Explaining the Semiconductor Ecosystem with Steve Blank

Understanding the Semiconductor Industry: A Pictorial Tutorial

The semiconductor industry has been a hot topic lately, with discussions of chip shortages, dependence on Taiwan and TSMC, and the CHIPS Act. However, despite all the talk about chips and semiconductors, very few people understand how the industry actually works. In order to simplify the complexity of the industry, we’ve created this pictorial tutorial to explain the different segments of the semiconductor ecosystem.

Semiconductor Ecosystem: The Basics

Semiconductors are in almost everything that we use daily such as computers, cars, home appliances, medical equipment, and more. Semiconductor companies are expected to sell $600 billion worth of chips in 2021. The industry seems simple at first glance with the companies in the semiconductor ecosystem making chips and selling them to companies and government agencies, who then design the chips into systems and devices, and sell them to the consumers, businesses, and governments. However, if we take a closer look, we will find that the semiconductor industry is much more complex than it appears, involving hundreds of companies that are dependent on each other.

Semiconductor Industry Segments

The semiconductor industry can be divided into seven different types of companies, each contributing to the manufacturing of a chip. Understanding each of these segments is crucial in understanding how the industry works.

Chip Intellectual Property (IP) Cores

The design of a chip may be owned by a single company, or it may be licensed to other companies through IP Cores that function as software building blocks. Over 150 companies sell chip IP Cores, such as ARM, which provides the IP Core for microprocessors in iPhones and computers from Apple.

Electronic Design Automation (EDA) Tools

Engineers design chips using specialized software called Electronic Design Automation tools, on top of any IP Cores they’ve bought. The industry is dominated by three US-based vendors; Cadence, Mentor (Siemens’ subsidiary), and Synopsys. It usually takes a team of engineers 2-3 years to design a complex logic chip like a microprocessor used in phones, computers, or servers. With advancing technology, AI is being incorporated into the EDA tools to automate and speed up the process.

Specialized Materials and Chemicals

To make a chip, it has to be physically produced in a chip factory or “Fab”. Chip factories require specialized materials and chemicals such as silicon wafers, gases including exotic/toxic gases, fluids, photomasks, and other wafer handling equipment. To facilitate the production of silicon wafers, crystal growing furnaces are also required.

Wafer Fab Equipment (WFE)

These machines physically manufacture the chips, such as slicers that cut a slice from an ingot of silicon and manipulate its atoms on and below the surface. Applied Materials, KLA, LAM, Tokyo Electron, and ASML are the five dominant companies that design and build these expensive machines.

Fabless Chip Companies

Fabless chip companies, such as Apple, Qualcomm, and Nvidia, among others, now design their own chips. They create chip designs using IP Cores and their own designs and send them to foundries that manufacture them. These chips are designed for the companies’ use exclusively in their own devices or for sale to others such as AMD, Nvidia, Qualcomm, or Broadcom.

Integrated Device Manufacturers (IDMs)

IDMs are companies that design, manufacture, and sell their own chips in their fabs. Currently, there are three categories of IDMs: memory (Micron, SK Hynix), logic (Intel), and analog (ATI, Analog Devices). These companies use chip IP and electronic design software to design their chips, and buy wafer fab equipment and use specialized materials and chemicals.

Chip Foundries

Foundries are companies that make chips for other companies in their fabs. They do not design chips but buy and integrate equipment from various manufacturers and use wafer fab equipment and specialized materials and chemicals to manufacture the chips. TSMC in Taiwan is currently the leader in logic, followed by Samsung, while others specialize in making chips for analog, power, rf, displays, and secure military, among others. Building a new generation chip (3nm) fabrication plant costs approximately $20 billion.


Fabrication plants or fabs are factories that manufacture chips. IDMs and foundries both have fabs, and the only difference is whether they make the chips for personal use or not. The fab design process is akin to a book printing plant. Engineers design chips using electronic design automation tools, select a fab appropriate for their needs, purchase raw materials, and equipment for the manufacturing process. While this all sounds simple, it’s not, as manufacturing chips at the atomic level is the most complex process involved in the fabrication of products.

Outsourced Semiconductor Assembly and Test (OSAT)

OSAT companies package and test chips made by foundries and IDMs. They take the wafer made by foundries, dice (cut) them into individual chips, and package them for shipping.


Understanding the semiconductor industry is crucial in today’s digital age where semiconductors power most devices that we use daily. While the industry is complex and involves hundreds of companies, it is merely just the tip of the iceberg when we talk about the possibilities of technology and digital transformation. This pictorial tutorial provides a simplified view of a very complex industry, but it is a good starting point for anyone looking to understand the semiconductor business.

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