Economics and Sustainability Financial Factors Influencing Success

What are the Cost Components of a Design? Research Engineering Design Hardware Components (ICs, boards) Software Manufacturing

Costs (continued) Testing Engineering Support Service Sales Marketing Business Infrastructure

Component Costs 1990 Sun Color Workstation Ref: Computer Architecture: A Quantitative Approach, Patterson & Hennessy, CPU Cabinet CPU Board I/O Devices

Workstation Component Costs (continued) Rule of Thumb Cost% CPU CabinetSheet metal, plastic$501% Power supply and fans $.80/watt$551% (50¢/watt in 2001) Cables, nuts, bolts$301% Shipping box, manuals$100% Subtotal $1453%

Workstation Component Costs (continued) Rule of Thumb Cost% CPU BoardIU, FPU, MMU, cache$80016% DRAM $150/MB $240048% (40¢/MB in 2001) Video logic (frame buffer, DAC)$50010% Printed circuit board 8 layers $1/sq. in. $50 1% (17¢/sq. in. in 2001) Subtotal $ %

Workstation Component Costs (continued) Rule of Thumb Cost% I/O DevicesKeyboard, mouse$50 1% Display monitor $100020% Hard disk $4/MB $400 (1¢/MB in 2001) Subtotal $105021%

Cost Versus Price Categories that make up list price –Direct Costs - costs directly related to making the product. Includes labor, scrap, warranty (typically adds 25% to 40% to component cost) –Gross Margin - overhead that cannot be billed to one product. Includes R&D, marketing, sales, manufacturing equipment maintenance, building rental, cost of financing, pretax profits, and taxes (typically 45% to 65% of average selling price)

Cost Versus Price (continued) Cost * (1 + Direct costs) (1 - Average discount) * (1 - Gross margin) List price =

Cost Versus Price (continued) Component costs (15%-33%) Direct costs Gross margin Average discount Component costs Direct costs Component costs Gross margin Component costs Direct costs Add 25% to 40% for direct costs Add 82% to 186% for gross margin Add 33% to 66% for average discount

Sustainability Maintains functionality and user satisfaction over an extended life cycle Compatible with existing and emerging standards Tracks positive pricing and availability trends in technology (e.g., design includes new, innovative IC’s that are likely to be produced competitively in volume)

Sustainability (continued) Position in market evolves by freely encompassing new technology (design is resistant to being outdated by competing, incompatible technology) Design is low maintenance (service costs are controlled) Quality control in part supported by design for test features