A ton has been written about the semiconductor industry in the past year: chip shortages, the CHIPS Act, our dependence on Taiwan and TSMC, China, etc.
But despite all this talk about chips and semiconductors, few understand how the industry is structured. I find the best way to understand something complex is to diagram it step by step. So here’s a quick graphic tutorial on how the industry works.
Semiconductor ecosystem
We are witnessing a digital transformation. Everything. Semiconductors – chips that process digital data – are used in almost everything: computers, cars, household appliances, medical devices, etc. Semiconductor companies will sell $600 billion worth of chips this year.
Looking at the picture below, the industry looks very simple. Companies in the semiconductor ecosystem make chips (the triangle on the left) and sell them to companies and government agencies (on the right). Those companies and government agencies design chips into systems and devices (eg iPhones, PCs, airplanes, cloud computing, etc.) and sell them to consumers, businesses, and governments. Revenues for products that include chips are tenfold. TA billion dollars.
However, to what extent, the industry remains a mystery to many. If you think about the semiconductor industry, you might picture workers in bunny suits handling 12-inch wafers in a textile clean room (the chip factory). However, one atom is a business that moves materials at a time, and the factories cost $10 billion to build. (By the way, that wafer has two. Trillion Transistors on it.)
If you can look at the simple triangle that represents the semiconductor industry, instead of one company making chips, you’ll find an industry of hundreds of companies, all interdependent. It’s pretty impressive overall, so let’s describe one part of the ecosystem at a time. (Warning – this a Simple A very complex industry view.)
Semiconductor industry units
The semiconductor industry consists of seven different companies. Each of these distinct industrial units feeds the resource to the next level of the value chain until the final chip factory (“fab”) has all the designs, equipment and materials necessary to manufacture a chip. These semiconductor industry segments, from bottom to top, are:
- Chip intellectual property (IP) cores
- Electronic design automation (EDA) tools
- Special materials
- Wafer Fab Equipment (WFE)
- “Fairytale” chip companies
- Integrated Device Manufacturers (IDM)
- Chip foundries
- Outdoor Semiconductor Assembly and Test (OSAT)
The sections below provide more detail about each of the eight semiconductor industry segments.
Chip intellectual property (IP) cores
- of Design A chip owned by a company or…
- Some companies license their chip designs – known as software building blocks, IP Cores – for wider use.
- There are over 150 companies that sell Chip IP courses.
- For example, Apple has provided the IP core to the building blocks of their microprocessors in their RMIs and computers.
Electronic design automation (EDA) tools
- Engineers design chips using specialized electronic design automation (EDA) software (they add their own designs to any IP cores they purchase).
- The industry is dominated by three US vendors – Cadence, Mentor (now part of Siemens) and Synopses.
- A large engineering team would take 2-3 years to design a logic chip using these EDA tools, such as a microprocessor used in a telephone, computer or server. (See the diagram of the design process below.)
- Today, as logic chips become more complex, all electronic design automation companies are starting to incorporate artificial intelligence tools to speed up and speed up the process.
Special materials and chemicals
So far our chip is still in software. But to turn it into something tangible, we have to physically manufacture it in a chip factory called a “fab.” Factories that make chips must buy special materials and chemicals:
- Silicone ovens – and to make the necessary crystal growing ovens
- Over 100 gases are used – bulk gases (oxygen, nitrogen, carbon dioxide, hydrogen, argon, helium) and other exotic/toxic gases (fluorine, nitrogen trifluoride, arsine, phosphine, boron trifluoride, diborane, silane, and the list goes on). …)
- Fluids (photographers, topcoats, CMP slurry)
- Photo masks
- Wafer handling equipment, dicing
- RF generators
Wafer Fab Equipment (WFE) make chips
- These machines produce the chips physically
- Five companies dominate the industry – Applied Materials, KLA, LAM, Tokyo Electron and ASML
- These are some of the most complex (and expensive) machines on earth. You take a piece of silicon ingot and arrange the atoms on it and then on the bottom
- We will explain how these machines are used a little later
“Fairytale” chip companies
- System companies that previously used off-the-shelf chips (Apple, Qualcomm, Nvidia, Amazon, Facebook, etc.) now design their own chips.
- They create chip designs (using IP Cores and their own designs) and send the designs to a “foundry” that manufactures the designs.
- They can only use the chips in their own devices eg Apple, Google, Amazon….
- Or they can sell chips to everyone eg AMD, Nvidia, Qualcomm, Broadcom…
- They do not own Wafer Fab Equipment or use special materials or chemicals.
- They use chip IP and electronic design software to design chips
Integrated Device Manufacturers (IDM)
- Integrated Device Manufacturers (IDMs) design, manufacture (in their own fab) and sell their own Chips
- They don’t make chips for other companies (this is changing fast – see here.)
