
Analog Devices AD9361 – when microchips are more profitable than drugs - erric
https://zeptobars.com/en/read/AD9361-SDR-Analog-Devices-DAC-ADC-65nm
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barbegal
The assumption the author has made is that each chip has an R&D spend
proportional to the revenue that it generates (~20%). This is clearly false.
Some chips are relatively simple but sell in huge numbers so the R&D per
revenue is extremely low. An SDR is one of the most complex chips you can make
with a wide range of expertise going into the design. I can easily imagine
$20+ million being spent on R&D for this chip and the market for it is pretty
limited (not for consumer products). Even at 100,000 sales the R&D costs alone
would be $200 per chip.

Pricing for these sort of niche low volume products is guided much more by
what the market tolerates paying rather than the production and development
costs. A large number of these types of chip never recover their R&D spends.

~~~
sleavey
To add to this, I imagine chip companies don't look at it as plainly as
whether a chip recovers its development costs. If the development costs lead
to techniques or designs that can be reused, the next chips will be not only
better (due to incremental improvements) but also cheaper.

~~~
civilitty
In my experience designing electronics, EEs and the people handling
logistics/manufacturing are extremely risk averse actors who make many
decisions based on trust and personal relationships. As a contractor, my
deadlines would often only allow for at most two or three prototypes before I
had to deliver a working design and that did not leave much room for error. If
my client or I had an existing relationship with a vendor that always supplied
parts on time, fast samples/dev kits, or if I knew their reference designs to
be more reliable than most, then that vendor would be the preferred source for
parts even if their other offerings weren't the best or the most cost
efficient.

You can also often get great pricing for low/medium volume orders if you have
built up a history so I've had situations where I had to design a
significantly more complex board with a microprocessor that normally cost
10-20 times more than the CPU I would have chosen (from another vendor). The
client's supplier for the other most expensive part on the board had too much
inventory of a soon to be discontinued processor (that was pin compatible with
a newer one, also very expensive) and the account manager's boss was willing
to sell us everything we needed at an 80% discount _off high volume pricing_
with pricing guarantees on the newer parts for several years, all to meet some
regional sales quota.

As another example, microprocessors often have arduous power up requirements
where different voltages have to be supplied in a specific sequence within
annoyingly specific timing tolerances. In a project using Marvell
microprocessors, it was much faster to just use Marvell's power chips and
existing reference design than to waste precious time on modifying designs for
cheaper chips from other vendors. The power parts cost five times as much as
they would had I chosen my favorite vendor but because the board was a mixed
signal design it was extremely expensive to make changes and test prototypes.

A vast catalog of parts is an especially powerful market force if you are a
company like TI that has a well developed software tool like WEBENCH which can
spit out _dynamic_ reference designs for most of their power chips. Unless I
have an existing reference design from a vendor of a major part (like the CPU
above), I usually go straight to TI's tool to design any power supplies I need
so I can focus on the meat of the PCB. If TI also has parts that do something
else I need on the board I will often just choose them instead of researching
other vendors (unless it's a really expensive component) and that compounds as
I make more and more PCBs, each time becoming more comfortable with TI parts
at the expense of others.

~~~
zer00eyz
Sales factors (discounts) and vendor lock in's/preferences (with good reason
or not).

Oddly some of the same stuff happens with drugs!
[https://tonic.vice.com/en_us/article/pg7ez9/pharma-reps-
are-...](https://tonic.vice.com/en_us/article/pg7ez9/pharma-reps-are-
basically-bribing-your-doctor-study-confirms)

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alanbernstein
Is it accurate to refer to the average wafer price as "manufacturing cost"
rather than "materials cost"? Shouldn't the amortized cost of the fab be
included as part of "manufacturing cost"? Or is that captured in any part by
"R&D"?

Either way, the drug comparison is apt. The chip/pill is a tiny thing with
negligible marginal cost. The plant costs billions. Pricing seems arbitrary,
but these huge expenses do need to be recouped somehow.

~~~
ttul
The fab cost is “NRE”

~~~
dgacmu
No, NRE is masking and tooling cost. Fab costs would need to be amortized
separately. (Because fab costs get spread across many, many products; the 1000
wafers used as a guesstimate in this article is tiny compared to what a fab
produces over its life.)

If anything, the Fab costs should be included in the cost-per-wafer.

~~~
slededit
Analogue fabs are highly customized. You could probably make some back of the
napkin comparisons but you wouldn't be able to actually manufacture it in
another fab without a lot more R&D spend.

~~~
smaddox
That's true of any advanced node, though.

~~~
slededit
The difference is with analogue everything is a full custom, with digital it's
only the trailblazers. Also linear devices require an order of magnitude more
control and characterization than digital even when full custom.

~~~
dgacmu
I think we're mostly in violent agreement. There's a lot for an analog IC -
those mid-manufacturing test pads are a great example of pain. Testing costs
are going to be higher, there will be extra NRE on custom test harnesses, and
all the rest you allude to. But they'll be able to get multiple projects out
of the basic investment in litho gear. I think it depends where one draws the
line at the (very large) CapEx of "the fab".

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merinowool
It is worth mentioning that drugs are only so profitable because of their
legal status. Drugs themselves are very cheap to make - additional cost is
simply the risk of getting caught, security and so on. I think those factors
don't exist for microchips, so the title is a bit misleading.

