English
Menu

IDM vs Fabless vs Foundry: Semiconductor Business Models Compared

An IDM (integrated device manufacturer) handles everything from design to manufacturing and sales in-house. A fabless company owns no fabs; it focuses on design and sales and outsources manufacturing to a foundry. A foundry manufactures chips designed by other companies. As building leading-edge fabs and developing process technology have come to require enormous investment, the split between design and manufacturing has spread.

AspectIDMFablessFoundry
Steps handledAll of design, front end, back end and sales (some back-end work may be outsourced)Design and sales; manufacturing is outsourcedFront-end manufacturing (wafer fabrication), plus some back-end work such as advanced packaging
Own fabsYesNoYes (manufacturing is the core business)
What it sellsIts own branded semiconductor productsIts own branded semiconductor productsManufacturing services; as a rule, no products under its own brand
Main investmentBoth fabs and R&DDesigners, EDA tools, IP, and mask and prototyping costs; no fab investmentFabs and process technology development; leading-edge fabs require enormous investment
StrengthsCan optimize design and manufacturing together, and makes proprietary processes and supply control easierNo fab fixed costs, resources concentrated on design, and free choice of the most advanced processesGathers orders from many customers to keep fabs highly utilized and recover enormous investments
WeaknessesFab fixed costs weigh heavily when demand falls, and keeping up investment in advanced processes is a big burdenCapacity and pricing depend on foundries, and supply is hard to secure when manufacturing is congestedExposed to swings in customer demand, and must keep up the race in leading-edge development and capital spending
Typical companiesIntel, Samsung Electronics, Texas Instruments, KioxiaNVIDIA, Qualcomm, AMD, Broadcom, MediaTekTSMC, UMC, GlobalFoundries, SMIC
Common product areasMemory (DRAM, NAND), analog, power semiconductors, microcontrollers, CPUsGPUs, smartphone SoCs, communication ICs, FPGAsMainly logic chips designed by customers, plus a wide range of other chips

Figures are typical orders of magnitude and vary by process generation and product.

When to use which

IDM
Common in fields where process technology itself differentiates the product. In memory, analog and power semiconductors, refining process and design together is a competitive advantage.
Fabless
Suits products that stand out through circuit design or software. Because no fab is needed, even new companies can make chips on leading-edge processes.
Foundry
Takes on manufacturing for many customers at once. Leading-edge fabs require enormous investment, so manufacturing of leading-edge logic has concentrated at foundries that can gather many orders.
In-between models and related companies
There is also a fab-lite model, which makes some products in its own fabs and outsources leading-edge products and others to foundries. OSATs handle the back end and IP vendors license circuit design assets, supporting the division of labor.

FAQ

What is the difference between fabless and foundry?

A fabless company designs and sells chips without owning fabs; a foundry manufactures chips designed by other companies. In this division of labor, the fabless company hands design data to the foundry, and the wafers the foundry makes are packaged into products by OSATs and others.

Why did the split between design and manufacturing spread?

Because building leading-edge fabs and developing process technology came to require enormous investment, making it hard for one company to stay at the cutting edge of both design and manufacturing. Foundries recover their investment by gathering orders from many customers, and fabless companies can focus on design without the burden of fabs.

What is fab-lite?

A model in which a company makes some products in its own fabs while outsourcing products that need leading-edge processes and others to foundries. It is often adopted by IDMs that want to limit fab investment, and sits between IDM and fabless.

Can one company combine several models?

Yes. Samsung Electronics is an IDM that makes its own memory and other products, and also runs a foundry business that manufactures chips for other companies. Intel has also started a foundry business, and outsources some of its own products to external foundries.

Check your understanding

Which type of semiconductor company handles everything from design through front-end and back-end manufacturing to sales in-house?

  1. AIDM (integrated device manufacturer)
  2. BFabless
  3. COSAT
Show answer and explanation

Answer: A. IDM (integrated device manufacturer)

An IDM (integrated device manufacturer) handles design, manufacturing and sales in-house. Proximity between design and process teams makes it easier to co-optimize process and product, but it demands huge fab investments. IDMs are common in memory, power and analog semiconductors, where manufacturing technology itself differentiates the product. Fabless firms own no fabs, and OSATs perform back-end services.

Which correctly describes a 'fabless' company?

  1. AA company that handles everything from design to manufacturing and sales in-house
  2. BA company that has no manufacturing plants of its own and specializes in design and sales
  3. CA company that takes on only back-end semiconductor processes on contract
Show answer and explanation

Answer: B. A company that has no manufacturing plants of its own and specializes in design and sales

Fabless means having no fab (manufacturing plant). These companies concentrate on design and sales, outsourcing manufacturing to foundries and assembly and test to OSATs. With no need for huge plant investments, even young companies can bring leading-edge products to market, and many major GPU and smartphone SoC vendors operate this way. Companies doing everything from design to manufacturing are IDMs, and those taking on back-end work are OSATs.

Which correctly describes a 'foundry' in the semiconductor industry?

  1. AA company specializing in contract manufacturing of semiconductors designed by other companies
  2. BA company with no factories that specializes in semiconductor design and sales
  3. CA company specializing in selling parts for semiconductor manufacturing equipment
Show answer and explanation

Answer: A. A company specializing in contract manufacturing of semiconductors designed by other companies

A foundry is a company (or business) that manufactures wafers under contract from circuit data designed by its customers. TSMC, founded in 1987, established the pure-play foundry model. Sharing costly leading-edge fabs among many customers spread the division of labor with fabless companies. Companies that own no fabs and focus on design and sales are fabless, and those selling equipment parts belong to the tool supply chain.

  1. Which is an appropriate reason the division of labor between foundries and fabless companies spread?
  2. Which business model keeps fab investment down by making some products in its own fabs while outsourcing leading-edge products and the like to foundries?
  3. Which is an appropriate example of products designed by fabless companies?
  4. Which company, headquartered in Taiwan, holds the largest share of the world's foundry (contract chip manufacturing) market?

Practice Semiconductor industry and market questions

Key terms explained

IDM (integrated device manufacturer)
A semiconductor company that does everything in-house, from design through front-end and back-end manufacturing to sales.
Fabless
A company model that owns no fabrication plant and focuses on designing and selling semiconductors.
Foundry
A company or business model that specializes in manufacturing semiconductors designed by other companies.
OSAT
A company that provides back-end services such as semiconductor assembly and testing under contract.
MPW (multi-project wafer)
Prototyping several customers' designs together on one wafer (one mask set). Sharing the expensive mask cost makes it popular with universities and startups.

Related comparisons