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How do they make 'm so cheap?

Discussion in 'Electronic Design' started by Dr. O, Sep 23, 2003.

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  1. Dr. O

    Dr. O Guest

    Sometimes I see these products which are so cheap that I wonder how they can
    make any profit from them. For example, in my local hardware store they sell
    electronic timer units for about $5. If you take in account the markup by
    the retailer, the selling price (including profit) is probably no more than
    a $1.50. These units contain, among other things, a LCD display, a relay, a
    computer and a casing plus a two dozen or so miscellaneous electronic
    components (resistors, capacitors, fuse, voltage regulator, diodes,
    transistors, crystal), plus a single sided PCB.

    I really wonder how they can make a product that cheap. I mean, if I add up
    commonly used components available in the Western world (such as a Microchip
    or Atmel MCU) I get a price which is at least 10 times the selling price,
    without any profit at all and labor, taxes and such not included.

    I know they make these things by the thousands, but even if I take that in
    account (let's say 15% discount for every doubling in volume) I still cannot
    get close to $1.50.

    So how do they do this? What kind of microcontroller are they using, for
    example. If I order a million 16c55's from Microchip, they'll probably cost
    about $0.40 or so. How do I design a product *that* cheap. Let's say I have
    an idea and I make a prototype with commonly available components, are there
    special shops which can turn it into a ultra-low cost consumer product?

  2. One word : experience
    You need to be familiar with the suppliers and distributors.
    Where to get a component cheapest at 10k pieces up is a
    job in itself. You have to attend international trade exhibitions
    and get the contacts.
    Over here you can get the OEM manufacturers, eg board assemblers,
    to do that job for you for a small fee.

  3. Probably a COB mask-programmed processor with LCD driver.
    Use the same kind of parts as are used in consumer products and buy
    them in huge quantities, in Asia.
    Yes, they can even sell it for you, and keep the profits. ;-)

    Best regards,
    Spehro Pefhany
  4. One can get an ok DVD player - with remote+batteries - for the equivalent of
    USD 70 here in the DK; comes with a 2 year warranty too and the price
    includes the worlds highest VAT rate of 25% too!

    Looking forward to Chinese computers.....
  5. Dr. O

    Dr. O Guest

    And how do I acquire this experience? And I don't like it BTW. I believe a
    manufacturer should play level and offer everyone the same product for the
    same price and with the same volume discounts. How am I gonna compete with
    some Chinese manufacturer if they get the parts for less than half the price
    I'm getting them for? I'm more than willing to compete with the Chinese and
    Koreans as long as they play fair. If manufacturers keep charging different
    prices for the same volumes, how are we here in the West going to compete?
    We're digging our own graves.

    I'm seriously thinking about demanding (in writing) a guarantee from a
    supplier/manufacturer that we get the same or lowest price (for the same
    volume) of a component.
  6. Baphomet

    Baphomet Guest

    You can bet the final product is fabricated somewhere in Asia
  7. It doesn't work this way.
    Acquire experience ? As said, go to the trade exhibitions. On a regular basis.
    You'll suddenly find the part you were paying 10$/10k for 2.90$/10k. From a
    different manufacturer, perhaps with looser specifications, perhaps with
    higher junk ratio, perhaps openly breaching one or more patents.
    You may also have to pay in advance for what you were billed 30days.
    And you may also see the guarantee void for language problems.
    You may have to setup an input screening and testing to sort out the 10%++
    junk, but since you're getting it for 30% of the price....

    Usually getting something cheaper, means you have to pay for it, one way
    or the other.

  8. John Fields

    John Fields Guest

    Grow up. Nobody plays fair, they only play to win. If _you_ want to
    play you're going to have to cultivate long-term mutually beneficial
    relationships and make it advantageous for your suppliers to deal with
    you and like you.
    Start paying Chinese wages?^)
    Actually, they're being dug for us.
    Yeah, right...

    How are you going to enforce the "agreement", assuming you get one?
    Take them to court because they're not selling you parts at the prices
    you want? Cool move. You've got a line bogged down because you have no
    parts coming in and then you're going to throw away some more money and
    time (not to mention the enmity you've created which will assure that
    you'll _never_ get parts from that supplier again) by running the thing
    through the courts?

    Sounds like what you're looking for is a Burger King franchise...

    Single sourced guaranteed material shipments, stable price structure,
    semi-stable customer base, yeahhhh... That's the ticket!!!
  9. Zak

    Zak Guest

    Think about the markups on that MCU. The manufacturer knows the timer
    can always be sold - every trader in between knows the same. Market
    demand doesn't suddenly change fully. Maybe the price drops in half,
    maybe not, well... and there will always be other channels. Doesn't sell
    in the USA? Well, Mexico may still want them...

    Now the components. Small numbers can always be sold. But huge volumes?
    If it is discontinued it will not be used for new designs. So: much
    higher risk.

  10. They can be from surplus stock, overproduction or older versions. They
    can also be made in China, where people work for a couple of $ a day.
    So probably surplus.

