Newcomers to the industry often assume “chip company” describes one kind of business: a company that designs and makes its own chips. In reality, very few companies do both, because the industry has split into specialised company types, each occupying a distinct position between design concept and finished device, and each carrying its own economics, customers, and competitive logic.
Understanding these company types matters for anyone working in, supplying to, or trying to make sense of the industry, because the differences between them explain where value gets created, where capacity bottlenecks form, and why a headline about one type of company tends to ripple through all the others. To see why the split happened, it helps to start with the model it replaced.
How the Industry Split Apart
For decades, one model dominated: a single company handling design, fabrication, packaging, testing, and sales all under one roof, known today as the integrated device manufacturer, or IDM. That model held until the 1980s, when two separate pressures pulled it apart.
On the design side, chip design was becoming too complex to treat as one undivided process, so engineers began separating it into logical, circuit, and layout stages that no longer needed to sit inside the same company as manufacturing. That separation gave rise to the first fabless companies in Silicon Valley: firms that designed chips but owned no factories. On the manufacturing side, shrinking circuit geometries were pushing capital costs up so fast that a single failed product run could sink a company carrying its own fab.
At first, fabless companies filled the gap by renting spare capacity from IDMs, but that arrangement carried real risk. Proprietary designs could leak to a manufacturer that was also a competitor, and production depended entirely on how much capacity that IDM happened to have free. The fix arrived in 1987, when the world’s first dedicated contract manufacturer was founded in Taiwan, built to manufacture other companies’ designs and nothing else.
Because that model gave fabless companies a manufacturing partner with no competing product line, and gave the manufacturer a stable, diversified revenue base to reinvest in better process technology, it scaled quickly. By the 1990s, this horizontal split between design and manufacturing had become the industry standard, and it’s the same split that defines the four company types below.
IDM: The Integrated Device Manufacturer
An integrated device manufacturer designs, fabricates, packages, and sells its own chips, owning its fabs the way the earliest chip companies did. Intel, Texas Instruments, Samsung, and SK hynix remain leading examples today.
Owning the entire process gives an IDM tight control: full command over manufacturing quality, timelines, and proprietary process technology, plus the freedom to run bespoke manufacturing processes that a generic foundry wouldn’t offer.
That control comes at a price, though, because owning the whole chain also means carrying its full cost and rigidity. Extensive in-house manufacturing makes it harder to adapt quickly when demand swings, and it demands continuous, enormous capital investment to keep pace with process technology.
The strain shows in the growth rates: while the world’s largest IDMs, Samsung, Intel, SK hynix, Texas Instruments among them, still command enormous revenues, the IDM model’s overall growth has been comparatively sluggish over the past two decades, expanding far more slowly than the fabless side of the industry across the same period.
That gap is why many former full IDMs have shifted toward a middle path known as the fab-lite model: keeping in-house fabrication for specialised or mature products while outsourcing advanced manufacturing to foundries, since the cost of staying at the leading edge alone has outgrown what a single product company can justify. Memory makers and many analog and power semiconductor companies tend to remain IDMs today, on the logic that their products benefit most from that bespoke-process control.
Fabless: Design Without Factories
A fabless company designs and markets chips but outsources fabrication to third-party foundries, and typically hands packaging and test to OSAT providers as well. NVIDIA, Qualcomm, AMD, Broadcom, and MediaTek are the model’s flagship names, and it’s no accident that fabless firms dominate the industry’s highest-growth markets, including AI accelerators, GPUs, and wireless systems-on-chip.
Because a fabless company owns no fab, it can put its capital into design innovation instead of the tens of billions a competitive fab now costs to build, which is a large part of why the fabless segment has consistently outgrown the IDM segment over the past two decades, expanding at a considerably faster rate as design-led companies like NVIDIA, Qualcomm, and AMD have come to dominate the industry’s highest-growth markets.
That freedom comes with a matching loss of control, though. A fabless company has less say over manufacturing quality, timelines, and capacity than an IDM does, so when foundry capacity tightens, as it has repeatedly in recent years, fabless companies feel it first and hardest.