- There are three categories of IDM – memory (eg Micron, SK Hynix), logic (eg Intel), analog (TI, Analog Devices).
- They have their own “fab” but they can use bases
- They use chip IP and electronic design software to design chips
- They buy Wafer Fab Equipment and use special materials and chemicals
- The average cost of manufacturing a new leading-edge chip (3nm) is now $500 million.
Chip foundries
- Founders make chips for others in their “factories”.
- They buy and combine equipment from different manufacturers
- Wafer Fab equipment and special materials and chemicals
- Using this tool, you can design special processes to do Chips
- But they Do not design chips
- In Taiwan, TSMC is the logical leader, Samsung is second.
- Other fabs are focused on making chips for analog, power, RF, displays, secure military etc.
- It will cost $20 billion to build a new generation chip (3nm) factory.
Fabrics
- Fabs are short for fabs – a factory that produces chips
- Integrated Device Manufacturers (IDM) And Founders have both fables. The only difference is that they make chips for others to use or sell.
- Think of a fab as a book printing factory (see diagram below).
- Just as an author writes a book using a word processor, an engineer designs a chip using electronic design automation tools.
- An author contracts with a specialized publisher and sends the manuscript to a printing plant. An engineer selects a fabric suitable for the type of chip (memory, logic, RF, analog).
- The printer buys paper and ink. A fab buys raw materials; Silicon, chemicals, gases
- The printer buys printing machines, printers, binders, cutters. Fab buys wafer fabrication equipment, etchers, deposition, lithography, testers, packaging
- The book printing process uses offset lithography, engraving, engraving, blueprinting, platemaking, binding and trimming. Chips are manufactured in a complex process, using atomic etching, deposition, lithography. Think of it as atomic level offset printing. Then the wafers are cut and the chips are sealed
- The plant produces millions of copies of the same book. The plant produces millions of copies of the same chip.
Although this seems simple, it is not. Chips are perhaps the most complex products ever produced. The diagram below is a simplified version. 1000+ Steps to make a chip.
Outdoor Semiconductor Assembly and Test (OSAT)
- Companies that package and test chips made by fans and IDMs
- OSAT companies take the wafers manufactured by Fanchering, cut them into individual chips, test them, and then package them and ship them to the customer.
Fab issues
- As chips become denser (with trillions of transistors per wafer), fabrication costs have increased exponentially – now >$10 billion per chip fab.
- One reason is that the cost of the equipment needed to make the chips has skyrocketed.
- An advanced lithography machine from a Dutch company called ASML costs $150 million.
- There are ~500+ machines in Fab (not all as expensive as ASML).
- Fab building is incredibly complex. A clean room for making chips is just the tip of the iceberg, a complex pipeline feeding gases, power, fluids at the right time and temperature to the wafer fab equipment.
- The multi-billion dollar cost of staying in the lead means most companies quit. In 2001, there were 17 companies making the most advanced chips. Today there are only two – Samsung in Korea and TSMC in Taiwan.
- This could be a problem for the West as China believes that Taiwan is a Chinese territory.
What’s next – technology
Building chips that are denser, faster, and use less power is becoming increasingly difficult, so what’s next?
- Instead of having one processor do all the work, logic chip designers put multiple specialized processors inside the chip.
- Memory chips are now made denser by increasing the 100+ layers.
- As chips become more complex to design, meaning larger design teams and longer time-to-market, electronic design automation companies are incorporating artificial intelligence to automate parts of the design process.
- Wafer equipment manufacturers’ fabs are designing new equipment to help them deliver chips with lower power, better performance, better environment-to-cost and faster time to market.
What’s next – business
The business model of integrated device manufacturers (IDMs) such as Intel is changing rapidly. Previously, it had a huge competitive advantage by being vertically integrated, meaning you would have your own design materials and fabrics. Today is the downside.
- Foundations have economies of scale and standardization. Instead of inventing it all themselves, they can use the whole creativity in the ecosystem. And focus only on production
- ADM has proven that it is possible to convert from IDM to the model you invented. Intel is trying. They are going to use TSMC as a source for their own chips and do their own fusing.
What’s next – geopolitics
Controlling advanced chip manufacturing in the 21st century may be like controlling the supply of oil in the 20th. A country that controls this manufacturing can suppress the military and economic power of others.
- Ensuring a continuous supply of chips has become a national priority. (China’s biggest revenue in $s is semiconductors – bigger than oil)
- Today, both the US and China are rapidly trying to decouple their semiconductor ecosystems from each other. China is pouring more than $100 billion in government incentives to build Chinese factories, while at the same time trying to create indigenous wafer fab equipment and electronic design automation software.
- Over the past few decades, the United States has moved most of its factories to Asia. Today, we are promoting fabric and chip manufacturing to America.
An industry that used to focus solely on technologists is now one of the largest segments in the Great Power Race.
Filed under: Gordian Knot Center for National Security Innovation, Technology |
