Originally Posted by Faksnima
Kyle's piece reeked of the jaded bitterness of a scorned lover.
Kyle isn't wrong those, this product is alot slower than people anticipated, and as a result AMD has to charge relatively little money for their product. And all one has to do is look at the pricing in the chart BOM in the chart below.
Originally Posted by Dudewitbow
Memory is still a relatively sizeable chunk of manufacturing cost. given an old 2011 chart on costsWarning: Spoiler! (Click to show)
for the 580, the memory on it took 13% of the total graphics card cost, this was the 1.5GB model so the 3gb would be twice that(26%, which is a lot relative to the cost)
albeit buying memory chips has decreased in price, the amount being used on a board has increase offsetting the price decrease. If applied today, it still probably cost a decent amount to put memory chips on a board.
The cost of this chip is around 80 dollars for a full chip and 70-60 dollars for a cut down chip. Wafer prices are about 60-80% higher than 40nm. Considering Polaris 10 is in the same thermal, die and performance range as a 6870, the rest of the costs should be similar. I Suspect 8gb of 2ghz ddr5 is more expensive than 1gb of ddr5 back in the day. Add in missing parts like production and packaging which add another 15 to 20 dollars on top of the cost and basically you have a very small margin on this chip.
e.g 116+(30 additional wafer cost) + 15 dollars for packaging and manufacturing, which are not included above and margins for board partners and margins for retailers and distributers.
So if AMD if it costs AMD 80 dollars to make this, it they are selling it for around 120 to board partners.
120 for GPU
+ 66 board parts.
+15 for packaging and assembly.
201*1.1 for board partner margin= 221
221*1.1 for retailer margin = 243
with the rest covering logisting and shipping.
A 33% margin on top end SKU is no good. This is because margins get worse down the food chain.
And the margins for their next cut down gets even worse.
To sell the part for 200 dollars, AMD can only charge 80 dollars for a part that costs them 65 to make.
80 for GPU
+ 66 for board parts
+ 15 or packaging and assembly
161*1.1 board partner margin = 177
177*1.1 retailer margin = 195
with the rest covering logistics and shipping.
80-65/80 = 19% gross margin.
This is bad because at these margins, it's hard for AMD to make money. AMD had margins higher than these numbers and they lose money still. For the long run, we need AMD to make money and no way would any company willingly accept these type of margins unless the market conditions forced them too.
What you have to realize, is this is only the gross margin which means alot of bills still have to be paid. Volume * gross profit per unit = gross profit. This still needs to cover the rest of AMD's expenses to determine if their is profit in the end.
Thus, after subtracting operating expenses, marketing, overhead and R and D, this will turn out to be a loss in the end. This is why AMD still loses money with roughly on average 30%-35% gross profit margin.
Consoles, can make a profit on these type of margins because there is no IP which is amoritized over time(the cumulative R and D spent). This is because the R and D is spent by Sony and MS. AMD has to cover the development costs on their won discrete chips, which is hundreds of millions of dollars.
This is hardly a success if your a stock holder because it simply doesn't leave much room for profit. Selling stuff close to cost only makes sense if there is no, asset to depreciate or no IP to amortize. This is not one of those situations.
This low price is a reactionary measure likely to 1070 pricing and a potential competitor in 1060.
If the 1060 is $200 dollars(which Nvidia may do, just to hurt AMD like the 970 series) includes a game, and is able to drop the pricing of AMD product just 20 dollars. AMD is now taking a loss. This is why low margins are bad.
This low price is a house of cards. Any further price drops, basically means AMD eats the loss on their entire R and D expenditure, which is hundreds of millions of dollars.
All things considering, AMD would rather have a faster product they could charge more for. If AMD could have charged 300 and 250-230 for their product, it would have made a world of difference in terms of profitability.
Marketing is working right now because it looks like AMD wanted to do this, but behind close doors, AMD is probably wondering about the future profitability of the unit.