Understanding The Semiconductor Ecosystem
Semiconductor is a vital commodity across all sectors of the economy. In this writing, we will be discussing the entire semiconductor ecosystem. Given the increasing adoption of digitalization, semiconductor chips have become a crucial part of digital information processing and, can be found in almost everything such as cars, home appliances, medical equipment, IoT devices, etc. Semiconductor is something everyone may be well aware of however, it remains a mystery to many as to what the industry is all about.
A brief introduction to the amazing innovation of semiconductor chips starts with the materials, which are well known to be made from silicon or the lesser known germanium — both have similar chemical properties but are used differently. The unique trait about these materials is that they can turn an electrical current “on” & “off” unlike materials such as copper which are only “on” and glass which are only “off”. This allows transistors to be placed on the wafer. Multiple transistors built on a wafer are called an integrated circuit which, is then chipped off to what we know as a “chip”. The examples I mentioned are just a very brief introduction to what the amazing technology does.
So now, onto the ecosystem. The semiconductor ecosystem can be split differently. However, for simplicity’s sake, I have picked a diagram that best describes the ecosystem as shown below.
(1) Semiconductor Equipment Manufacturers companies develop, manufacture, and service the equipment that is used by the foundries. Some of the more well-known equipment manufacturing companies are ASML, Applied Materials, Lam Research, etc. In addition, different pieces of equipment within the space serve different purposes. One such example is the difference between machines that use (1) Deep Ultraviolet (DUV) lithography vs (2) Extreme Ultraviolet (EUV) lithography. As of this writing, the industry is currently developing the next generation of (3) High Numerical Aperture (High NA-EUV) lithography technology which would enable higher-resolution patterning.
However, what many people are unaware of is that semiconductor chips that are produced by different foundries have different attributes. For example, Intel and TSMC may be using the same machine from ASML, but the attributes of Intel 10nm node and TSMC 7nm are similar. Numbers indicating the size of the nodes aren’t as significant as in the past on a technical level, mainly used for marketing purposes. There are other features such as transistor density and chip design which we have to account for.
(2) Semiconductor Fabrication (Fabs) or Foundries like TSMC, Samsung & Intel are designed to manufacture chips for fabless manufacturers. Foundries mainly only oversee the production of the chips. Simple as it may sound, the entire process of creating a silicon wafer with working chips consists of thousands of steps and takes 3 or more months from the design phase to production. The thousands of steps include processes such as diffusion and photolithography, etching, deposition, and ion implantation. Between each of these processes, there is another — cleaning process, that takes place to remove any form of impurities that may lead to pattern defects. This is also why ultra-pure water is so crucial for foundry players and why they are normally located in areas where there is a stable water supply. Lastly, pure foundries like TSMC do not get involved in chip design.
As semiconductor chips become denser, with trillions of transistors on a single waffle, the cost of building a fab becomes increasingly more expensive. This is also why there are only 3 major fabs globally. Each foundry could cost more than $10b to construct. Part of the increasing cost is due to the lithography machines which range between $170 million to $380 million. Each foundry consists of more than 500 various machines including the mentioned lithography machine. Another contributor to the high cost is their complex infrastructure where the interior of the foundry is designed to be cleaner than a hospital operating theatre.
(3) Integrated Device Manufacturers are companies that manage the production flow of the semiconductor, from the planning to producing the final products. What sets integrated device manufacturer companies apart from Foundries is that they design their own chip on top of manufacturing them. IDM companies generally do not manufacture chips for other fabless companies due to IP rights.
(4) Fabless Manufacturers are companies that design chips with the help of Electronic Design Automation companies. The designs are later sent to the foundries for manufacturing so that they can focus on developing/designing high-performance chips. This approach increases flexibility as technology advances and avoids spending a fortune on equipment. As everyone knows, the fabless manufacturing space has become very competitive recently due to increasing demand for computing power and efficiency. Examples of companies are Broadcom, Qualcomm, Nvidia, Apple, and AMD.
- Companies like Broadcom and Nvidia tend to design their chips for data centres and mobile devices-related software and hardware.
- In addition, Nvidia also caters to both the automotive and the Artificial Intelligence (AI) industries.
- Companies like Qualcomm tend to focus their design on semiconductors, software, and services related to wireless technology.
- AMD mainly develops computer processors and related technologies for business and consumer markets.
- Companies like Apple have also begun to design their chip. Chip design and manufacture by TSMC are mainly for their product. This would allow them to focus on enhancing their product with increasing flexibility.
(5) Electronic Design Automation companies are essential for any fabless companies. EDA companies are primarily software businesses that provide planning, design, implementation, verification, and subsequent manufacturing of semiconductor devices, or chips. EDA may not be directly involved in the manufacturing of the physical chip, however, they are needed within the process to ensure the delivery of the required performance and density. They assist the process with tools via simulation, design, and verification. Given the complex nature of chip designing and manufacturing, EDA tools are required to assist with sophisticated automation as errors in manufactured chips can be catastrophic. The EDA industry is likely an oligopoly with a few key players such as Synopsys, Cadence, and Arm.
(6) Automated Test & Packaging companies ensure the quality and reliability of the semiconductor components before they reach the end users. As electronic devices become more advanced, there is an increasing need to be very critical before distribution. At this stage, the goal is to identify and rectify any form of defects, leaving only high-quality components for the final assembly. There are at least 6 types of testing — Functional, Parametric, Reliability, Structural, Boundary Scan (debugging of complex digital systems), and lastly Automated Test Equipment (ATE). Well-known companies within this space include Advantest, Teradyne, ASE Group, and more.
(7) End Products & Users includes both individuals and businesses where they utilize the chip directly or indirectly. As mentioned earlier, both individuals and businesses have both direct and indirect interactions with a semiconductor chip. Examples include but are not limited to personal smart devices, home appliances, data centers, medical equipment, and even military equipment.
Disclaimer: The above writing is an independent article and for general information purposes only and does not constitute a solicitation, recommendation, endorsement, or any financial, investment, or other advice.
Seek independent professional consultation in the form of legal, financial, and fiscal advice before making any investment decision. Always perform your due diligence.