Foundry: Manufacturing as the Entire Business
A foundry manufactures chips for outside customers without designing or selling any chips of its own. Pure-play foundries such as TSMC, UMC, and GlobalFoundries exist specifically to serve the fabless world, and their neutrality is part of the pitch: because a foundry doesn’t compete with its customers’ end products, a design is safer there than it ever was when fabless firms were borrowing capacity from IDMs that also built rival chips.
That neutrality has built a distinctive kind of economics. Because a foundry earns stable revenue from manufacturing on behalf of many clients rather than betting everything on its own product line, it can keep reinvesting in technology and capacity even through a downturn. Over decades, that reinvestment flywheel has concentrated leading-edge manufacturing in remarkably few hands: TSMC alone held roughly 67 percent of global foundry market share in the fourth quarter of 2024, with Samsung a distant second at 8 percent.
That concentration is exactly why foundries keep turning up in geopolitical and supply chain conversations, since an outsized share of the world’s most advanced chips now flows through a handful of foundry campuses, most of them in East Asia.
A quick terminology note, since the two get mixed up often: a fab is the physical facility, the cleanrooms, lithography tools, deposition systems, and metrology equipment manufacturing runs on, while a foundry is the company that operates fabs for external customers. IDMs own fabs too. What separates a foundry from an IDM is simply who the output belongs to.
OSAT: The Specialists of Assembly and Test
A finished wafer isn’t a finished product. Every chip on it still has to be thinned, diced into individual dies, packaged, and tested before it can ship, and an entire company type exists to do exactly that. OSATs, short for Outsourced Semiconductor Assembly and Test, provide third-party assembly, test, and packaging services. Fabless companies route their packaging to OSATs, and even IDMs and foundries with their own packaging lines routinely send a share of the work out to them too.
For most of the industry’s history, this back-end stage was treated as the unglamorous part of chipmaking. That’s changing fast, because as transistor miniaturisation runs up against its physical limits, the back-end process has become one of the few remaining places left to gain performance.
Advanced packaging techniques such as chiplets and 2.5D and 3D integration have turned assembly and test from a downstream formality into a genuine source of competitive advantage, and OSATs, along with the regions where they cluster, Southeast Asia very much included, now sit at the centre of that shift.
The Ecosystem Around Them
None of these four company types operates alone. Around them sits a wider ecosystem of enablers.
Equipment makers supply the specialised tools that carry out each step of manufacturing under tightly controlled conditions, such as deposition, photoresist coating, lithography, etching, ion implantation, and packaging systems, and this segment includes some of the most technologically singular companies in the world.
EDA, or electronic design automation, companies provide the software every modern chip is designed in, while IP licensors supply the pre-built circuit blocks that designers assemble their chips around, so a design team rarely starts from a blank page.
Materials and consumables suppliers keep the whole system running day to day, providing the wafers, chemicals, gases, and carriers that manufacturing consumes continuously.
And distributors and solutions providers tie the ecosystem together, supplying components, test solutions, consumables, and equipment to fabs, OSATs, and electronics manufacturers with the regional infrastructure that a global manufacturer can’t easily replicate in every market on its own.
Why the Distinctions Matter
The company-type map explains much of how this industry behaves, because in a horizontally specialised industry, no single company type can function without the others. When foundry capacity tightens, the effects reach fabless companies within months, since their entire output depends on someone else’s fab schedule.
That same dependency also explains why the industry’s investment horizons diverge so sharply: IDMs and foundries commit to capital plans that run for a decade, because a fab is a decade-scale bet, while fabless firms can rework their product roadmaps annually, since they carry none of that fixed infrastructure.
It’s the same logic behind the advanced-packaging investment now flowing toward OSAT-heavy regions, and behind supply chain resilience becoming a boardroom topic across every segment at once: when one link in a horizontally specialised chain slows down, every other link feels it.
Looking for Expert Solutions in the Semicon Industry?
For our part, we sit within the ecosystem that keeps these companies running. We supply semiconductor test solutions, assembly and die preparation consumables, PCB solutions, electronic components, laboratory and inspection equipment, and industrial computing hardware to fabs, OSATs, test operations, and electronics manufacturers across Singapore, Malaysia, Thailand, and the Philippines, a region at the heart of the global back end. Whatever type of semiconductor operation you run, contact our team to discuss how we can support it.