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?
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.
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...
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.
