- Big companies like Intel manufacture everything under one roof, while the smaller chipmakers use third parties to carry out some of their businesses.
- IBM designs and manufactures its own branded chips in its factories but also sublets its production to other smaller companies.
- Only a few chip companies sell their semiconductors.
The semiconductor business is a compilation of companies involved in the making of semiconductor chips. This business began in 1960 and currently includes hundreds of companies, both large and small. The industry’s revenue in 2018 was estimated to be $481 billion. From silicon-raw material to the finished product, every semiconductor chip passes through various industries that employ thousands of people. While some segments require intensive labor, others only need considerable capital, making them flourish in countries with broad Gross Domestic Product – GDP.
Semiconductors design, manufacture, and selling pass several steps and also incorporate many go-betweens. Big companies like Intel manufacture everything under one roof, while the smaller chipmakers use third parties to carry out some of their businesses. Others do not manufacture anything at all but get involved in the process. In the semiconductor chain, we have different manufacturers as detailed below:
- Independent device manufacturer: Everything gets done in-house. These include processing, manufacturing, and also selling. The only service the company outsources includes stocking, warehousing, and distribution of the already manufactured chips. A good example of an Independent Device Manufacturer (IDM) is Intel. Its processors are designed by Intel employees and manufactured in its factories, bearing the company’s name.
- Fabless Chip Company: This mode of manufacturing is the same as Independent Device Manufacture. The only difference is that the company rents part of its production unit to other companies. For example, IBM designs and manufactures its own branded chips in its factories but also sublets its production to other smaller companies. These other companies rely on IBM to build their chips under their name.
- Pure Play Foundries: Foundries are fabrication houses that are mostly used by other companies to manufacture semiconductors. They do not make their chips. With this type of business, the deal always remains anonymous, and clients are often independent. A foundry company may deal with one, two, or several companies and still juggle them to ensure they get a consistent distribution. An excellent example of this company is TSMC, based in Taiwan.
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Regardless of their mode of production, semiconductors companies always have the same ideologies. They buy their production tools and equipment from suppliers in countries in Europe, America, and Asia. Manufacturers also get their chemicals and other inputs from different competitive suppliers.
Only a few chip companies sell their semiconductors. The majority of them outsource distributors to carry out their sales and marketing activities around the world. In most cases, Rep firms and distributors are used to carry the first-line sales to most chip makers in the world and often sell several uncompetitive products. Distributors are large companies that deal with large volumes providing quick distribution with lower profit margins. Rep firms are small and often deal with specialized chips.
The semiconductor industry requires extensive facilities and equipment. That’s why it’s a capital intensive business with a new factory consuming over $1billion capital, not inclusive of labor and capital. Part of the cost goes to erecting a building. A fab can be as small as 4,500 square meters or as large as 90,000 square metres. Essential Factors to consider while setting the factory include stable soil and enough space for expansion. Equipment used to manufacture conductors requires a firm and solid foundation as they are delicate and susceptible. Other factors to consider when setting the building include cleanliness, distance to a commercial center, fresh water source, and government/municipal laws.
Most companies in the early days used to build their manufacturing equipment. Nowadays, this equipment can be purchased readily from companies in Japan, the United States, and Europe. Companies always build fabs then fit them with equipment. It takes a year and a half to build a factory, and planning is essential. There are over a thousand manufacturing industries around the globe spread in different countries. Intel has identical factories in different locations to enable them to reduce, increase, or change production according to the market demand and be safe if one creation fails.
Semiconductors manufacturing plants tend to depreciate at a higher rate compared to other industries. To be utilized fully, production has to be in full capacity to avoid losses. Most companies always opt to produce DRAM commodities, whereby they produce huge volumes at a very competitive cost. Other factors considered in this industry include; the cost of raw materials, wafer cost, gross die, defects and yield, packaging and testing, and different economics.