Doesn't the fact that they're selling the same chip for a lower price mean they are profitable with that low-end price, too? I doubt they are just dumping the leftovers for the low-end, and taking a loss.
Also how is this any different from the Adobe scandal in Australia from a couple of months ago? I believe the Australian government even took them, Microsoft and Apple to court over charging Australians a lot more than Americans or others for the same products.
You are thinking about chip costs as if you were selling bread or cars, where the majority cost in making the product are the marginal costs of manufacture. This is not true for microchips. The marginal cost to produce any modern Intel cpu is <$40. Most of the cost of making chips is in developing the process they run on, and designing, testing and validating the chips.
When the economics of making chips are $2B down to make the first one, then $25 for each that goes off the line, you cannot measure profitability like that. They need to recover R&D, and providing more expensive chips to the professional market through price discrimination is a good way to do this.
Making the mask is really expensive. I had an external lecturer tell me it cost about 1 million usd to make a set of masks for their silicon, I assume Intel pays way more.
Once you have the mask though, pushing out chips is cheap and easy.
And the masks are just a really, really small part of the total cost. Intel has to pay for their fabs, they have to pay for the research into ever smaller line widths, they have to pay for materials research for new gate materials, and they have to pay for the massive research and development to design new, better chips.
It isn't about just being profitable, it's about extracting maximum value from every customer.
Ideally, the company would haggle with each and every customer, and get each customer to pay the highest price he in particular accepts. Since haggling is not feasible in mass markets, customers get grouped in segments, where the price is set to the maximum the segment will accept.
Clearly, if you misclassify a hacker into an expensive segment you get your hardware hacked :-)
Yep. in my view, if the product is already profitable at a lower segment, and they manage to sell it to the pros for a higher price, then the company is making undeserved money, rightly so, bears the anger of their customers when found out.
Yep. in my view, if the product is already profitable at a lower segment, and they manage to sell it to the pros for a higher price, then the company is making undeserved money, rightly so, bears the anger of their customers when found out.
I completely disagree. Even if it was as simple as just charging "pros" more money (it's not), the idea that this is somehow "undeserved money" is pretty ridiculous in it's own right.
I can't break it to you any more easily than: You are flat wrong. Segmentation is micro-economics 101 and is an expected company behaviour.
Perhaps I can explain briefly. The "deserved"(sic) price is a value where both buyer and seller are comfortable doing business. In most cases, this is not a single value, but a range of values. At the minimum threshold the seller turns comfortable, and then there's a range where the transaction is possible and at the maximum the buyer turns uncomfortable.
Now, while for a given product and fixed seller, the minimum value of the agreement range is fixed, the maximum is dependent on the buyer. Yes, it is possible to sell all products at the minimum, but then you are giving all shared value to the buyer. Even if you are aiming for fairness, the transaction should occur at the middle of this agreement zone (the buyer buys at less than his maximum price, and the seller sells above his minimum price).
You could tackle this difference between consumers on a case by case through individual negotiation. Obviously this is not practical, so the next best thing is segmentation.
You may think this as unfair, but this is a result of seeing a half-empty glass. Segmentation allows for a company to subsidize "cheaper" products using "premium" products. If a cheaper product covers variable costs (but not fixed costs), and does not cannibalize the premium products, segmentation allows for prices below what would be possible if the burden of fixed costs had to be assigned to the cheaper segment. In industries where most of the cost is fixed (as in semiconductors), segmentation is key to achieving large volumes without compromising the ability to profit.
Yeap. AMD did this with its Phenom II chips. Maintain the same fab process for a 4 core processor but sell it as dual or triple core if it was poor quality. AMD motherboards famously had the feature to enable the locked down processors. Obviously your mileage would vary but going from 3 cores to 4 was a pretty significant performance boost especially for the initial cost.
A while back there was a way to unlock an AMD 6950 GPU to a 6970 as well. Had something to do with unlocking some memory modules since the cards were identical.
Also how is this any different from the Adobe scandal in Australia from a couple of months ago? I believe the Australian government even took them, Microsoft and Apple to court over charging Australians a lot more than Americans or others for the same products.