Developing a custom ASIC integrated circuit is a major project.
The financial model is unlike standard components.
You face high initial costs before production even begins.
Understanding NRE costs is critical for your budget.
NRE stands for Non-Recurring Engineering.
These are one-time fees to design, verify, and prototype your chip.
They are paid upfront to the ASIC vendor or design house.
You pay these costs only once, regardless of production volume.
Think of NRE like paying an architect and builder for a house blueprint.
The blueprint and construction plans are your NRE.
The cost of bricks and mortar for each house is your unit cost.
NRE is the fixed cost; unit cost is the variable cost.
What Makes Up ASIC NRE Costs?
NRE covers all expenses to get your first physical chips.
These costs are grouped into several key areas.
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Chip Design and Verification:
Engineers write code to define the chip's functions.
They use software tools to simulate its behavior.
This ensures the design works before manufacturing.
These software licenses and engineering time are expensive. -
Physical Implementation:
This is the process of turning the design into a physical layout.
It involves placing millions of transistors and connecting them.
The goal is to meet performance and power targets.
This is a complex, time-consuming engineering task. -
Prototype Fabrication (Mask Sets and Wafer Processing):
This is often the largest part of NRE.
Masks are stencils used to print the circuit patterns onto silicon.
A modern ASIC integrated circuit requires dozens of these masks.
The foundry charges a high fee to create this mask set.
They also charge for processing the first wafers to create your prototypes. -
Packaging and Testing:
The bare silicon die must be placed into a protective package.
This package has the pins or balls that connect to your circuit board.
Creating the package design has a cost.
Testing the first prototypes to ensure they work is also part of NRE.
Budgeting for Prototyping: The High-Stakes Phase
Your budget for the prototyping phase is essentially the total NRE cost.
This is a sunk cost with no guarantee of success.
A mistake in the design can mean the first chips do not work.
This is called a "re-spin," and it requires paying NRE again.
Careful planning is your best defense against re-spins.
Allocate a significant portion of your budget for verification.
Thorough testing in software simulation saves money later.
You should also budget for unexpected delays and additional tests.
For a new startup, high NRE can be a major barrier.
A complex ASIC integrated circuit can have NRE costs from $1 million to $10 million.
This is why many companies first use FPGAs for prototyping.
FPGAs have zero NRE but a much higher per-unit cost.
Budgeting for Mass Production: The Volume Game
After prototyping, you move to mass production.
The financial focus shifts from NRE to unit cost.
Your main costs are now the recurring per-chip charges from the foundry.
These include the cost of silicon wafers, packaging, and final test.
The relationship between NRE and unit cost is direct.
Your total cost is: Total Cost = NRE + (Unit Cost * Production Volume).
For low volumes, the NRE cost dominates the total price per chip.
For high volumes, the NRE is amortized, or spread out, over many units.
Let's use a simple example.
Assume your ASIC NRE is $2 million.
The unit cost for mass production is $15.
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Scenario A: Production of 10,000 units
Total Cost = $2,000,000 + ($15 * 10,000) = $2,150,000.
Effective cost per chip = $2,150,000 / 10,000 = $215. -
Scenario B: Production of 1,000,000 units
Total Cost = $2,000,000 + ($15 * 1,000,000) = $17,000,000.
Effective cost per chip = $17,000,000 / 1,000,000 = $17.
In Scenario A, the $215 per chip is likely too expensive.
In Scenario B, the $17 per chip makes the ASIC investment worthwhile.
Mass production only makes financial sense with high sales volumes.
Key Budgeting Strategy: Amortization
Amortization is the process of spreading the NRE cost over each chip.
You must calculate how many units you need to sell to "break even" on the NRE.
This is a crucial calculation for your business case.
First, determine your target selling price per chip.
Subtract the unit production cost to find your gross profit per chip.
Then, divide the total NRE cost by this gross profit.
The result is the number of chips you must sell to cover the NRE.
Using our example:
Target selling price: $30 per chip.
Unit production cost: $15.
Gross profit per chip: $15.
NRE Cost: $2,000,000.
Break-even volume = $2,000,000 / $15 = 133,334 chips.
You must sell over 133,000 units just to pay back the initial investment.
This calculation directly informs your go/no-go decision for the ASIC project.
Checklist for Managing ASIC NRE Costs
To manage your budget effectively, follow these steps.
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Get detailed NRE quotes from multiple ASIC vendors.
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Clearly define your chip's requirements to avoid costly changes later.
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Invest in pre-silicon validation to reduce the risk of a re-spin.
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Model your amortization plan with realistic sales forecasts.
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Consider less advanced semiconductor nodes to reduce mask costs.
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Explore vendor partnerships that may offer lower NRE for volume commitments.
Conclusion
ASIC NRE cost is a substantial upfront investment.
It pays for the design and prototyping of your custom ASIC integrated circuit.
Mass production costs are the recurring fees for manufacturing each unit.
The business case for an ASIC depends on amortizing the high NRE over a large volume of chips.
Accurate budgeting for both phases is the foundation of a successful ASIC project.
