Not long ago, data provided by Marvell executives at an analyst meeting showed that the research and development costs of chips are skyrocketing. At the 28nm node, the cost of designing a chip was only $42.8 million. In the subsequent 22nm and 16nm nodes, the increase was not significant. However, at the 10nm node, costs began to soar.

The design cost of a 7nm chip has reached $249 million, further soaring to $449 million at 5nm, $581 million at 3nm, and increasing to $724 million at 2nm.

With chip design being so expensive, how much money is spent on producing chips, and where does this money go?

According to the semiconductor production process, it can be divided into the main industry chain and the support industry chain: the main industry chain includes chip design, manufacturing, and testing; the support industry chain includes IP, EDA, equipment, and materials, among others. And most of the costs of chip production are spent on the following items:

1. Research and Development (R&D) and Labor Costs:

Labor costs are an important part of R&D costs, and this part of the cost is difficult to estimate concretely, belonging to long-term R&D investment. According to reports, it took Xilinx 4 years and involved 1500 engineers to develop the Everest 7nm process FPGA chip, with a project cost exceeding $1 billion. NVIDIA's development of Xavier involved 2000 engineers, with development costs reaching $2 billion.

2. Wafer Foundry Costs:

According to CEST's model, the cost of constructing a single 300mm wafer at the 5nm node is approximately $16,988, and at the 7nm node, the cost of a similar wafer is $9,346. It can be seen that with the advancement of process nodes, wafer foundry costs have significantly increased.

In addition to the construction and foundry costs of wafer fabs, the daily operational investment of wafer manufacturers is also substantial. According to reports from Taiwan media, when TSMC was mass-producing 5nm chips, the company's unit product electricity consumption increased by 17.9% compared to 2019. In 2019, TSMC's global energy consumption reached 14.33 billion kWh, while in comparison, the annual residential electricity consumption of Shenzhen's 13.44 million permanent residents in 2019 was 14.664 billion kWh. It can be seen how energy-intensive wafer production is. Comparing TSMC's and SMIC's power consumption with revenue over the past two years also reveals how huge the cost of producing high-process chips is.

3. Mask Costs:

The mask, also known as a photomask or reticle, is a graphic transfer tool or master in semiconductor manufacturing. Its function is similar to the "film" of a traditional camera. According to IBS data, the mask cost at the 16/14nm process is around $5 million, and at the 7nm process, the mask cost rapidly rises to $15 million. At the 7nm process, the mask cost is approximately $15 million.

It can be seen that as the process advances, mask costs will rise again, further increasing chip costs.

4. Lithography Equipment:

Lithography equipment is one of the core devices in the chip manufacturing stage. Its principle is to print the designed chip pattern on the mask, then use a laser beam to pass through the mask and optical lenses with the pattern, expose the chip pattern on the silicon wafer coated with a photoresist layer, and finally transfer the pattern from the mask to the chip photoresist layer. Its accuracy determines the accuracy of the process.

With the development of process technology, at the 7nm and more advanced technology nodes, shorter wavelength extreme ultraviolet (EUV) lithography technology is required to achieve smaller processes. ASML in the Netherlands is the only manufacturer capable of producing EUV lithography machines globally and is a giant in the global lithography machine field. According to its 2021 financial report, the average price of each EUV lithography machine is as high as €153.5 million.

Of course, besides the most expensive EUV lithography machines, the equipment and materials used in processes such as etching, thin film deposition, cleaning, and packaging also have high prices, and costs continue to increase with the advancement of process technology.

5. Electronic Design Automation (EDA) Costs:

EDA covers all processes such as integrated circuit design, verification, and simulation. The use, specifications, characteristics, and manufacturing processes of chips are almost all completed in this stage. EDA tools can be used to design extremely complex circuit diagrams, thereby manufacturing powerful chips

IP Licensing Costs

Semiconductor IP refers to the design modules with verified, reusable, and specific functionality and proprietary intellectual property rights in integrated circuit design. Chip companies can purchase IP to implement specific functions, akin to a "building block" development model. This approach significantly shortens the chip development cycle while enhancing performance and reliability.

As the core architecture of chips is controlled by a few manufacturers, chip companies typically need to spend millions of dollars upfront to acquire usage rights. Additionally, after chip production, they may need to pay royalties to IP vendors, ranging from 1% to 3% of the final chip selling price. These patent fees may exceed 50% of the design costs, highlighting that chip production involves significant investments not only in hardware but also in intellectual property rights.

Moreover, IP, as the highest-value node in terms of technology content, faces increasing research and development challenges and licensing costs as chip processes become more advanced. Despite the immense difficulty and cost of semiconductor chip production, in this era of information, semiconductor chips have become the cornerstone of our technological development, and producing chips with higher processes has become our perpetual goal.