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I am planning on carrying out a design using the CP2102 Interface IC. The cheapest price I can source (for bulk purchase of 1500 parts) is from Digikey at 2.34$/piece. A price of 2.34$ is approximately 151 Indian rupees.

However, CP2102 modules (with usb connectors etc.) are available on ebay India for prices as low as 162 Indian Rupees. How do they do get such ridculously low prices? I can't even imagine competing against such prices. So any ideas on how prices can be reduced? Any experiences?

Harsha
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    I would bet all my Zelda Rupees that they are not using the CP2102 IC ... – PlasmaHH Oct 12 '15 at 15:12
  • They make it bulk. THis is the only answer you are going to get, wherever you look ,whatever you try, unless ofcourse the chip is different – user2578666 Oct 12 '15 at 15:14
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    I'm voting to close this question as off-topic because it is nothing to do with electronic design. – Leon Heller Oct 12 '15 at 15:25
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    Questions seeking recommendations for specific products or places to purchase them are off-topic in this forum. Reference: Help->Tour->Don't ask about...Shopping or buying recommendations. – tcrosley Oct 12 '15 at 16:58
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    OP is not asking for a source of product or recommendation. And Topics revolving around electronic parts sourcing are ON TOPIC. – Passerby Oct 12 '15 at 17:21
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    I was not asking to be lead to a vendor. I was simply amazed by how they can produce cheap products whereas no matter how much I strip down my design, I come no where close. I thought there might be something I am not seeing that they do and I was hoping people here would know their tricks. – Harsha Oct 12 '15 at 17:32
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    @Passerby OP was specifically discussing buying from Digi-Key and eBay India and looking for the lowest price. Those are specific vendors. Under reasons for Closing, the dialog says: "recommendations for specific products or **places to purchase** are off-topic. How is that not "sourcing?" – tcrosley Oct 12 '15 at 18:22
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    @tcrosley because the question is really "how come their bom is so much lower than mine". The question doesn't change if instead if Digikey and Ebay they had said "Vendor X has raw chip at $A, while Vendor Y has completed module with said chip at 25% lower than $A. Why,and how can I reach that?". The specifics of which chip and where are not actually relevant to the question. Understanding how the electronics part world works is directly related to electronic design. – Passerby Oct 12 '15 at 18:34
  • Related: http://electronics.stackexchange.com/questions/80872/could-these-ics-from-alibaba-be-counterfeit/80880#80880 – Passerby Oct 12 '15 at 18:38
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    Valid question, possible to answer. –  Oct 13 '15 at 10:57
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    @tcrosley kindly read my question again ... I asked how do they reach such low prices and what they do to reduce prices ... not how I can reach them (which would be asking for sources and distributor recommendations) ... & at Leon Heller - I dont understand how price analysis cannot be part of electronic design, isnt it the end stage of all design projects? – Harsha Oct 13 '15 at 14:29
  • @harsha it would help your question if you hadn't accepted the first answer given as "the accepted answer". – Passerby Oct 13 '15 at 16:04
  • @Harsha Besides wondering how the Indian prices could be so low, it looked to me like you were trying to decide between the two vendors and looking for advice whether the Indian company was safe to buy from due to its low price. I was probably reading too much into it. – tcrosley Oct 13 '15 at 17:10

3 Answers3

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So you want to make an Interface Module, using an Interface IC, but you find that buying the IC from Distributors Inc costs the same as an entire module (including connectors) from Shenzen Inc via well known auction site, FortyThieves.com.

Assuming the question is not "Where should I buy to get the best prices?" but "How is it possible to make money selling entire modules at the same price as the raw IC?"

Also assuming that all parties are honest and legitimate parties to the deal ... as other answers note, this may not always be the case.

(Names and actual prices are of course fictitious)

The first thing to note is the economy of scale.

Buying your Interface IC may net you a better deal in 1500s than buying 1 or 10, but the IC fab probably cannot afford to set up a production run for less than a million. So Distributors Inc and Shenzen Inc both negotiate with the fab to buy a million pieces, at probably a quarter of the best price you can see. (Maybe a tenth : actual figures are rarely made public. Maybe Shenzen Inc name a better price on the back of another deal, or during a recession when the fab want to keep the plant running. But let's assume the same price)

Now both buyers have a million parts - a significant investment, with inventory costs to boot. Distributors Inc reclaim that investment by passing on high prices to you. In return you have a simple buying process, essentially no risk of counterfeit parts, friendly application engineers, usually no lead times on common items, and all that is easily worth the quadrupling in price.

Shenzen Inc didn't start negotiations until they were about to land a firm order for a million smartphones at a price that covers their costs nicely. If they buy an entire run designed to produce a million good parts, and the yield is higher than (cautious) predictions, they are left with maybe a hundred thousand parts surplus inventory.

The second thing to note is the importance of marginal costs.

The true price of these surplus parts is not 1/4 or 1/10 of the price you pay : it is reduced by the cost of managing inventory. Unlike the distributor, to whom it is adding value to the part (so it's available as a service to customers) it is an excess cost to the manufacturer. Surplus inventory can be sold ... but for pennies, if there is a buyer. Its marginal cost is close to 0.

EDIT to be clearer : the cost of managing inventory (the warehouse, the shelf, stock control software etc) increases the price via Distributors Inc, but reduces the price Shenzen Inc needs to charge. because they want to get rid of this nuisance to save money.

Anything Shenzen Inc can do cheaply, to add value to surplus inventory and shift it, is worthwhile. It keeps their PCB plant, connector suppliers, and assembly technicians employed. It may allow trainee engineers practice in designing PCBs and translators practice on user manuals. And the work doesn't have to be to the same contractually imposed standards as the smartphone business. It uses the cheapest materials, perhaps recycling connectors or PCB laminate rejected from the prime production line. It may actually be built semi-officially after hours or in a garage instead of the shiny new factory.