    Pieter Hoeben
  11. Some years ago I bought a serial port switch -- a steel box with five
    DB-25 connectors and a four position rotary switch. It was sold for
    US$9 plus sales tax as its normal catalog price. I opened it to see how
    they could sell it so cheap and found that its internal connections was
    not a machine soldered PCB as I expected, instead the connections was
    made with 125 individual wires hand soldered to the 25 pins on each of
    the 5 connectors and to 125 pins on the big rotary switch. Labour must
    be cheap someplace if they can hand solder 250 junctions and still sell
    the finished product for US$9.
  12. TheDoc

    TheDoc Guest

    Dream on...

    money and volume talk..
  13. Dr. O

    Dr. O Guest

    Every business relationship is mutually beneficial. If I buy their products
    their revenue will be bigger and they will make more profit. If everyone
    only caters to the 'big guys' then Karl Marx was right with his
    'Konzentrationstheorie' and we'll end up with only a few megacorporations
    running the world. In the end, we'll all pay more, as Microsoft has shown

    Your missing the point. Labor's not the (only) problem. I'm talking about
    the parts themselves.

    If they don't want to get into an agreement, you can always threaten to go
    to another supplier.
    By checking what other manufacturers are paying for the same part. You could
    make the agreement legally binding, forcing the manufacturer to pay a hefty
    sum if I find they're giving someone a cheaper price.
  14. John Fields

    John Fields Guest

    Perhaps, but you seem to want to be the one making the rules about who
    should benefit and how much. If I were a supplier of widgets and I had
    customers who had been with me for years and pumped millions of dollars
    into my organization and all of a sudden you showed up complaining about
    that you were being treated unfairly because you had a few tens of
    thousands of dollars that you wanted to spend and you wanted your parts
    at the same price I was charging my good customers and you wanted your
    parts _now_, dammit!, Guess what? I'd send you to one of my

    If I buy their products
    If you're not one of the "big guys", then you can't expect to be treated
    as though you were. If you think Microsoft's prices are high, then I
    suggest you think about what you'd have to pay for ,say, an equivalent
    operating system if IBM were running the show.

    OK, then, let's tell the Chinese what we'll allow them to charge the
    Koreans for resistors. That'll work, and make us some new friends, huh?

    Reminds me of a joke...

    This woman goes to her butcher and asks, "How much is chicken?"

    "$1.25 a pound" says the butcher.

    "$1.25 a pound?" she excaims, "Schultz down the street's got it for
    $1.00 a pound."

    "So go to Schultz" replies the butcher.

    "But Schultz ain't got none" she complains.

    "Well, If I ain't got none it would be 75 cents a pound" he replied.
    You're a fucking idiot, and all you're really doing is cutting off your
    nose to spite your face. If you want to buy parts for the same prices
    as the big boys pay for them you'd better be ready to spend some big,
    non-refundable bucks to buy in the same quantities they do and get that
    chip off your shoulder.
  15. sPoNiX

    sPoNiX Guest

    In the UK less that $60 will get you a DVD player that plays most
    formats and comes with a 3 year guarantee.

    When you consider the retailer makes a profit, the importer makes a
    profit, the exporter makes a profit and the manufacturer makes a
    profit how much does it cost to build?

  16. Tim Shoppa

    Tim Shoppa Guest

    Most commodity PC-clone stuff has been made in Taiwan for over a decade.
    Mainland China is now their competition. It might have a local name-brand
    slapped on the front of the box but everything (including the box and label)
    came from the Far East, with the possible exception of the CPU.

  17. They already have a LOT of Chinese labor content.

    Best regards,
    Spehro Pefhany
  18. Hahahah. You're kidding, right? You really think that a sensible
    manufacturer will give the same price to a garage start-up for, say,
    1,000,000 resistors (only 200 reels, not a lot of money for anyone) as
    they would for an order of the same size from Celestica? Or the same
    price to persnickety Celestica as they would to a local throw-away
    product manufacturer who doesn't care if a few percent of parts are
    bad or out of spec? Losing money (or face) isn't in their plans.
    Maybe *you* can't. Look around at what's still made in North America
    or Western Europe. Then look closer to see what's actually made.. at
    readmill might be marked "made in USA" but when you look at the
    "computer" you'll find it was made in China.
    That will just *guarantee* a non-answer, except from crooks. This from
    someone with 20+ years doing business in Asia.

    Best regards,
    Spehro Pefhany
  19. Tim Shoppa

    Tim Shoppa Guest

    And a lot of engineering content too. The early hardware interfaces
    were designed and built by US companies; for a number of years the Taiwanese
    and Chinese clones just copied these nearly verbatim ("bug-compatible",
    or do a Google search for "when you care enough to steal the very best"
    for how an associate of mine acknowledged a different sort of cloing.)
    But in the past several years all the interfaces (except for the very
    highest-end network and RAID controllers - not stuff you find in a
    consumer PC-clone) have been defined and engineered by China too.

  20. The materials of made-in-China items have a fair amount of other Asian
    content too. For example, you might buy an aluminum label for your
    power supply from a Chinese company but specify Sony adhesive rather
    than some domestic Chinese product if UL approval is in the cards.
    Last I looked, much of the plastic resin and additives were Asian in
    origin, or otherwise imported (from Europe or the US).

    Much of the apparent US trade deficit with China is actually an
    exported trade deficit with Japan and Taiwan, as the overall trade
    balance of China with those countries is not far off balance.

    Best regards,
    Spehro Pefhany
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