Posted By: Bart Grabowski
Semiconductor companies face many decisions in how they structure their business. One of the questions faced is whether they should control their own production or if it is beneficial to outsource production and handle design in house.
Fabless chip makers serve an important role in the semiconductor industry. They offer their customers the technological and economic advantages of integrated circuitry by means of access to a broad range of fabrication processes and options. The term “fabless” means that the company does not manufacture silicon wafers used in products, but instead outsources the work to foundries across the globe. Some of the biggest foundries in the world can be found in the United States, China, and Taiwan, where production costs are relatively low and return on investment (ROI) is substantial.
A fabless semiconductor company provides shared access to expensive and complex facilities for microelectronic wafer fabrication. An advantage that fabless companies have is that they are not bounded to a single fabrication house. This means that they are flexible in deciding which foundry has the best fabrication processes and options to meet their customers’ needs. However, because they do not own their own fabrication house, fabless companies often depend on their wafer foundry vendors for process stability and fabrication capacity.
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In the semiconductor industry, owning a fabrication plant or “fab” can give a company a significant advantage, but it can be expensive. Substantial capital investments are needed to acquire and operate capital equipment such as: clean rooms, litho processing equipment, thin-film deposition equipment, clean (or ultra-clean) handling systems, shipping equipment, and storage facilities. The fab operating costs include not only the actual materials and supplies, but also the costs of permitting and inspections for handling a variety of hazardous materials, as well as the costs of waste treatment and disposal.
The fabless business model is popular in the semiconductor industry because it allows manufacturers to invest money into research and development of new technologies while still maintaining high production volumes. Fabless chip manufacturers bear only a small portion of the expensive costs when purchasing foundry services from an established fab vendor. Fabless companies are beneficial to the foundry by providing a sales outlet for their fab capacity, and they benefit their customers by giving cost-effective access to microelectronics.