At the beginning of Volume 1, I described, “I would like to start about major trends in the semiconductor industry. As for the major trends, I will focus on miniaturization, larger diameter wafers and horizontal specialization.” Having covered miniaturization and shift to larger diameter wafers in the previous volumes, I would now like to talk about horizontal specialization, the last major trend in the semiconductor industry over the next three posts.
Process of Making Semiconductor Products
Vertical Integration and Horizontal Specialization
Semiconductor Company Revenue Rankings
The Rise of Fabless Companies
Volume 13: Horizontal Specialization in the Semiconductor Industry and the Rise of Fabless Companies
The process of making semiconductor products is generally divided into three processes:
(1) Integrated circuit design
(2) Front-end process
(3) Back-end process
So far, including the previous Volume 12, I have discussed miniaturization and the shift to larger diameter wafers, which corresponds to (2) front-end process. To fully understand the upcoming discussion on horizontal specialization, it is necessary to have an understanding of the entire process of making semiconductor products, including (1) and (3), not just the front-end process. The following is a brief overview.
Process of making semiconductor products
To make a semiconductor product, the process begins with planning the product, defining its specifications, and designing a circuit that meets those specifications. A circuit layout is then designed to realize the circuit on a silicon chip, and this layout is ultimately transferred onto photomasks. This process is called integrated circuit design. Photomasks were briefly mentioned in Volume 2 in the discussion of lithography.
These photomasks are then used to fabricate integrated circuits on a silicon chip. This process is called the front-end process of semiconductor manufacturing. At the end of the front-end process, a large number of chips with integrated circuits are formed on a silicon wafer, as shown in the figure below. In Volume 2, I talked about the wafer process, which is the front-end process of semiconductor manufacturing.
Wafer with integrated circuits formed after completion of front-end process
When the front-end process, or wafer process, is complete, integrated circuits are fabricated on a silicon chip. At this point, integrated circuits are functional. However, it cannot be used as an end product in this state. These chips must be cut from the silicon wafer and placed in a package. This is the back-end process of semiconductor manufacturing and is called packaging or assembly process.
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Example of product appearance after completion of back-end process (our product)
As mentioned above, when the front-end process is completed, the functionality of the product is already implemented on a silicon chip, making it a complete semiconductor device in a sense. However, using a bare silicon chip can lead to malfunctions due to external factors such as light. In addition, silicon is extremely fragile and can crack or break on impact. Therefore, it is common practice to enclose a silicon chip in a package to protect it from the external environment. Additionally, semiconductor products are soldered to a printed circuit board (PCB), but chips cannot be soldered directly to a PCB. Therefore, a package also serves as an interface between a chip and a PCB.
Note that after the front-end and back-end processes are completed, each process is followed by a test process to verify that electrical characteristics meet specifications.
Since the back-end process has not been covered in previous volumes, the following figures show the typical appearance of semiconductor packages and outline the back-end process flow. All of the packages shown here are package types that are encapsulated in resin for protection. Four different types are shown, each with a different terminal shape for connection to a PCB. The figure of the back-end process flow is shown as an example of a package with solder balls on the backside as terminals.
Back-end (packaging or assembly) process flow
In the figure of the back-end process flow, the “substrate” is the interface between a chip and a PCB. In addition to substrates, a lead frame made of metal is also used. Of the four types of packages shown above, the one in the lower right uses a substrate, while the others use a lead frame. In general, substrates are used when there are many terminals. After a chip is electrically connected to a substrate or lead frame, a chip is protected by encapsulation with epoxy resin.
Please visit the following links to learn more about the packages we offer.
A business model that handles all of the integrated circuit design, front-end, and back-end processes described in the previous section is called “vertical integration,” and companies that adopt the vertically integrated model are called integrated device manufacturers (IDMs).
Conversely, a business model in which the integrated circuit design, front-end, and back-end processes are handled by different companies is called horizontal specialization. Companies that focus on integrated circuit design without owning a fab are called fabless companies; those that specialize in the front-end process are called foundries; and those that specialize in the back-end process and test are called OSATs (outsourced semiconductor assembly and test).
Horizontal specialization is a common business model not only in the semiconductor industry but also in other industries, such as apparel and publishing. In the case of the publishing industry, for example, publishers correspond to fabless companies, while printers correspond to foundries or OSAT companies.
In the early days of the semiconductor industry, companies had no choice but to do everything in-house, including crystal growth, so all semiconductor companies were IDMs. Since then, however, the industry has shifted to horizontal specialization.
Nowadays, even companies that are called IDMs often use foundries or OSATs for some parts of the process, so truly complete IDMs may be rare. Our company is an IDM because we own both front-end and back-end fabs (at least, not a fabless company), but some products use foundries or OSATs, and the process can be called fabless for these products.
Vertical integration and horizontal specialization
However, it is not necessarily the case that horizontal specialization has progressed in all countries and for all products. I would like to explain more about this in future discussions, if possible.
Next, I would like to look at the status of IDMs and fabless companies among the major players in the semiconductor industry, based on the top 10 semiconductor companies by revenue published by several research firms.
Each year, several research firms publish rankings of semiconductor companies by revenue, and generally, companies that sell processors, SoCs, and memory for computers and smartphones are at the top. In addition to the fact that personal computers (PCs) and smartphones are high-volume products, the number of companies that supply processors, SoCs, and memory for them is limited. Besides, processors and SoCs are likely to be expensive, and each PC or smartphone uses multiple memory modules (as shown in the figure below), so these companies tend to be at the top of the rankings.
According to the 2021 ranking, Texas Instruments (TI), which is in the same analog semiconductor category as our company, is the only company in the top 10.
