Fab cost structure: yield, fixed costs and margin
Variable and fixed cost of revenue, and operating leverage.
By Surojit Chakraverti, founder of L3VLUP and an investor running a long-short healthcare and technology equities strategy.
On this subject: fab cost structure: yield, fixed costs and margin.Updated 4 November 2026
Part of technology company financial models, with the models, labs and guides around it.
What it does
Cost of revenue split by how it behaves. Materials, chemicals and power are paid on every wafer started, and wafers started are wafers shipped divided by line yield, so yield is a cost: a node early in its ramp scraps more of what it starts. Fab labour and overhead follow the capacity in place, and depreciation follows the spending of past years; both are paid whether the fab is full or idle. Because the fixed share is large, gross profit moves further than revenue when utilisation changes, which a well-built schedule measures in points of margin per point of utilisation and as a degree of operating leverage.
Where it lives
The same schedule in each model that carries it, with the rows to open. Open a model in the browser, go to the sheet, and click the lines.
- Assumptions, rows 11–12: Cost inflation: materials, labour and overhead, Power price growth
- Assumptions, row 17: Net working capital
- Assumptions, rows 40–45: Line yield, FY0A, Yield improvement a year, Yield ceiling, Materials and chemicals per wafer started, FY0A…
- Cost of Revenue, rows 6–7: Cost index, Power price index
- Cost of Revenue, rows 10–15: Advanced: line yield, Advanced: wafers started, Advanced: variable cost per wafer started, Advanced: variable cost per wafer shipped…
- Cost of Revenue, rows 18–23: Mainstream: line yield, Mainstream: wafers started, Mainstream: variable cost per wafer started, Mainstream: variable cost per wafer shipped…
- Cost of Revenue, rows 26–31: Mature: line yield, Mature: wafers started, Mature: variable cost per wafer started, Mature: variable cost per wafer shipped…
- Cost of Revenue, rows 34–49: Revenue, Variable cost: materials, chemicals and power, Contribution, Contribution margin…
What a reviewer looks for
- Cost of revenue as a percentage of revenue, so margin never moves with utilisation.
- Variable cost on wafers shipped rather than wafers started.
- Labour and overhead that fall with output in a downturn, when a fab keeps its staff.
Learn it, then build it
Vocabulary: Gross Margin, Contribution Margin, Utilisation.