Chinese costing - Page 1
Forum section: electronics / general

author: alanambrose
author_rank: Frequent Contributor
timestamp: October 29, 2016, 11:06:35 am
content: Hi,OK I have a question. We recently did a design for a client that involved a number of Allegro A4988 stepper driver chips. Octopart suggests these are say $1.50 in 1,000-off quantities. Our populated stepper driver boards came out at maybe $5-10 BoM each using Chinese manufactured PCBs. However, I see 'Step Stick' boards incorporating the A4988 on eBay at ~$1.75manufactured and deliveredin small quantities.Question is this - with the A4988 at $1.50 in quantity, how does a Chinese manufacturer make money at $1.75 per board delivered? Presumably, they must be buying these chips at say 10c?Now everyone can speculate, but I would love to hear from someone who has actual knowledge...TIA, Alan

author: alanambrose
author_rank: Frequent Contributor
timestamp: October 29, 2016, 12:02:59 pm
content: Very interesting blueskull, I had assumed that not reading any Chinese, that taobao wouldn't be useful to me, but actually I can see the populated board at 69c in low quantities.https://world.taobao.com/item/44280190839.htm?fromSite=main&ali_refid=a3_430620_1006:1121573918:N:a4988:02b8eae31c057b0cf3a7e5e5bb392de3&ali_trackid=1_02b8eae31c057b0cf3a7e5e5bb392de3&spm=a312a.7700714.0.0.ZGAxsg... so your cost build-up makes sense. Does that mean that Allegro is selling at a cheaper price in China than in the Western world? Does that apply for other manufacturer's chips also?Alan

author: CatalinaWOW
author_rank: Super Contributor
timestamp: October 29, 2016, 01:57:39 pm
content: Quote from: blueskull on October 29, 2016, 12:07:44 pmI am having trouble wrapping my head around this. Said another way, it says the management costs of sharing risks across many independent companies is lower than the cost of doing it within two or three large companies. So it means that the large companies are doing that sharing less efficiently than the independent network (credible - corporate bloat is a real thing) or that the labor cost of this management is significant. Or maybe it is saying that in the rough and tumble Chinese market failure occurs frequently and no one much cares about the losers. But that method of hiding costs has to have limits.

author: janekm
author_rank: Unknown
timestamp: October 29, 2016, 02:04:18 pm
content: And yes, in many cases IC manufacturers will sell their parts cheaper to Chinese distributors, because the assumption is that most of those parts end up in low-cost products where every cent matters. But also a lot of parts are reel-ends and sometimes recycled.Really big volume products (like a tamagotchi or iPhone) negotiate for each part individually anyway... and will also get a much cheaper price.I personally find the non-Chinese market for components frustrating, with the assumption that I'll spend time on the phone for every part, be allocated to a distributor, negotiate a price... who's got time for that?

author: ebclr
author_rank: Super Contributor
timestamp: October 29, 2016, 02:05:35 pm
content: I understood that you can pay high quantity prices even buying few parts parts because companies there are specialized only in few items and take little profit, in other words you can be buying 30 ics sharing with a big company for the same item, and paying near the same priceThe discount when quantity increases in china is very low, is not like Digikey that 1 pieces cost 3x 10000 pcs.

author: krho
author_rank: Regular Contributor
timestamp: October 30, 2016, 09:33:49 am
content: I have experienced it the other way around.I asked for a 1000pcs quote PCB + assembly and they supply all the components from a Chinese company the quote was almost 40% way higher then the one in EU. There was a one NXP LPC M3 on the PCB and that alone accounted for most of the difference.

author: coppice
author_rank: Super Contributor
timestamp: October 30, 2016, 10:10:20 am
content: Quote from: alanambrose on October 29, 2016, 12:02:59 pmPricing is really complex in the 1000 off kind of area. If you want a million you talk to the main distributors, and negotiate. For 1000 you'll get a lousy price from them, but if people using millions have leftovers from big runs you may be about to get thousands from them at a good price. There are brokers who handle this kind of thing, for reasonable fees. That makes your costs rather erratic - sometimes you can get things from this grey market cheap, and sometimes you can't.. People selling on E-Bay just make a batch when they can get bargain prices.

author: JuKu
author_rank: Frequent Contributor
timestamp: October 30, 2016, 10:52:12 am
content: Also, the quantities don't need to _that high to be able to buy directly from the manufacturer. That is about half, two thirds from the distributer price. If the part is made in China and you get to buy factory direct, it is likely even cheaper.

author: DerekG
author_rank: Frequent Contributor
timestamp: October 30, 2016, 10:53:21 am
content: Quote from: coppice on October 30, 2016, 10:10:20 amYes, and sometimes these "grey" parts are copies & not original OEM.And sometimes (often) these "grey" parts do not live up to the original specifications set down by the original manufacturer.

author: coppice
author_rank: Super Contributor
timestamp: October 30, 2016, 11:06:56 am
content: Quote from: DerekG on October 30, 2016, 10:53:21 amYou have to know who are you dealing with. Is that different in any market?

