Bottom-up Costing for Semiconductors - A precise cost view for cost engineers
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The bottom-up costing method has established itself as an indispensable tool for cost engineers in the semiconductor industry. Due to the increasing complexity of integrated circuits (ICs) and the simultaneously increasing demands for transparency and cost efficiency, a detailed analysis of all manufacturing steps is of crucial importance.
The production of an IC takes place in several stages: Wafer production, front-end process and back-end process. As part of a bottom-up calculation, each individual process step - from raw wafer production to final packaging - is considered in terms of its material, machine and overhead costs. This method enables a well-founded cost estimate and lays the foundation for strategic decisions in purchasing, development and supply chain management.
A key finding of the underlying white paper shows that around 80 % of the total costs of an IC are caused by the front-end process - especially lithography. The lithography process alone accounts for around 25 % of the total production costs, which is partly due to the huge investment costs for EUV or DUV systems. For cost engineers, this means that this area in particular is a critical cost driver, the optimization of which can have a considerable impact on the overall calculation.
Wafer production begins with the manufacture of monocrystalline silicon ingots using the Czochralski process. These are cut into thin slices, lapped, etched and cleaned - all process steps that require high precision and modern equipment. Particularly with technologically advanced nodes, the requirements for material purity and machine precision are increasing, which has a direct impact on the cost structure.
The subsequent front-end processing is the most complex part of IC production. Here, the electrical structures of the chip are implemented on the wafer by means of lithography, etching, doping and metallization. Each of these phases is both material and capital intensive, particularly due to the use of expensive process chemicals and highly complex equipment. The continuous reduction of structure sizes to below 5 nm requires not only precise manufacturing conditions, but also extremely expensive EUV equipment with costs of up to USD 300 million per device.
In contrast, the back-end process appears comparatively less cost-intensive, as it "only" accounts for around 20% of total costs. Nevertheless, a detailed cost breakdown is also necessary here. Separating the dies, wire bonding, packaging in the housing (e.g. BGA-416) and final testing and marking processes involve significant material and labor costs - especially if high quality standards have to be met, as is the case in the automotive or aerospace sectors.
Particular attention should be paid to overheads, which generally account for 35% of total costs. These include indirect expenses such as cleanroom maintenance, energy supply, IT infrastructure and highly qualified personnel. These vary greatly depending on the production location, technology node and degree of automation. Benchmarking models, adapted to regional conditions (e.g. Taiwan vs. USA), help to provide realistic and comparable cost estimates.
The bottom-up costing method offers cost engineers the opportunity to identify the actual cost drivers along the entire value chain. This enables well-founded decisions to be made on supplier selection and price negotiations. Although this method requires extensive technical knowledge and data, it is the key to a transparent and sustainable cost structure in IC manufacturing.
The further development of this method into a parameter-based cost model that links technical with market-specific data is already in progress and promises even greater accuracy and relevance for future calculations.
📄 You can find the full white paper here:
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