~~~
jsjohnst
The title is very misleading. Had the author stuck to legit pill making, it
could’ve made a fairly apt comparison, but they mentioned drug cartels which
implies a very different set of costs / risks. I’d further argue drug cartels
have a wider price differential between raw material and wholesale product
too, but don’t have a source to back it up.

~~~
erric
I’d wager you are correct. Still it is an interesting read and I wanted to
share.

~~~
jsjohnst
Turns out, if BusinessInsider is correct, the raw coca plant leaves needed to
make 1kg of cocaine base costs about $650. The same article claims you can get
kilos in South America for about $6,500 with purity around 85%. Prices go up
the closer you get to the final destination, but as do the risks too of
course. If those numbers are accurate, would indicate a gross difference of
10x, not the 172x from source article. I’m surprised the coca leaves go for so
much!

~~~
bluedino
Remember that final prices of drugs are “street prices” in quantities of use.
So you might have 25,000 USD of a drug, and it might be 2 kilograms, but when
you split it up into 2-4g packets, the individual prices are much higher and
you might get “one millions” in street value, which is what the police and
media like to report. It makes the amount seem so much bigger.

~~~
jsjohnst
Yes, I know street value. I also know stateside wholesale price too. I just
didn’t realize the markup was so huge between source and destination vs raw
material and finished product.

Also, cocaine isn’t usually sold in 2-4g packets in most places. Usually it’s
1g or less. Otherwise (but much less often) it’s ~3.5g.

~~~
bluedino
It’s usually sold by a teener (1/16 oz) or eightball here (1/8)

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ebikelaw
ADI is a remarkable company and they seem to be doing very well these days. If
you’d told me ten years ago that in 2018 all of the old-line semiconductor
companies (ADI, TI, etc) would be trading at all-time-high stock prices I
would have thought you were nuts but here we are. Hardware is still quite
valuable.

~~~
madengr
Too bad they destroyed the Hittite and LT web sites. Those were for engineers.
The AD web site must be laid out by some marketing goob; totally painful to
use.

~~~
ebikelaw
At least the AD website usually works on weekends. Many of these companies’
websites apparently need constant manual correction to continue operating,
with the result that i often find I can’t download datasheets on Sundays. Bad
for the hobbyist for sure.

~~~
gh02t
I have trouble with slow page loads and can't order samples from Microchip on
weekends.

~~~
setquk
This is universally the case for hardware companies I’ve found, even
suppliers. We get Farnell, CPC and RS outages at the weekend here in the U.K.

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znpy
Some pictures looks like photos of futuristic cities taken from an airplane or
from a drone.

I find them fascinating.

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oliv__
I didn't understand anything but man those pictures were beautiful. Would be
pretty cool to print them out and hang them on a wall.

~~~
Erwin
You might like these shots of the classic 6502:
[http://visual6502.org/images/6502/index.html](http://visual6502.org/images/6502/index.html)

~~~
oliv__
A- _maze_ -ing. Sorry couldn't help it. Jokes aside, these are great!

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55873445216111
65nm process can be either 200mm or 300mm wafers.

At 21mm2 on a mature process, yield should be much higher than 50%. More like
90% is reasonable.

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madengr
What the process? The tear down says mostly FET based, so I assume a BiCMOS?

The AD9361 require front end filtering, as the 5th harmonic of the 2m ham band
falls in a national LTE band; horrible interfence from that wide open front
end.

~~~
setquk
Surely 5th is down enough dB for that not to be an issue?

~~~
madengr
It’s not the 5th being down. The 5th LO harmonic mixes the LTE band down to
the 2m band. That’s just inherent in a Gilbert cell mixer. There is a high
powered, 20 MHz wide (OFDM) signal pretty much everywhere at 715 MHz.

~~~
setquk
Ah gotcha. That makes sense.

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ksec
Now I finally understand why Apple is making more and more of chips and tech
in house.

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ChuckMcM
This chip has been a boon to SDRs. It moves the challenge of building an SDR
to the filter banks and power amplifiers (the input and output conditioning
circuits). Although these days most of the new transceivers have a low end in
the 300Mhz range. It is somewhat easier to mix up the low frequencies into the
300+ Mhz range to cover them.

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jiveturkey
clickbait title. not even a good analysis. i do like that the author wasn’t in
any way complaining about the price or arguing that it wasn’t reasonable. in
electronics (compared to drugs) there isn’t unfair pressure in the
marketplace. so double phoo on the title.

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jiveturkey
i wonder if the new sds100 is built around this chip. timing is right.

~~~
stagger87
Since the frequency range doesn't match what the chip is capable of then
probably not. The chip was released in 2013 so I'm not sure what you mean by
timing.

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linkmotif
Drugs aren’t profitable if you can make money any other way.