author: coppice
author_rank: Super Contributor
timestamp: October 30, 2016, 11:09:17 am
content: Quote from: JuKu on October 30, 2016, 10:52:12 amIn China most global brands are only available through distributors, unless you buy enormous quantities. Its all about financing.

author: alanambrose
author_rank: Frequent Contributor
timestamp: October 30, 2016, 11:59:48 am
content: Very interesting. Are there some rules of thumb you would use in the 1K, 10K, 100K unit levels? Maybe this depends on whether you are using fairly common components or specialised ones? Also, is it easy to find out (and I guess get datasheets for) the Chinese-manufactured chips?Alan

author: mikeselectricstuff
author_rank: Super Contributor
timestamp: October 30, 2016, 12:11:34 pm
content: Quote from: alanambrose on October 30, 2016, 11:59:48 amIt's not just about arbitary numbers like 1000, 10000. Whether it's full reels (/trays/boxes etc.) or not can also make a significant difference - once you are buying in full reels, more distributors ( and in some cases the manufacturer) will talk to you.

author: anfang
author_rank: Regular Contributor
timestamp: October 30, 2016, 04:50:47 pm
content: Xilinx had a court case on this a few years back that was quite revealing in that made clear how many of these gray market paths work.The part makers have huge incentives to sell at similar prices world wide through distributors. And distributors will mark up about 10% over silicon vendor pricing. As someone else mentioned, though, for deeply strategic relationships there's another level of price negotiation. I used to work at a phone maker, and a rule of thumb is that you could take the digikey pricing for quantity 1 and divide by 10 to learn the 1M unit pricing dealing directly with the silicon vendor. This might seem incredible--the A4988 is $3.11 quantity 1, which suggests the massive volume price would be $0.31. But believe me, it's most always true.OK, so back to the Xilinx case. What Xilinx's research showed is that assembly houses were taking advantage of strategic relationships, buying EXTRA parts, and then pushing those out into the gray market and making a handsome profit on each. Using the above pricing on the A4988: It's on Digikey for $3.11 quant 1, $1.60 quant 1500, and we can guess it might be $0.31 in millions. So, BigCo XYZ has an agreement with Allegro for $0.31 at 1M pricing. BigCo XYZ asks an assembler to build 1M boards. The assembler buys 1.1M parts. They sell the extra 100K parts that they purchased for $0.75 to other local assemblers, and they pocket the rest. The gray market is happy because they get parts at about half of disti pricing.If you see parts for sale on EBay, they are usually from these types of arrangements. I can buy a Xilinx part for 25% of Digikey price. They aren't counterfeit, as they are too sophisticated to be counterfeit. They work, and are indeed real. But buyer beware.

author: CraigHB
author_rank: Regular Contributor
timestamp: October 30, 2016, 05:16:03 pm
content: It amazes my how cheap electronics can be from China. Everything from phones and tables to small PCBs like converters or single cell Li-Ion chargers. I just don't see how anyone can make money at the prices I see. That's even considering the favorable exchange rate and cheap labor. I'll see a basic PCB populated with components for a couple dollars that would cost me twenty to build myself. I guess that grey market is a pretty significant part of it.

author: mikeselectricstuff
author_rank: Super Contributor
timestamp: October 31, 2016, 05:42:23 am
content: Quote from: anfang on October 30, 2016, 04:50:47 pmThough it's possible they may have been re-marked to a higher speed grade, which is somewhat easier than faking the silicon

author: batteksystem
author_rank: Regular Contributor
timestamp: October 31, 2016, 06:25:18 am
content: Quote from: coppice on October 30, 2016, 10:10:20 am

author: coppice
author_rank: Super Contributor
timestamp: October 31, 2016, 06:34:46 am
content: Quote from: blueskull on October 31, 2016, 05:46:33 amAs in most countries, these types of regulation apply only to consumers. Business to business transactions are very different.

author: JuKu
author_rank: Frequent Contributor
timestamp: October 31, 2016, 06:39:55 am
content: Quote from: blueskull on October 30, 2016, 10:55:41 amBut it is not hard at all to find a fake. Apparently, it is easy to take off existing print from an IC or get your own printing on a pin-compatible part(?). Not all op-amps that read TI on the top are made by TI... As some factories only do a go/no-go testing, you can get away with this for a long while.

author: JuKu
author_rank: Frequent Contributor
timestamp: October 31, 2016, 06:52:34 am
content: Quote from: blueskull on October 31, 2016, 06:45:56 amUnfortunately, the discussions between part seller and buyer doesn't always extend to the end customer. We had to scrap an expensive batch of boards because of fake parts and never found out where they got into the chain.

