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Fabless Companies vs. IDMs in the Semiconductor Industry

October 23, 2012

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The relationship between different companies in the semiconductor industry can be confusing, with some companies specializing in certain industry niches and others internalizing every part of the development and manufacturing process. You may have heard of fabless companies, but how are they different from other players in the industry? In this post, we’ll compare the benefits and drawbacks of fabless operations with those of Integrated Device Manufacturers (IDMs) such as Samsung Electronics System LSI.

Evolution of the Semiconductor Industry

The semiconductor industry has evolved significantly in the past ten years, in terms of both technological advancements and changes to the industry’s value chain. As gate sizes and other feature dimensions grow smaller and wafer sizes continue to increase, the cost of developing these technologies increases . In order to work on a competitive scale, companies have to invest significantly more money in research and development each year. These technological hurdles and the costs that accompany them have led to a restructuring of the industry value chain.

On the one hand we see highly successful Integrated Device Manufacturers (IDMs), such as Samsung Electronics S.LSI, that handle every step of the process, from chip design and testing to manufacturing and sales. On the other hand, fabless operations have also taken a hold in the market for a number of reasons. Dividing the industry into discrete manufacturing and design entities has its advantages, but there are certain drawbacks to running a fabless operation that are not associated with IDMs.

Fabless Companies

The fabless model of semiconductor production has become a popular solution for cost-management in an industry that is notoriously expensive. Fabless companies design the chips and work with foundries to manufacture them – a collaboration that is extremely cost-effective for fabless designers. New, leading edge fabrication facilities cost billions of dollars to build and keep up-to-date, representing a financial barrier that most chip designers find impossible to surmount.

Companies that go the fabless route, however, are constrained by the technical offerings of the foundry with which they choose to partner. Not all foundries provide multiple process options, such as High K Metal Gate (HKMG) processes, or customization tailored to each customer’s needs. As a sizeable IDM, Samsung Electronics S.LSI has the upper hand because of its financial and technological capabilities, which allow the company to provide a wide range of services to internal divisions like Exynos and to outside fabless companies that are in the race to create high-performance, low-power chips at a competitive price.

Benefits of IDMs

Fabless Companies vs. IDMs in the Semiconductor Industry

Integrated Device Manufacturers like Samsung Electronics S.LSI have the means to unite fabless design and manufacturing and services under one roof. For companies with the financial, technological and industrial means, becoming an IDM is ideal for the same reasons other vertically integrated companies do well – by owning every important part of the process, production is much more efficient and cost-effective. Exynos can rely on stable manufacturing from its own fab, which will continue to offer an extremely diverse array of products, services and technologies that are advantageous for Exynos.

The increasing cost of building advanced fabrication facilities and the difficulties that arise from slowing development in node technology favor the success of large IDMs, which have the ability to forge ahead with innovative and expensive technologies that are needed to take integrated circuits to the next level. As part of a greater IDM, Exynos directly benefits from these capabilities and the security inherent in such a large, diversified company. The supportive framework of Samsung S.LSI puts Exynos in a unique position to not only withstand market pressures in a competitive industry, but to become a leader in mobile application processor development.
Information used in this article has been drawn from the sources listed below and should not be repurposed in any way without proper citation.

Resources

“Bridging the fabless-foundry gap: Highlighted ConFab presentation.” Solid State Technology. 18 May 2012. 3 Aug. 2012

Jones, Handel. “The fabless-foundry model will survive (at least through 14-nm).” EE Times. 15 June 2012. 3 Aug. 2012

Naeher, Ulrich et al. “The evolution of business models in a disrupted value chain.” McKinsey & Company. Fall 2011. 3 Aug. 2012

Singer, Pete. “The Fabless/Foundry Supply Chain.” Solid State Technology 55.4 (May 2012). 3 Aug. 2012

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