You are here: Home / Access to Knowledge / Blogs / Fab to Fabless: Understanding the Process of Chip Manufacturing (Interviews with Semiconductor Industry - Part 2)

Fab to Fabless: Understanding the Process of Chip Manufacturing (Interviews with Semiconductor Industry - Part 2)

Posted by Maggie Huang at Sep 30, 2014 03:00 PM |
This is the second of a four-part blog series highlighting findings from a small sample of interviews with fabless semiconductor industry professionals in Taiwan. These industry insiders was approached for the intent of understanding expert knowledge on the process of integrated circuit design. This post explores the process of chip manufacturing and the foundry business model.

See the first blog post here.


Studies have shown that Taiwan's integrated circuit manufacturing sector have shown spatial and industrial knowledge spillover, resulting in "increased information diffusion, interaction and communication, innovation, and intellectual capital.". Market research company IC Insights found that Taiwanese and Chinese companies represented five of the eight fastest-growing fabless integrated circuit ("IC") suppliers in 2013.

The Pervasive Technologies: Access to Knowledge in the Marketplace project is looking at the accessibility of networked communication technologies in the mass market within the sub-100 dollar range. This has resulted in a narrowing of the research scope to the mobile phone due to the pervasiveness of the mobile for accessing Internet, as understood by exploring the trends in technology usage models as explored in Part I of this blog post series: Trends and Changes in Technology (Part I of IV).

The need to understand the full story of the mobile phone production led CIS to Taiwan to understand the beginnings of the manufacturing process - the development of an integrated chip. The interviewed professionals all represented fabless IC semiconductor design companies which operated via a foundry business model where the actual fabrication is outsourced.

According to one expert whose company earned 50% of its revenue from mobile chipsets alone, the process of the mobile phone manufacturing begins at the fabless design stage, where fabless IC design companies design a chip following consultation with the fabricators to specify the mechanical constraints of the process (the size of the die, the minimum size of the wiring line, etc.) to ensure design requirements are met, and to negotiate the costs of production. Another interviewee highlighted that during this design phase, there are three clear goals: 1) Upgrade performance, 2) Reduce cost by integrating features, and 3) Reduce power consumption.

These particular companies provided insight to some of the commonly licensed technology that went into a smartphone chipset. This included the central processing unit (CPU) from ARM Holdings, who in 2010 held 95% of the CPU marketshare in smartphone technology, and have only increased since then. One of the interviewed companies also uses the graphics processing unit (GPU) intellectual property from Imagination Technologies, which after Qualcomm had the 2nd largest market share of IP for personal devices in 2013. Qualcomm who owns the most patents to the 3G standard with over 250 licenses in its CDMA portfolio has made considerable revenue gains thus far, but some analysts predict due to a transition into 4G technology without the same dominant 3G portfolio, they will lose their dominant market position.

Having taken into account these IP into the design process, the design is then sent to fabricators such as the Taiwan Semiconductor Manufacturing Industry (TSMC) who in 2013 owned at least 50% of the world's global maker share in fabrication, and others like the United Microelectronics Corporation (UMC) and Global Foundries). According to the interviewee, the fabrication process requires about 2-3 months.

This foundry business model is a result of increased efficiency and division of labour. Fabrication plants require large amounts of investments into manufacturing facilities. According to interviewees, one would have to spend an average of 5-10 billion USD to built a fabrication plant now. Since plants like TSMC exists, semiconductor industries can now focus on their area of expertise, which is design and customer relationship, and optimize their synergistic relationship for gains for all.

One of the recent revolutionary developments which have contributed to low-cost smartphone manufacturing has been the turnkey solution chipset, which includes the hardware reference design, the printed circuit board, the software, and instructions for how to create a mobile phone. This turnkey solution, amongst other electronic parts, are sent for white box packaging, then shipped to a distributor like WPG Holdings who are the largest electronics distributor in Asia. WPG and others will then distribute these chips and other related products to their customers, the smartphone manufacturers. This entire production cue takes about 3-4 months.

The turnkey solution as mentioned before vastly contrasts the traditional manufacturing process of a mobile phone, where a chip could be designed, given to the original equipment manufacturer (OEM) who would then design all the remaining parts. There used to be a very clear division of labour. Now, one interviewee explained, manufacturers will "buy a turnkey solution, open a factory, take a chassis (case), screw it all together, and sell it. This is what's driven the demand, and that's what created this low cost-market."


According to our interviewees, the low-cost production of this turnkey chip solution is the reason how so many of the phones in the sub-$100 dollar market exist today.



P.127 of Tsai, Diana H. A. “Knowledge Spillovers and High-Technology Clustering: Evidence from Taiwan’s Hsinchu Science-Based Industrial Park.” Contemporary Economic Policy 23.1 (2005): 116–128. Print.

IC Insights. “Taiwanese and Chinese Companies Represented Five of Eight Fastest Growing Top-25 Fabless IC Suppliers in 2013.” IC Insights. N.p., 7 May 2014. Web. 3 Sept. 2014.

Morgan, Timothy Prickett. “ARM Holdings Eager for PC and Server Expansion.” The Register, Feb. 2011. Web.

Trefis Team. “Why Qualcomm’s Royalty Rate Will Continue To Decline.” Forbes, 10 June 2014. Web.

Wang, Lisa. “TSMC Eyes 50% Global Market Share.” 26 Mar. 2014: 13. Print.

Document Actions