What Is a Semiconductor Foundry?

A semiconductor foundry or fabrication plant (fab) is a specialized facility that manufactures integrated circuits (ICs) designed by other companies. Through this business model, ‘fabless companies’ can compete in the semiconductor market without investing significant capital to build and maintain their own fabrication plants.

These foundries play a pivotal role in the semiconductor supply chain, enabling innovation through advanced manufacturing services for businesses worldwide.

Key elements of a semiconductor foundry

Here are the essential requirements for a semiconductor foundry:

• Specialization: Focus on manufacturing ICs for fabless companies, allowing them to concentrate solely on design without the burden of managing a fabrication facility.

• Capital investment: Require significant investment in advanced manufacturing equipment and facilities to produce high-quality ICs.

• Process technology development: Focus on the continuous improvement and development of manufacturing technologies, such as Extreme Ultraviolet (EUV) Lithography, to produce high-performing chips at smaller nodes. 

• Rapid market response: Can efficiently scale production volumes, ensuring quick turnaround times for customers.

• Flexible production: Serve multiple industries, such as automotive, consumer electronics, and telecommunications, and can pivot their manufacturing focus to address demand spikes in specific sectors.

• Design support: Some foundries provide resources like libraries of intellectual property (IP) cores and design for manufacturability (DFM) guidelines to assist clients in optimizing designs.

Technology and processes

The key technologies and processes involved in semiconductor manufacturing include:

• Wafer fabrication: Foundries use multiple stages, such as photolithography, deposition, etching, and testing, to transform silicon wafers into functional ICs. This process requires precision to ensure high-quality output and optimal yield.

• Advanced nodes: Node advancements are crucial for pushing the boundaries of chip performance. Semiconductor foundries focus on advanced nodes like 5nm, 3nm, and beyond, enabling smaller transistors, faster performance, and lower power consumption. 

• Specialized capabilities: Some foundries provide specialized services, such as manufacturing application-specific integrated circuits (ASICs). This allows companies to develop chips tailored to unique applications, such as AI, automotive, and IoT. 

Role in the semiconductor supply chain

Semiconductor fabrication plants play a critical role in the semiconductor supply chain by acting as the core manufacturers of ICs. Their contribution includes:

Fabrication services

Foundries play a crucial role in bridging the gap between design and production by delivering essential fabrication services. They transform silicon wafers into sophisticated ICs through advanced manufacturing processes, serving numerous industries. 

Semiconductor foundries cater to a wide range of companies, from fabless firms like NVIDIA and AMD to integrated device manufacturers (IDMs) like Samsung and Intel. 

Enabling innovation

The foundry model is a key enabler of technological progress within the semiconductor supply chain, facilitating the advancement of new processes and applications. It lowers barriers to entry for new chip designs by creating a collaborative environment that encourages rapid advancements in semiconductor technology.

Market scalability

Some semiconductor foundries are capable of producing billions of chips annually, ensuring a reliable supply of semiconductors for industries such as consumer electronics and telecommunications.

These foundries are able to adjust their manufacturing capacity based on client demand. This flexibility is critical in a fast-evolving sector where consumer needs can change quickly. 

Types of semiconductor foundry

Fabs run on two types of business models:

Pure-play

Pure-play foundries focus solely on semiconductor manufacturing and provide fabrication services to fabless companies and other clients. They do not manufacture or design their own semiconductor products. Examples include Taiwan Semiconductor Manufacturing Company (TSMC) and GlobalFoundries.

IDMs

IDMs are large-scale companies that design and produce their own ICs while also providing fabrication services to other clients. They own and operate their own foundries and focus primarily on their production lines. This gives them greater control over the entire supply chain, from designing to the final output. 

Benefits of outsourcing to pure-play foundries for customers

Outsourcing to pure-play foundries benefits fabless companies in these ways:

• Cost savings: Eliminates the need for significant capital investment in building and maintaining fabs, which results in lower operational costs.

• Access to advanced technology: Allows customers to tap into the latest fabrication processes without the need for costly R&D or equipment upgrades themselves.

• Focus on core competencies: Frees up time and resources for clients to focus on core strengths, such as chip design, software development, and market expansion, rather than the complexities of semiconductor manufacturing. 

• Scalability: Offers the flexibility to scale production based on demand, from small batch runs to mass production, making it easier for customers to respond to market changes and manage demand fluctuations without investing heavily.

• Faster technological advancements: Foundries are constantly upgrading to the latest manufacturing technologies, enabling customers to stay competitive. 

• Risk mitigation: Reduces the risk of supply chain disruptions, as these foundries operate multiple facilities in different regions and have established processes to maintain continuous production. 

• Quality control and yield optimization: Customers benefit from industry-proven production management processes that ensure high-quality outputs and maximize chip yields.

Advantages of being a dedicated foundry for fabless customers

By offering dedicated fabrication services to fabless companies, foundries enjoy the following benefits:

• Specialization: Pure-play foundries focus solely on manufacturing ICs, allowing them to optimize processes and technologies without the distraction of chip design.

• Dedicated client relationships: By not designing their own chips, these foundries avoid competition with clients and form long-term strategic partnerships.

• Continuous innovation: Their primary focus is on R&D, which enables them to consistently lead in technological advancements and provide cutting-edge solutions.

• Industry diversification: Serving multiple industries such as consumer electronics, automotive, and telecommunications helps curb risks from fluctuations in one market.

• Scalability: With the ability to handle varying production volumes, pure-play foundries can efficiently manage both small and large-scale manufacturing.

• Economies of scale: Specializing in high-volume manufacturing allows pure-play foundries to benefit from economies of scale and increase their profitability.