Turning Fixed Costs into Variable Costs: Foundries and Clouds
July 27, 2018
One trend that has been accelerating for a couple of decades is turning fixed costs into variable costs. Often this is what is behind outsourcing some capability. Sometimes it is driven purely by lower variable costs (let's hire a team in Shanghai) or core-competence considerations (we don't really need to run our own cafeteria). However, often it is driven by a desire to switch an inflexible fixed cost for a variable cost. The biggest of these trends in our industry is the foundry/fabless model. Instead of a semiconductor company building their own fab (fixed cost), they buy wafers from foundries (variable costs).
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