Why are chips so expensive?

Chips are expensive because a large part of the money is spent before the first chip exists. The design takes a big team a long time, a full set of photomasks for printing the circuit is expensive, and building a fab and filling it with tools costs far more. After that, every wafer goes through hundreds of steps over several months in the fab; the chips that come out bad have to be counted too; and finally each chip is packaged and tested. Spread all of that over every chip sold, and you get the cost of a chip.

But "expensive" depends on the chip. Some are very cheap, others cost far more. Here is where the money goes, one item at a time.

Where does the money for a chip go?

Roughly into six things:

1. Design
2. Photomasks: the "negatives" used to print the circuit
3. The fab and its tools
4. Processing: the months a wafer spends in the fab
5. Bad chips: the good ones pay for them
6. Packaging and testing

The first three are big sums spent before the first chip is made. The last three are paid again for every extra wafer made and every extra chip packaged.

Why is designing a chip so expensive?

A phone chip holds more than ten billion tiny switches (What is a transistor?). How they all connect, and whether anything goes wrong, has to be drawn on a computer first and simulated over and over; just checking that the design is right often takes a large share of the work. So designing a big chip takes a large team of engineers, and from the start of the design to the first chips coming out often takes several months to more than a year.

The specialized design software is licensed at a high price, and some blocks of the circuit are ready-made designs bought from others, which cost money too. For how the design work is done, see "How are chips designed?".

This money has nothing to do with how many chips are made: one chip or a hundred million, the design still has to be done.

What is a photomask, and why is a set so expensive?

When the design is finished and handed off, that's called tape-out. Next come the photomasks: the "negatives" for exposure, each a plate of glass carrying a circuit pattern. The scanner uses light to print its pattern, shrunk, onto the wafer (how, in "What is photolithography?").

Every layer of a chip's pattern needs at least one mask; a full set often runs to dozens, and more for more advanced processes. Each one has to carry extremely fine patterns with no mistakes. The size general sources agree on: for advanced processes, a full set easily costs over a million dollars, and more with each new generation.

Find a design mistake after tape-out, and the design has to be fixed and the masks remade, losing both the money and several months.

How expensive are the fab and its tools?

Very. Building an advanced fab and filling it with tools costs several billion to over ten billion dollars, a sum only very large companies can raise (What is a fab in semiconductors?). Among the tools, the most advanced extreme ultraviolet scanner costs over a hundred million dollars by itself (What is extreme ultraviolet (EUV) light?).

Once bought, tools lose value every day whether they're used or not, so fabs run 24 hours a day to spread that money over as many wafers as possible (Why do chip fabs run 24 hours a day?).

The months in the fab cost money too

From wafer start to finish, a wafer goes through hundreds of steps, often over several weeks to months (How long does a wafer take to make?). Every step uses tool time, electricity and the people working the shifts, and many also need ultrapure water, gases and chemicals. The more steps, the more each wafer costs (see also "Why do semiconductor fabs use so much electricity?").

Why do bad chips cost money?

Each wafer carries many chips at once, over a thousand small ones or a few dozen large ones, and some always come out bad. A wafer costs roughly the same either way, so the fewer good chips, the more each good one has to carry (What does "yield" mean in chip news?).

Big chips lose twice: fewer fit on a wafer, and each is more likely to be hit by a defect, so their cost climbs especially fast.

A wafer that can't be saved partway through is scrapped, and the closer it was to finished, the more is lost. One that can be saved needs rework, which also takes extra tool time.

Packaging and testing cost money too

After the wafer is finished comes assembly and test. Usually, wafer sort first tests every chip; bad ones aren't packaged, which saves the cost of the package. The good ones are cut apart, put into a package, and tested again (How are chips tested?, What is chip packaging?).

Testers are expensive, so the longer each chip spends on one, the more it costs. Packages range from cheap to expensive: more pins and more heat to get rid of mean a pricier package. For very small, cheap chips, packaging and testing can be a big part of the cost.

Why does making more of the same chip make each one cheaper?

Because the money spent up front can be spread very thin.

Think of making plastic toys: first you need a mold, and the mold is expensive; after that, each extra toy costs only a bit of plastic. Make 10 and each one is shockingly expensive; make a million and the mold hardly shows. A chip's design and masks are like that mold.

Try it with made-up numbers. Say design plus masks cost 100 million in total:

Chips made in total	Design and mask cost carried by each chip
10,000	10,000
1 million	100
100 million	1

Making the chip itself costs the same, but the share each chip carries differs ten-thousand-fold.

Why are the most advanced chips especially expensive?

With the newest generation, every item gets more expensive:

• Harder design: more switches, more to check.
• More, pricier masks: the finest layers need extreme ultraviolet light, or older light used several times per layer.
• Pricier fabs and tools, still new and not yet paid off.
• More steps, so wafers stay in the fab longer.
• Low yield at first: many problems haven't been found yet.

What a new generation gives you is more switches in the same space, faster and using less power (The news says "2 nm"). But at that price, it mostly pays off only for chips that really need it and are made in large numbers (see also "What is Moore's law?").

So why are some chips cheap?

Many small chips in cars, home appliances and chargers are very cheap, because they sit on the cheap side of every item:

• Older processes: the tools were mostly paid off long ago, there are fewer steps, and the process is well known, so few chips come out bad (The news says "mature nodes").
• Small chips: many fit on one wafer, and each is less likely to be hit by a defect.
• Made in large numbers for many years: the design and mask costs are spread very thin.
• Simple packages: few pins, little heat, so a cheap package will do.

So whether a chip is expensive comes down to three things: which generation of process, how big the chip is, and how many are made.

In fab24hr

The game has no prices, but many choices touch the cost. In chapter 3 of the main story "The life of a chip", "The shape of a failure", the customer wants the hearing-aid chip Glowmere as small as possible. Hsin-Yi wants to keep two spots inside the chip for the R&D line's own test keys, and Manager Wang says: "Two spots is 2% more chip area. The customer will ask." In chapter 4, "Two Weeks Early", the customer wants a risk start: if it fails, those lots may be scrapped whole. In chapter 8, "In a Hurry", wafer 7 of the hot lot H-2417 needs a manual rework etch; the first 6 are already done, and etching them again would turn them into scrap. In chapter 10, "Standby Current", setting the test limit a little tighter drops yield by almost five percentage points, and the first batch falls short.

To play the mask engineer, tap "Clock in", choose "A day in the fab", then on the "Your role today" card tap "Production fab" and swipe to the mask engineer. On the afternoon shift, the pellicle on one mask has a scratch, and this layer has only this one mask, with no spare: use it and the lots keep moving; send it out for a new film and the layer stops for two days. The companies, chips, people, lot numbers and figures in the game are fictional; where a chip's money goes comes from public, general sources, and amounts are given only as the rough size the sources agree on. For the jargon, see Chip fab jargon in plain English.