Semiconductor Business Models
The semiconductor industry is structured around different business models that divide or integrate chip design, manufacturing, packaging, and testing. Understanding the distinctions between fabs, foundries, IDMs, and fabless companies is essential to grasp the global supply chain and its points of resilience or risk.
Key Business Models
- Fab (Fabrication Plant): A physical facility where wafers are processed into semiconductor devices. Fabs house cleanrooms, lithography tools, deposition systems, and metrology equipment. Example: TSMC Fab 18 in Taiwan, Samsung Fab in Taylor, TX.
- Foundry: A company that manufactures chips for external customers (fabless firms) but does not design its own chips. Pure-play foundries like TSMC and UMC dominate this model.
- IDM (Integrated Device Manufacturer): Companies that design, manufacture, package, and sell their own chips. IDMs own and operate fabs and often maintain full vertical integration. Examples: Intel, Texas Instruments, Samsung.
- Fabless: Companies that focus exclusively on chip design and outsource manufacturing to foundries. Fabless firms dominate high-growth markets like AI accelerators, GPUs, and wireless SoCs. Examples: NVIDIA, Qualcomm, AMD, Broadcom.
- OSAT (Outsourced Semiconductor Assembly & Test): Specialist firms that provide backend packaging, assembly, and testing services. Examples: ASE, Amkor, JCET.
- EMS/OEM: Electronics Manufacturing Services and Original Equipment Manufacturers integrate chips into finished systems such as smartphones, servers, or vehicles. Examples: Foxconn, Flex, Apple, Tesla.
Comparison Table
| Model | Design Chips? | Manufacture Chips? | Package/Test? | Example Companies |
|---|---|---|---|---|
| Fab | No | Yes (facility only) | No | TSMC Fab 18, Samsung Taylor Fab |
| Foundry | No | Yes (for customers) | Sometimes | TSMC, GlobalFoundries, UMC |
| IDM | Yes | Yes (in-house) | Yes | Intel, Samsung, TI, Micron |
| Fabless | Yes | No (outsourced) | No | NVIDIA, Qualcomm, AMD, Broadcom |
| OSAT | No | No | Yes | ASE, Amkor, JCET |
| EMS/OEM | No | No (system assembly) | N/A | Foxconn, Apple, Tesla, Dell |
Strategic Considerations
- Resilience: Heavy reliance on a handful of foundries (e.g., TSMC) creates geopolitical and supply chain vulnerabilities.
- Vertical vs Horizontal: IDMs favor control and integration, while fabless + foundry separates design and manufacturing specialization.
- Capital Intensity: Building a fab costs $10–$20B+, favoring scale players or national-level subsidies (e.g., U.S. CHIPS Act).
- Innovation: Fabless firms push design innovation (AI, GPUs, 5G), while foundries drive process node scaling (3nm, 2nm, GAA).