# How do they make 'm so cheap?

D

#### Dr. O

Jan 1, 1970
0
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?

R

#### Rene Tschaggelar

Jan 1, 1970
0
Dr. O said:
[ snip ]
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?

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.

Rene

S

#### Spehro Pefhany

Jan 1, 1970
0
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. Probably a COB mask-programmed processor with LCD driver. 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.

Use the same kind of parts as are used in consumer products and buy
them in huge quantities, in Asia.
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?

Yes, they can even sell it for you, and keep the profits. ;-)

Best regards,
Spehro Pefhany

F

#### Frithiof Andreas Jensen

Jan 1, 1970
0
Dr. O said:
Sometimes I see these products which are so cheap that I wonder how they can
make any profit from them.

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.....

D

#### Dr. O

Jan 1, 1970
0
Rene Tschaggelar said:
Dr. O said:
[ snip ]
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?

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.

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.

B

#### Baphomet

Jan 1, 1970
0
Dr. O said:
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?
You can bet the final product is fabricated somewhere in Asia
http://www.eedesign.com/silicon/OEG20030811S0050

R

#### Rene Tschaggelar

Jan 1, 1970
0
Dr. O said:
Dr. O said:
[ snip ]
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?

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.

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.

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.

Rene

J

#### John Fields

Jan 1, 1970
0
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.

---
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
you and like you.
---
If manufacturers keep charging different
prices for the same volumes, how are we here in the West going to compete?

---
Start paying Chinese wages?^)
---
We're digging our own graves.

---
Actually, they're being dug for us.
---
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.

---
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!!!

Z

#### Zak

Jan 1, 1970
0
Dr. O said:
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.

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.

Thomas

P

#### Pieter Hoeben

Jan 1, 1970
0
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.
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. 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 probably surplus.

Pieter Hoeben

G

Jan 1, 1970
0
Pieter Hoeben said:
They
can also be made in China, where people work for a couple of $a day. 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. T #### TheDoc Jan 1, 1970 0 Dr. O said: Rene Tschaggelar said: Dr. O said: [ snip ] I know they make these things by the thousands, but even if I take that in product? 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. 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. Dream on... money and volume talk.. D #### Dr. O Jan 1, 1970 0 John Fields said: --- 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. 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 us. 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. 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? 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. J #### John Fields Jan 1, 1970 0 Every business relationship is mutually beneficial. --- 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 competitors. --- 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 us. --- 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. --- Your missing the point. Labor's not the (only) problem. I'm talking about the parts themselves. --- 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? --- If they don't want to get into an agreement, you can always threaten to go to another supplier. --- 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.
---
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.

---
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

S

#### sPoNiX

Jan 1, 1970
0
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!

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?

sPoNiX

T

#### Tim Shoppa

Jan 1, 1970
0
Frithiof Andreas Jensen said:
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.....

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.

Tim.

S

#### Spehro Pefhany

Jan 1, 1970
0
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.....

They already have a LOT of Chinese labor content.

Best regards,
Spehro Pefhany

S

#### Spehro Pefhany

Jan 1, 1970
0
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.

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.
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?

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.
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.

That will just *guarantee* a non-answer, except from crooks. This from
someone with 20+ years doing business in Asia.

Best regards,
Spehro Pefhany

T

#### Tim Shoppa

Jan 1, 1970
0
Spehro Pefhany said:
They already have a LOT of Chinese labor content.

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.

Tim.

S

#### Spehro Pefhany

Jan 1, 1970
0
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.

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
balance of China with those countries is not far off balance.

Best regards,
Spehro Pefhany