Why Are Chips So Expensive?

Apr 30 2014, 7:12pm CDT | by

From time to time people ask me why chips cost so much, and can’t anything be done to make them cheaper.  The argument goes like this:

Silicon is the second most abundant element on the earth’s crust, making up about 28% of its mass.  It’s the basis for most of our rocks, clay, and sand.  This implies that it should be extremely cheap to make a chip.  After all a 300mm silicon wafer that is used to make dozens to tens of thousands of chips weighs only about 100 grams and a 50-pound bag of sand at the Home Depot weighs more than 200 of these wafers and sells for under $5.  Why, then, can Intel charge $100 for a processor chip that uses only a fraction of one of these wafers?

This sounds like a big rip-off.

This same question surrounded photovoltaics and the polysilicon shortage that industry experienced in 2007-8.  Yes, silicon is one of the earth’s most abundant elements, but that doesn’t automatically make chips cheap.  That silicon must be refined to a purity that was not thought possible a few decades ago.

These refining steps are costly.  The bulk of the cost of a raw wafer (~$500) is in this process, and the capital equipment and energy used to produce it.

This is a pretty elaborate process.  You can read about it in detail in a 46-page slideshow pdf from Simon Fraser University, but if you’re less patient you might want to look at the lighthearted ’80s-era rendition from Humphrey Products on the Objective Analysis website.  It might be old, but it’s still accurate and is actually fun to read.  That’s where this post’s image comes from.

But $500/wafer is a far cry from the $1,600 or so that a finished memory chip wafer costs, or the $5,000-odd cost of a finished high-end processor wafer.  Of that cost half or more is capital depreciation on the equipment that converts the raw wafer to finished chips.

The lion’s share of the capital depreciation is lithography equipment, basically cameras on steroids.  These cameras have lenses that are about 5-10 feet long and around a foot in diameter, and project features onto the wafer with a resolution as fine as 38 nanometers.

How big is 38 nanometers?  I’m glad you asked.  It’s 38 billionths of a meter, or the length of about 190 silicon atoms.

Another big chunk goes to the materials processing equipment, which consists of exotic tools like plasma etchers that very precisely burn things off the wafer, deposition equipment that puts atoms-thick layers of new materials onto the wafer, furnaces that are used to coax foreign atoms into the crystal structure of the silicon, and ion implanters which are like baby atom smashers.

All this equipment is extraordinarily pricey, costing millions or even tens of millions of dollars per tool.  That’s why a modern wafer fabrication plant can cost as much as $10 billion to build and equip.

The odd thing is that if you were to reduce that capital depreciation by using lower-tolerance (cheaper) equipment then you would get fewer transistors on a wafer, and that would push the chip’s cost per function higher.

A blog post called: Why Facebook Can’t Get its Dream Memory Chip details this for flash memoryFacebook and Google have asked the semiconductor industry to design a flash memory chip that has most of the performance of flash at a per-byte price that approaches that of a hard disk drive.  There’s no harm in asking!

In brief, though, that’s not going to happen.  The processes in use today are the most cost-effective available, and even if specifications were compromised chip prices would barely budge.

Making cheaper transistors is not at all simple, and (believe it or not) today’s methods are the cheapest anyone can do.

 
 

Don't miss ...

 

<a href="/latest_stories/all/all/30" rel="author">Forbes</a>
Forbes is among the most trusted resources for the world's business and investment leaders, providing them the uncompromising commentary, concise analysis, relevant tools and real-time reporting they need to succeed at work, profit from investing and have fun with the rewards of winning.

 

blog comments powered by Disqus

Latest stories

Bhopal fugitive Warren Anderson is dead (Roundup, Changing dateline)
Washington, Oct 31 (IANS) Warren Anderson, the former CEO of Union Carbide Corp, has died at 92 after living for 30 years under the shadow of the 1984 Bhopal gas tragedy that killed thousands.
 
