The High Costs Of Custom Chip Design

Add it all up and it should be clear that designing a chip is something very few non-chip companies can really do. Apple Silicon has to cost Apple billions every year, before we even get to working capital for the chips. Even Google has to be carefully weighing which chips it is going to produce.

Consider this strategic risk:

Internal chip capabilities come with big sunk cost issues. The industry is littered with the remains of companies that held themselves hostage to their internal fixed costs – Nokia and its manufacturing plant is just the first to come to mind. Building internal silicon obviously comes with significant financial costs, but companies need to also weigh the cultural and strategic gravity they create.

That is from, “Let’s Build a Chip,” by Dollars to Digits. It’s a terrific explanation (with math!) of both the marginal and average costs of custom chip design and manufacturing.

These days, it seems like every autonomous vehicle company is trying to build a custom chip to keep pace with Tesla. It’s not easy. Or cheap.

Hat tip: Benedict Evans