Semiconductor industry

The semiconductor industry is divided into several distinct segments: design, manufacturing (fabrication), assembly, testing, and packaging. Design companies, often called fabless firms, focus on chip architecture and intellectual property, while foundries such as TSMC and Samsung manufacture the physical wafers. The industry's value chain also includes specialized suppliers of equipment (e.g., ASML, Applied Materials) and materials (e.g., silicon wafers, photoresists).²

Integrated device manufacturers (IDMs) like Intel and Texas Instruments handle both design and manufacturing. The fabless-foundry model has grown significantly, allowing smaller firms to innovate without owning costly fabrication plants. The industry's output is measured in wafer starts and die yield, with leading-edge nodes now at 3 nanometers.³

The industry traces its origins to the invention of the transistor in 1947 at Bell Labs, followed by the development of the integrated circuit in the late 1950s. Early production was dominated by US companies, but by the 1980s, Japanese firms gained prominence in memory chips. The 1990s saw the rise of Taiwan and South Korea as major manufacturing hubs, with TSMC pioneering the pure-play foundry model.⁴

Moore's Law, the observation that transistor density doubles roughly every two years, has guided the industry's roadmap. The shift to extreme ultraviolet lithography (EUV) in the late 2010s enabled continued scaling. Today, the industry faces physical limits, prompting exploration of new materials and architectures such as gate-all-around transistors.

The semiconductor supply chain is highly globalized, with design often in the US, manufacturing concentrated in East Asia, and assembly/testing in Southeast Asia. This geographic concentration creates vulnerabilities, as highlighted by the 2021 global chip shortage that disrupted automotive and consumer electronics industries.⁵

Governments have responded with policies to reshore manufacturing. The US CHIPS Act of 2022 allocated $52 billion to boost domestic production, while the European Union and Japan have launched similar initiatives. Export controls on advanced chips and equipment, particularly targeting China, have become a key geopolitical tool.⁶

Beyond the headline players, the industry includes niche segments such as photonics, where silicon is used to manipulate light for data transmission. Another obscure area is the use of silicon carbide (SiC) and gallium nitride (GaN) for power electronics, enabling more efficient electric vehicles and chargers.

Historically, the industry has seen several notable failures and pivots. For instance, the once-dominant memory maker Micron Technology survived the 2008 financial crisis by focusing on niche markets. Additionally, the industry's environmental footprint is significant: a single fab can use millions of gallons of ultrapure water daily, and the production of perfluorocarbons contributes to greenhouse gas emissions.

Fabless

A company that designs chips but outsources manufacturing to foundries.

Foundry

A factory that fabricates chips for other companies.

Node

A measure of the manufacturing process size, often in nanometers.

EUV

Extreme ultraviolet lithography, a technique for printing tiny features.