Using TechInsights Semiconductor Manufacturing Economics to establish competitive pricing

The Challenge

IDMs must design and price their products in a competitive market landscape. While they typically maintain some form of cost model for their own fabrication lines, the ongoing expenses associated with these models – especially those with limited simulation capabilities – can be substantial. A significant challenge is that they lack a reliable method to validate the accuracy of their internal models, which often struggle to simulate the manufacturing costs of competitors’ fabs accurately.

This uncertainty surrounding competitors’ costs leads to ambiguity in determining the gross margins of rival products, complicating efforts to establish competitive pricing for IDMs. Without a clear understanding of competitors’ gross margins, marketers and salespeople at IDMs face difficulties in identifying which product lines and market segments to pursue for expansion and which ones to consider exiting.

The Solution

TechInsights’ Semiconductor Manufacturing Economics includes sophisticated Cost and Price Models that accurately simulate semiconductor manufacturing for all device types. These models provide detailed “bottom-up” calculations for essential components, including equipment, materials, labor, and facility costs needed for the entire semiconductor production process, from wafer fabrication to assembly and final testing.

Pricing is determined based on supplier gross margins and the volume of semiconductor devices sourced. The models are user-friendly, requiring only a few inputs to rapidly simulate manufacturing scenarios. Each wafer fabrication model included hundreds of pre-set process flows that can be easily modified for precise output.

The Results

Understanding the cost of goods sold for semiconductor devices enables IDMs to assess the specific gross margins of their own products as well as those of competitors. TechInsights’ Semiconductor Manufacturing Economics models offer accurate insights into semiconductor manufacturing, reflecting both current conditions and historical trends, while also projecting into the future through 2030. Armed with this information, marketers at IDMs can establish pricing strategies for both immediate sales and long-term contracts.

By leveraging these simulations, marketers can also identify when low gross margins indicate the need to exit a product line. Conversely, consistently high gross margins may signal opportunities for profitable expansion of a product line.

With TechInsights’ Semiconductor Manufacturing Economics, IDMs can also avoid costs associated with developing and maintaining internal cost models. This allows sales and marketing to focus on strategic analyses of competitors and markets, utilizing these industry-standard third-party models instead of spending time on internal model creation.