 
Sit-ins delayed building powerhouses: Nawaz Sharif
Islamabad, Oct 31 (IANS) Prime Minister Nawaz Sharif Friday blamed sit-ins for delaying the construction of powerhouses in the country, as cricketer-turned-politician Imran Khan continued protesting with supporters in the capital city for over two months.
 
 
Britain to repay part of First World War debt
London, Oct 31 (IANS) British Chancellor of the Exchequer George Osborne Friday announced that the British government will pay off part of the country's First World War debt as part of the redemption of bonds stretching as far back as the 18th century.
 
 
UN-Habitat presents the first World Cities Day
Shanghai, Oct 31 (IANS/EFE) The UN Human Settlements Programme (UN-Habitat), headed by former Barcelona mayor Joan Clos, Friday launched its first World Cities Day in China, to be held every Oct 31 to promote sustainable development.
 
 
 

Latest from the Network

Joshua Jackson calls Diane Kruger his wife
Joshua Jackson calls Diane Kruger his wife. The 'Affair' star, who previously admitted he and his German girlfriend of eight years are unlikely to ever marry, doesn't like referring to the blonde beauty as his...
Read more on Celebrity Balla
 
Paris Hilton dresses up as her dog for Halloween
Paris Hilton dressed up as her Pomeranian pooch for her Halloween party last night (30.10.14). The 33-year-old star sported a fluffy white minidress and matching headgear, which looked like the fur of her $13,000 puppy...
Read more on Celebrity Balla
 
Saudi Arabia facing high child sex abuse: Studies
Riyadh, Oct 31 (IANS) Some studies in Saudi Arabia have revealed that the rate of children's sexual abuse in the Kingdom is alarmingly high with every fourth child having been exposed to sexual harassment at some point...
Read more on Celebrity Balla
 
30 killed in Nigeria car bomb attack
Nairobi, Oct 31 (EFE) At least 30 people were killed Friday when a car bomb exploded in a crowded bus station in the northeastern Nigerian state of Gombe, the National Emergency Management Agency (NEMA) told media....
Read more on Politics Balla
 
Vodka thief locked in supermarket freezer
St. Petersburg, Oct 31 (IANS/TASS) A woman suspected of stealing a bottle of vodka spent an hour locked in a freezer in a supermarket in the Russian city of St. Petersburg, a local police spokesman said Friday. The...
Read more on Politics Balla
 
Indian Navy ships reach Mauritius
Port Louis (Mauritius), Oct 31 (IANS) On a two-month-long overseas deployment, Indian naval ships Mumbai, Talwar and Deepak arrived in Port Louis, the capital of Mauritius, Friday, a statement said. Under the Command...
Read more on Politics Balla
 
Moscow airport chief engineer charged over French jet crash
Moscow, Oct 31 (IANS/TASS) The Russian Investigative Committee Friday charged a third person in the criminal case over the crash of a French Falcon jet in which France's energy giant Total CEO Christophe de Margerie...
Read more on Politics Balla
 
Bhopal fugitive Warren Anderson is dead (Roundup, Changing dateline)
Washington, Oct 31 (IANS) Warren Anderson, the former CEO of Union Carbide Corp, has died at 92 after living for 30 years under the shadow of the 1984 Bhopal gas tragedy that killed thousands. The death of the man...
Read more on Politics Balla
 
Taylor Swift not looking for love
Los Angeles, Oct 31 (IANS) Love and romance are not a priority for singer Taylor Swift. She says she isn't interested in dating anyone right now. Swift seems to be at peace with her life, and she doesn't enjoy it when...
Read more on Celebrity Balla
 
Sit-ins delayed building powerhouses: Nawaz Sharif
Islamabad, Oct 31 (IANS) Prime Minister Nawaz Sharif Friday blamed sit-ins for delaying the construction of powerhouses in the country, as cricketer-turned-politician Imran Khan continued protesting with supporters in...
Read more on Politics Balla