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Top secrets about the semiconductor industry

The industry appears to be rather easy. Companies within the semiconductor ecosystem manufacture and sell chips to other businesses and government agencies. Actually, there are top secrets about the semiconductor industry. Let’s learn more about this industry.

secrets about the semiconductor.

Secrets about the semiconductor.

These corporations and government agencies then incorporate the chips into systems and equipment (such as iPhones, PCs, airplanes, cloud computing, etc.) and sell them to consumers, businesses, and governments.

Despite its popularity, most people are unaware of the business. You might envision employees in bunny suits holding a 12″ wafer in a fab clean room (the chip factory) if you have any idea what the semiconductor industry looks like. However, this industry manipulates materials one atom at a time, and the factories it uses cost tens of billions of dollars to construct. (That wafer, by the way, contains two trillion trillion transistors.

Instead of one business producing chips, you would find an industry with hundreds of companies that are all dependent on one another if you could peer inside the straightforward triangle that represents the semiconductor industry. When considered as a whole, it can be somewhat intimidating, so let’s discuss each component of the ecosystem separately. (This is a highly simplistic depiction of a very complex industry.)

There are seven different kinds of businesses in the semiconductor sector. When a chip factory (a “Fab”, short for fabrication plants) has all the designs, tools, and materials required to make a chip, each of these diverse industry segments has fed its resources up the value chain to the next.

These segments of the semiconductor market are listed from bottom to top:

  1. Chip Intellectual Property (IP) Cores
  2. Electronic Design Automation (EDA) Tools
  3. Specialized Materials
  4. Wafer Fab Equipment (WFE)
  5. “Fabless” Chip Companies
  6. Integrated Device Manufacturers (IDMs)
  7. Chip Foundries
  8. Outsourced Semiconductor Assembly and Test (OSAT)

Each of these eight semiconductor industry divisions is briefly explained in the sections below; a more thorough explanation will be introduced in upcoming posts.

Chip intellectual Property (IP) Cores

  • Some businesses license their chip designs—known as IP Cores, which are software building blocks—for widespread use.
  • Chip IP Cores are offered for sale by more than 150 businesses.
  • For instance, Apple uses ARM’s IP Cores as a component of the microprocessors in its computers and iPhones

Electronic Design Automation (EDA) Tools

  • Engineers create chips using specialist Electronic Design Automation (EDA) software, incorporating their own designs on top of any IP cores they have purchased.
  • Three American vendors—Cadence, Mentor (now a part of Siemens), and Synopsys—dominate the market.
  • A large engineering team needs 2-3 years to develop a complicated logic chip, such as a microprocessor found inside a phone, computer, or server, utilizing these EDA tools. (See the design process diagram below.)
  • Currently, all Electronic Design Automation businesses are starting to incorporate AI tools to automate and speed up the process as logic chips continue to get more complicated.

Specialized Materials and Chemicals

Our chip is still currently in software. However, in order to make it into anything real, we will need to physically create it in a “fab,” which is a type of chip factory. Specialized materials and chemicals must be purchased by chip factories. This includes silicon wafers, special gases and fluids, photomasks, wafer handling machines, and RF generators.

Wafer Fab Equipment (WFE)

  • These equipment actually create the chips.
  • Five companies—Applied Materials, KLA, LAM, Tokyo Electron, and ASML—dominate the sector.
  • Some of the most intricate (and costly) devices ever built are some of these.
  • They manipulate the atoms on and below the surface of a piece of silicon ingot.

“Fabless” Chip Companies

  • Systems firms that previously used off-the-shelf CPUs (Apple, Qualcomm, Nvidia, Amazon, Facebook, etc.) now design their own chips.
  • They produce chip designs (using their own and IP Cores) and send them to “foundries” with “fabs” that produce them.
  • They might only employ the chips in their own products, like those from Apple, Google, or Amazon.
  • As an example, they might sell the chips to AMD, Nvidia, Qualcomm, and Broadcom.
  • They do not employ specialist materials or chemicals, nor do they own wafer fabrication equipment.
  • They do create the chips using Chip IP and electronic design software.

Integrated Device Manufacturers (IDMs)

  • Integrated Device Manufacturers (IDMs) create, produce, and market their own chips (in their own fabs).
  • IDMs are divided into three categories: memory (such as Micron and SK Hynix), logic (such as Intel), and analog (TI, Analog Devices)
  • They utilize foundries in addition to having their own “fabs.”
  • To create their chips, they employ electronic design software and chip intellectual property.
  • They purchase wafer fabrication tools and work with specialty materials and chemicals.

Chip Foundries

  • The “fabs” of foundries produce chips for other companies.
  • They purchase and integrate machinery from various manufacturers.
  • Although they use this machinery to create the chips, they don’t actually develop the chips themselves.
  • Taiwan’s TSMC, which ranks first in logic, is followed by Samsung.
  • Other factories focus on producing semiconductors for secure military, analog, power, RF, displays, etc.
  • Integrated Device Manufacturers (IDMs) and Foundries both have fabs. The only distinction is whether they produce the chips for their own use or sale or for the use of others.

Outsourced Semiconductor Assembly and Test (OSAT)

  • Businesses that test and package chips produced by foundries and IDMs
  • The wafer produced by foundries is taken by OSAT businesses, who then divide (cut) them into individual chips, test them, and ship them to the customer.


  • Building fabs has become increasingly expensive, now costing more than $10 billion for a single chip foundry, as chips have become denser (with trillions of transistors on a single wafer).
  • One explanation is that the price of the machinery required to produce the chips has risen.
  • The cost of just one sophisticated lithography machine from the Dutch business ASML is $150 million.
  • A fab contains 500 or more machines (not all as expensive as ASML)
  • The fab structure is really complicated. The clean room where the chips are created is only a small portion of the intricate piping system feeding gases, power, and liquids into the wafer fabrication machinery at precisely the appropriate time and temperature.
  • Most businesses have left the race because it costs many billions of dollars to stay on the cutting edge. The most innovative chips were produced by 17 businesses in 2001. Only two remain, which poses a challenge for the West: Samsung in Korea and TSMC in Taiwan.
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