author: BravoV
author_rank: Super Contributor
timestamp: October 31, 2016, 07:05:47 am
content: Quote from: blueskull on October 31, 2016, 06:45:56 amI'm not claiming to fully understand it, but at least I'm aware of the terms "guan xi" and working in tandem with "miàn zi" in business environment there, even in the crowded place such as Shenzen market place, CMIIW.I guess westerners are having quite a challenges to get a grip on this cultural thingy when it comes to this kind of talk.Again, CMIIW though.

author: anfang
author_rank: Regular Contributor
timestamp: December 30, 2016, 12:47:11 am
content: Quote from: blueskull on October 31, 2016, 05:46:33 amBig companies will always negotiate a forum for disputes, usually in their favor. In this case, Flextronics did the manufacturing in Singapore, but the lawsuit was filed in California against the US Flex entity. Also, this was a civil suit.If a company only does business in China, then they will be reasonably insulated. But if a company only does business in China, the chances are they are stuck buying from distributors. And distributors have nealry identical pricing between US and China for a given quantity.The summary is this: If you are buying low quantities through dealer channels, your prices will be virtually the same whether you are in the US or China. If you are buying strategic quantities ($40M or more from a single silicon vendor), your pricing will be the same whether you are in the US or China via direct engagement with that vendor. If your eBOM from a supplier in China is coming in well below what you could do via Digikey et al, then rest assured your supplier is using gray market parts. These aren't necessarily fake (as the xilinx case showed), but they can be.Where China will kick ass is actual board assembly. For extremely low volume (dozens of units, ~100 placements per board, perhaps 1200 placements total), US houses will charge almost $1/part placement (yes, even for an 0603 resistor) after NRE and stencils are factored in, quickly falling to $0.05 to $0.10 for 100 boards with ~100 placements per board. China will assembly a dozen of these PCB for $0.05/placement. And if you tell them to buy from Digikey in China, you can find a really happy bargain: 99% confidence you are getting legit parts AND great assembly pricing.

author: janekm
author_rank: Unknown
timestamp: January 03, 2017, 02:10:15 pm
content: Quote from: anfang on December 30, 2016, 12:47:11 amThis ignores that a number of electronic component manufacturers have special pricing for Chinese channels, sometimes through the use of special part numbers. Maybe not TI most of the time, and definitely not Linear, but I see it as a common practice for manufacturers targeting low cost applications. And it makes total sense, low cost manufacturing mostly happens in China so you'd better make sure your chips are priced competitively there.

author: DerekG
author_rank: Frequent Contributor
timestamp: January 03, 2017, 11:06:51 pm
content: Quote from: janekm on January 03, 2017, 02:10:15 pmNot to mention that the operating costs of component distributors are much lower in China. No Superannuation to pay, no Workcover, no bonuses on holiday pay, much lower property taxes ........... and much lower corporate taxation rates.As a result, many distributors in China will work on margins as low as 2%-5% whereas in the western world, distributors will demand a margin 10% minimum for high volume & for lower volumes it is often 50%.

author: anfang
author_rank: Regular Contributor
timestamp: January 09, 2017, 03:39:21 am
content: Quote from: janekm on January 03, 2017, 02:10:15 pmThere will sometimes be a custom part number for very high volume. But by that, I mean cell phone volumes where you are buying millions of parts. But generally, nobody wants to dink around with a custom part number (special handling) AND a price break. they don't go hand in hand. If anything, a special part number and/or spec and/or test is an ADDER. Even for handset companies.Automotive is a great example. Take one die and rate it for industrial, you can charge X. Take the SAME DIE, often in the same package, rate it for automotive, and you can charge 1.3X.How about an example of a part number that is only available to the chinese but not the US?

author: anfang
author_rank: Regular Contributor
timestamp: January 09, 2017, 03:43:27 am
content: Quote from: DerekG on January 03, 2017, 11:06:51 pmThis makes no sense. Digikey charges the same price in China as they do in the US on parts. And if margins were so thin, then nobody would buy Digikey and they'd go out of the business. And yet, they are thriving in China while charging the same price for parts. Why?The answer is simple: For non-gray-markets, the price in China for parts is the same as part pricing in the US for US and EU silicon makers. Why would they offer cheaper prices in China versus US? There's no domestic challenger to most parts silicon vendors are selling in China. And thus, if they were willing to sell for less "just because", then that same philosphy would drive their prices lower in the US too.

author: DerekG
author_rank: Frequent Contributor
timestamp: January 09, 2017, 04:05:10 am
content: Quote from: anfang on January 09, 2017, 03:43:27 amDigikey is very convenient as aone stop shop. You will find however that when you enter large volume production that suppliers such as Arrow Asia will nearly always beat Digikey's pricing by a reasonable margin.

author: krho
author_rank: Regular Contributor
timestamp: January 09, 2017, 04:53:29 pm
content: I had a quote made for the simple board at the qty 1000 it was a very simple 4 layer board. With some passives, some 1.27 pitch connectors M3 LPC, uSD card socket, usb connector.If I disregard the other components the 1000pcs od said LPC were 22€!!! whereas we can get it in EU for approximately 6€. and asking an EU assembly house would probably get it for even less.