPs @ 200 nodes = 8,000 nodes/year vs. 100,000 Workstations/year 12.5X 23.6 => (0.9)3.6 = 0.68 Cost should be 1/3 less for same components What about PCs vs. WS?
    RHK.S96 18

    Volume vs. Cost: PCs vs. Workstations


    1990 1992 PC 23,880,898 33,547,589 WS 407,624 584,544 Ratio 59 57 1994 44,006,000 679,320 65 1997 65,480,000 978,585 67

    65X 26.0 => (0.9)6.0 = 0.53


    50% costs for whole market for PCs vs. Workstations

    Single company: 20% WS market vs. 10% PC market


    Ratio 29 29 32 33

    32X 25.0 => (0.9)5.0 = 0.59


    60% costs for single company for PCs vs. Workstations
    RHK.S96 19

    High Margins on High-End Machines


    R&D considered return on investment (ROI) 10%
    Every $1 R&D must generate $7 to $13 in sales

    High end machines need more $ for R&D Sell fewer high end machines
    Fewer to amortize R&D Much higher margins

    Cost of 1 MB Memory (January 1994):


    PC WS Mainframe Supercomputer $40 $42 $1920 $600 $1375 (Mac Quadra) (SS-10) (IBM 3090) (M90 DRAM) (C90 15 ns SRAM)
    RHK.S96 20

    Recouping Development Cost on Low Volume Microprocessors?


    Hennessy says MIPS R4000 cost $30M to develop Intel rumored to invest $100M on 486 SGI/MIPS sells 300,000 R4000s over product lifetime? Intel sells 50,000,000 486s? Intel must get $100M from chips ($2/chip) SGI/MIPS can get $30M from margin of workstations vs. chips vs. $100/chip Alternative: SGI buys chips vs. develops them

    RHK.S96 21

    Price/Performance Gross Margin vs. Market Segment


    100% 80% 60% 40% 20% 0% Mini W/S PC
    Average Discount Gross Margin Direct Costs Component Costs

    RHK.S96 22

    Price/Performance Gross Margin vs. Market Segment


    5 4 3 2 1 0 Mini W/S PC

    4.7 3.5 3.8 2.5 1.8 1.5


    Average Discount Gross Margin Direct Costs Component Costs

    RHK.S96 23

    Impact of Margin Shrink on Society/Computer Industry


    Economy? Research Labs? Future Products? Your jobs?

    RHK.S96 24

    Information Technology R&D


    U.S. IT's Biggest R&D Spenders in 1993: Total $29.2 billion
    IBM Motorola GM-H.E. Sun AT&T Intel Texas Instr Tandem HP Xerox Unisys Honeywell $4.43 B $10.5869 B $3.43 B DEC Apple Microsoft 297 other companies

    Compaq is #1 PC maker in US

    $1.761 B $1.5301 B $1.521 B $0.97 B

    RHK.S96 25

    Accelerating Pace of Product Development


    1991 $127 Billion
    29% 35% 2+ Years 0-1 Year 1-2 Years

    1996 $165 Billion 22% 32%

    36%

    Product age as % of revenue

    46%
    RHK.S96 26

    Shift in Employment Towards Software and Services


    Annual Employment in U.S. IT Industry (1000's of employees) Cptr & DP Services 2500 2000 1500 1000 500 0
    '60 '61 '62 '63 '64 '65 '66 '67 '68 '69 '70 '71 '72 '73 '74 '75 '76 '77 '78 '79 '80 '81 '82 '83 '84 '85 '86 '87 '88 '89 '90 '91 '92 '93 '94

    Cptr Bus Equip Telecom

    RHK.S96 27

    Long Term R&D Investments Take Time to Payoff


    Timesharing Networking Reduced Instruction Set Architecture Redundant Array of Inexpensive Disks Parallel Computing MicroElectro Mech. Systems
    1965 1970 1975 1980 1985 1990 1995
    RHK.S96 28

    Govt Research

    Industry R & D

    $1B business

    US IT Trade Balance (Its Negative!)


    IT Industry Exports and Trade Balance ($, Billions)
    40 30 20 10 0 -10 -20 -30 81 82 83 84 85 86 Exports Trade Balance
    RHK.S96 29

    87

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