Then it's sold in bulk to dealers who redistribute it however they can ... often via the auction sites.

Fundamentally, both routes to you involve added value and much greater expense than the price of the raw chip.

It is quite possible that the manufactured board may - by leveraging marginal costs in ways such as these - reach you at lower cost than the chip, even without resorting to illegal practices.

If that suits your needs, it's a good deal, and even a few cents return instead of a loss can be good deal for the vendor. But it can put your own business at risk. The supply may dry up at any moment, with no guarantee of future price or even availability - even without considering possibilities like rejects or counterfeit.

All in all, it's not surprising that the price of the finished product hovers around the price of the same IC from Distributors Inc. That's the price the end market will bear...

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    What you're talking about here is sometimes called ["broken price"](http://www.ebnonline.com/author.asp?section_id=3758). – Fizz Oct 13 '15 at 23:08
  • Heck TI even has a web page for their "seekrit" Ship from Stock and Debit program (the semi-official name for broken price) http://www.ti.com/sc/docs/scedi/techpaks/des/sfsdebitclaim.htm – Fizz Oct 13 '15 at 23:47
  • @Fluff : Good article, thanks for posting. Among other things it highlights how the manufacturers may vary prices by region, so assemblies may sell from a more "competitive" region at the price of the raw part elsewhere. It should link to the next part "how you can do this too" but it doesn't look like that was ever published... –  Oct 14 '15 at 10:03
  • Yeah, I couldn't find that either. There's a good take home message from that one alone though: whether you ask for a special price through an authorized distributor or directly from the manufacturer, it's the manufacturer who is going to evaluate your business anyhow, mainly based on total sales potential for their portfolio as (and your business) a whole. That doesn't apply when buying from unauthorized distributors though. – Fizz Oct 14 '15 at 10:10
  • Regarding the latter (unauthorized distributors), http://www.diva-portal.org/smash/get/diva2%3A546511/FULLTEXT01.pdf seems good read, but it's rather long... – Fizz Oct 14 '15 at 10:16
  • The unauthorised distributor aspect is interesting. One aspect of selling "finished" boards is that you effectively become a legitimate OEM rather than an "unauthorised distributor" but I don't know if that figures into the thinking behind the question's scenario. Another note : With all this digging you are doing, it's well worth submitting your own answer, to widen coverage. My answer certainly isn't comprehensive! –  Oct 14 '15 at 10:24
  • If you suddenly find yourself with an overstock of chips and sell them as-is (not on boards)... that's [one source](http://www.sfgate.com/business/networth/article/Write-offs-remove-excess-inventory-from-books-2923282.php) for the unauthorized distributors. – Fizz Oct 14 '15 at 11:24
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    Replacing the OP's specific mention of Digikey with "Distributors, Inc" misses a large part of the actual isseue - Digikey is not really a volume distributor, and their prices tend to be quite a bit higher than the reputable distributors one should turn to for true volume orders. – Chris Stratton Mar 26 '16 at 16:10
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    @ChrisStratton while that's true, those distributors will carry a very limited range. from a few mfgs. Whether you take the time to deal with each distributor individually, or pay Digikey to do that for you, doesn't really matter, the costs probably work out the same in the long run... –  Mar 26 '16 at 17:06
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    @BrianDrummond - no, that is not remotely true, unless you are doing very low-volume production. In a high volume setting, the cost of having to talk to a handful of true distributors to complete your product is easily amortized across the per-unit savings. Only in a small volume setting does a place like Digikey typically make sense - in a small volume, you are going to pay a penalty one way or another. The module vendors the OP is comparing against are not buying chips at small volume, a fact that is every bit (if not more) important as their possible use of less verified sources. – Chris Stratton Mar 27 '16 at 00:57
  • @Chris, right! It does depend on volume. The question and my answer pertain to low volumes. –  Mar 27 '16 at 02:11
  • "High volume" vs. the poster's Low Volume purchase attempt is fundamentally the answer to the question being asked – Chris Stratton Mar 27 '16 at 03:01
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Reputable companies are very selective about who they buy their parts from. They want traceability back to the manufacturer to minimise the risk of counterfiets. Mouser for example explicitly promise that all their parts have been sourced either from the manufacturer directly or from the manufacturer's authorised distributors.

It is often possible to get the chips cheaper from less reputable sources (the sort of vendors you commonly find on sites like alibaba). Some of these will be legitimate surplus but a lot will be conterfiet. The rock bottom price "direct from china" board vendors are almost certainly buying on this market.

Also 1500 part's is hardly "bulk", especially for a low value part.

Peter Green
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  • Yes, however, so do reputable volume distributors. Digikey/Mouser type places specialize in supplying prototype efforts and small-volume manufacturing of pilot runs or niche products, and charge a premium for those small quantities. The prices mentioned strongly suggest paying this premium - it's not clear that one could make a profit selling modules at the mentioned prices of those after sourcing the ICs from a reputable volume supplier, but one can probably get the BOM cost below what the modules are selling for. – Chris Stratton Mar 26 '16 at 16:06
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The cheapest you can find at digikey is still pretty far from the cheapest you can actually buy it because you are still going through a distributor.

If you want to actually buy it cheaply, you go to silicon labs or the fabrication plant directly. For instance, they can be ordered for about 85 cents each in quantities of 100 on alibaba.

John Meacham
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    As Peter has answered, "directly from the plant" and "on alibaba" are not excatly synonymous. At least not for the original value of "plant". – Wouter van Ooijen Oct 12 '15 at 16:01
  • Brian's response is much better than mine, I wouldn't be offended if you switched the winning answer to his. – John Meacham Oct 20 '15 at 02:06