Key Takeaways
- Semiconductor foundries are specialized manufacturing facilities that produce advanced chips used in AI, smartphones, self-driving cars, and medical devices.
- The foundry model separates chip design from manufacturing, allowing fabless companies like NVIDIA and AMD to focus on innovation while outsourcing production to dedicated foundries.
- Leading semiconductor foundries include TSMC, Samsung Foundry, GlobalFoundries, Intel Foundry Services, and SMIC.
- While there’s increasing demand for AI, 5G, and automation, the semiconductor industry will remain crucial to technological progress.
The rapid rise of artificial intelligence (AI) has driven an explosion in the demand for specialized semiconductor chips. Companies like NVIDIA have benefited enormously from this trend, with their cutting-edge GPUs powering AI models across various industries.
However, one key aspect of the semiconductor industry is that the design and manufacture of these chips are separate processes, handled by different companies. This is known as the foundry model, and can often result in a supply chain that spans multiple different countries. Trade cooperation is key to the chip industry, but with the current political climate casting a pall over global trade security, it’s worth understanding exactly where and how chips are actually manufactured.
In this article, we’ll explore what a foundry is, its features, its model, and some of the biggest companies in the world.
What Is a Foundry? Understanding Semiconductor Fabs
A foundry, also known as a semiconductor fabrication plant (fab) or chip fab, is a facility that manufactures semiconductor chips for various companies. These plants are highly specialized and produce the intricate, ultra-small transistors and circuits that power modern technology. Their applications range from smartphones and AI processors to self-driving cars and medical devices.
Unlike traditional manufacturing plants, semiconductor fabs operate in strictly controlled environments with extreme precision. As a result, the cleanrooms in these facilities are kept almost entirely free of dust and contaminants to prevent microscopic defects that could render chips unusable. Moreover, foundries use advanced photolithography, chemical etching, and deposition processes to fabricate chips at nanometer scales, enabling increased performance and energy efficiency.
Features of a Semiconductor Fab
Semiconductor foundries are among the most advanced manufacturing facilities in the world. Several features that make them stand out are:
- Cleanroom Environments: Fabs maintain ultra-clean conditions, controlling dust particles at levels thousands of times lower than a typical hospital operating room.
- Extreme Precision: Chip manufacturing requires lithography equipment that can etch features smaller than a fraction of a human hair.
- Multi-Billion Dollar Investment: Constructing a new semiconductor fab can cost billions, depending on technology and capacity.
- High-Volume Production: Foundries produce chips in batches, also known as wafers, containing hundreds to thousands of individual semiconductors.
- Advanced Materials: Chip fabrication involves silicon wafers, chemical vapor deposition, and ion implantation to build functional circuits.
- Automation and Robotics: Lastly, many processes inside a fab are handled by robotic arms and automated systems to minimize contamination and maximize precision.
What Is the Foundry Model?
The foundry model is a business approach in the semiconductor industry where chip design and manufacturing are handled by separate companies. This model allows for specialization, with some companies focusing on cutting-edge chip design while others invest in the high-cost infrastructure needed for chip fabrication.
For example, Nvidia, currently the world’s most successful semiconductor designer, doesn’t actually manufacture its own chips. Rather, it designs and develops cusstom GPUs, and outsources the manufacture to Taiwanese foundry TSMC.
As a result of the foundry model, there are three major types of companies in the semiconductor supply chain:
- Fabless Semiconductor Companies: These companies, such as NVIDIA and AMD, design semiconductor chips but rely on external foundries for manufacturing.
- Pure-Play Foundries: These companies specialize only in chip fabrication, producing semiconductors for multiple clients. For example, TSMC and GlobalFoundries are two such companies.
- Integrated Device Manufacturers (IDMs): Some companies, like Intel and Samsung, both design and manufacture their chips, although Intel has recently begun expanding its foundry services to third parties.
The foundry model enables fabless companies to innovate without being constrained by the massive capital expenditures required for chip production. At the same time, dedicated foundries can focus on improving manufacturing efficiency and yield rates, making semiconductor production more cost-effective.
Semiconductor Foundry Companies
Several major companies dominate the global semiconductor fabrication industry, each playing a crucial role in producing the chips that power modern devices. Below is an overview of the top foundries:
Taiwan Semiconductor Manufacturing Company (TSMC) (NYSE: TSM) – Taiwan
- Founded: 1987
- CEO: C.C. Wei
- Major Clients: Apple, NVIDIA, AMD, Qualcomm
- Overview: TSMC is the world’s largest and most advanced semiconductor foundry, responsible for producing over 50% of the global foundry market share. The company manufactures cutting-edge chips, including 3nm and 5nm process nodes, making it the go-to choice for high-performance computing and AI applications.
Samsung Foundry (KRX: 005930) – South Korea
- Founded: 1969 (Foundry business established in 2005)
- CEO: Han Jong-hee
- Major Clients: Tesla, Qualcomm, IBM
- Overview: Samsung Foundry is part of Samsung Electronics and is a major competitor to TSMC. It produces high-performance chips used in mobile devices, automotive AI, and IoT applications. Samsung is also investing heavily in advanced EUV (extreme ultraviolet) lithography to compete at the forefront of semiconductor technology.
GlobalFoundries (NASDAQ: GFS) – United States
- Founded: 2009
- CEO: Tim Breen
- Major Clients: AMD, Qualcomm, Broadcom
- Overview: GlobalFoundries is a U.S.-based semiconductor foundry that focuses on producing specialty and high-reliability chips. In contrast to TSMC and Samsung, it does not manufacture the most advanced nodes but instead serves industries requiring power-efficient and radio frequency (RF) chips.
Intel Foundry Services (NASDAQ: INTC) – United States
- Founded: 1968 (Foundry services launched in 2021)
- CEO: Pat Gelsinger
- Major Clients: Amazon, Qualcomm, U.S. Department of Defense
- Overview: Intel has traditionally been an integrated device manufacturer, but it is now expanding its foundry services to compete with TSMC and Samsung. With its Intel Foundry Services initiative, the company aims to manufacture chips for external clients while continuing to develop its processors.
SMIC (SHA: 688981) – China
- Founded: 2000
- CEO: Zhao Haijun & Liang Mong Song
- Major Clients: Huawei, Chinese AI startups
- Overview: SMIC is China’s largest semiconductor foundry, producing mature-node chips for various applications. Due to U.S. trade restrictions, it faces challenges accessing cutting-edge EUV lithography. Despite that, it remains a key player in China’s semiconductor ambitions.
Closing Thoughts
Semiconductor foundries play an essential role in the global technology supply chain, helping to power everything from AI to crypto mining hardware and gaming devices.
The foundry model has enabled chip designers to focus their capital on development, while manufacture is outsourced to dedicated foundries. But this model assumes a high level of cooperation between states, making it potentially volatile to political changes.
Knowledge is power. Knowing exactly who is involved in the delivery of key technologies – and where they are located – puts you in a better position to understand the industry, and interpret market movements.
