Semiconductor Foundry Stocks

Who actually makes the chips other companies design

Most semiconductor companies do not manufacture anything. They design a chip and pay someone else to fabricate it, and that separation between design and manufacturing is the structural fact that shaped the modern industry. A foundry owns the fab and takes the order.

Three business models coexist. The pure play foundry manufactures exclusively for others and competes with none of its customers, which is why it can be trusted with their most sensitive designs. The integrated manufacturer designs and fabricates its own products, historically the dominant model and now a minority one, with some attempting to sell spare capacity externally as well. A hybrid does both and must manage the conflict of manufacturing for companies it competes against.

The most misunderstood point is that not all foundry capacity is the same business. Leading edge fabrication, producing the smallest and most complex logic, requires investment measured in tens of billions per facility and is achievable by very few companies. It carries the highest prices and the highest risk. Mature node fabrication, using older and fully depreciated process technology, produces the analog parts, power management, sensors and microcontrollers that go into cars, appliances and industrial equipment. That business is far less capital hungry per wafer and has entirely different cycle dynamics.

Specialty processes form a third category: radio frequency, high voltage, image sensors and silicon photonics, where the process is tailored to a physical function rather than to transistor density. Competition is on process expertise rather than feature size.

Foundry economics come down to utilisation. A fab is an enormous fixed cost that must be filled, so capacity is committed years in advance and a demand shortfall falls straight through to margin. Above that sit two political variables: government subsidy programmes reshaping where new capacity is built, and the geographic concentration of leading edge manufacturing, which has made the location of a fab a matter of national policy.

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