Note: The term “semiconductor companies” here refers to companies that sell semiconductor products (devices), including both IDMs and fabless companies, but not foundries or OSATs.
Note: SoC stands for System on a Chip or System on Chip, a semiconductor device that integrates a processor, such as a CPU, and other key functions that make up a system onto a single chip.
Memory modules (indicated by arrows) with a large number of memories in a desktop computer
The companies in the top 10 have changed over time. These companies have shifted before and after the widespread adoption of PCs and smartphones. Of the top 10 companies from the 1980s, only Intel and TI remain in the top 10 today. In the 1980s and early 1990s, Japanese companies dominated the global DRAM market for mainframe computers. There was a period when Japanese companies held the number one position in semiconductor revenues for several years, and at one point, as many as six Japanese companies were in the top 10. However, as the focus of computing shifted to PCs, the position of Japanese companies declined, and today, unfortunately, there are no Japanese companies in the top 10.
Note: Events that triggered the worldwide adoption of PCs and smartphones
PC: The release of the IBM PC in 1981 and the release of Windows 95 in 1995
Smartphone: The release of the iPhone in 2007 and the release of Android smartphones in 2008
The following table summarizes the changes in the top 10 companies from the late 2000s through 2021. Fabless companies have made significant progress since 2008, which I will discuss in more detail later.
Changes in top 10 semiconductor revenue rankings (since 2008)
Note: Since the semiconductor market, especially memory, has always been volatile and has also been affected by the COVID-19 pandemic and other factors, the ranking has changed since 2022. However, the trend of the rise of fabless companies, which is the subject of this blog, has not changed and, if anything, it feels like it is accelerating at the beginning of 2025.
As shown in the table above, the number of fabless companies in the top 10 by revenue has continued to increase since 2008. In the 2021 ranking, five companies, or half of the top 10, are fabless companies.
The top four companies in 2021 are IDMs, that is, Intel and three memory companies (Samsung, SK Hynix, and Micron), but fifth and below were all fabless companies except for TI. The rise of fabless companies has caused the IDMs in Europe and Japan to become out of the ranks.
Note that European and Japanese IDMs have a strong presence in automotive semiconductors, with four of the top five IDMs coming from Japan and Europe. However, since automotive semiconductor revenues account for about 10% of total semiconductor revenues, companies that are strong in computing and telecommunications (smartphones, etc.), which account for most of the remaining revenues, rank higher in the overall semiconductor market.
Let’s take a closer look at the fabless companies in the top 10.
First, Qualcomm entered the top 10 in 2008, followed by Broadcom in 2010. These two companies have remained in the top 10 ever since. They were followed by MediaTek, NVIDIA and AMD. In the 2021 ranking, these five companies are in the top 10. Four of these companies, except Taiwan’s MediaTek, are US companies.
Note: AMD stands for Advanced Micro Devices, but the abbreviation AMD is often used. AMD was originally an IDM but spun off its manufacturing division in 2009 to become a fabless company, and the spun-off manufacturing division is now a foundry called Global Foundries.
The above five companies are outperforming other fabless companies in terms of revenue, and it seems unlikely that other fabless companies will break into the top 10 in the near future. (This article is an English translation of a Japanese article published in 2022, and the situation has not changed in the 2024 rankings).
To roughly categorize these five companies, Qualcomm, Broadcom, and MediaTek are related to smartphones and other telecommunications, while AMD and NVIDIA are related to computing, including AI. Therefore, it can be said that the proliferation of smartphones and the advent of the data age have propelled the fabless companies forward.
In addition, more and more companies that were once semiconductor users are becoming fabless semiconductor companies, using foundries and OSATs to manufacture their own custom semiconductors under their own management. Apple used its own custom SoCs for smartphones but used processors from other companies for PCs. However, Apple has moved its PC processors to custom products and is also moving to further in-house production of semiconductors for smartphones. GAFAM, other than Apple, is also developing its own semiconductors in-house as well. It has been reported that Amazon described itself as a fabless semiconductor company at SEMICON West 2022.
Note: On November 10, 2020, Apple announced M1, the first chip designed by Apple for its own Mac computers.
Note: This blog is an English translation of a Japanese blog published in October 2022, and after 2022, Apple is increasing its self-developed semiconductors. In Gartner's revenue ranking of semiconductor companies, Apple is classified as a fabless semiconductor company and is ranked 11th in 2021, 9th in 2022, 8th in 2023, and 9th in 2024. In 2024, there are six fabless companies in the top 10 revenue rankings (the five discussed in the text, plus Apple). The remaining four IDMs are Intel and the three memory companies mentioned in the text.
This is an overview of horizontal specialization and a look at the growing presence of fabless companies in the semiconductor industry. In the next post, I would like to look at the historical background of horizontal specialization, i.e. the emergence of fabless companies and foundries.
Click below to read this series.
Semiconductor Miniaturization:
Volume 1: Semiconductor Miniaturization: What is Moore’s Law?
Volume 2: Semiconductor Miniaturization and Manufacturing Process
Volume 3: Semiconductor Miniaturization and International Technology Roadmap
Volume 4: Semiconductor Miniaturization and Semiconductor Business
Volume 5: Semiconductor Miniaturization and Semiconductor Business (Part 2)
Volume 6: Semiconductor Miniaturization and Semiconductor Devices
Volume 7: Semiconductor Miniaturization: What is MOSFET Scaling?
Volume 8: Semiconductor Miniaturization: Limitations of MOSFET Scaling
Volume 9: Semiconductor Miniaturization and Analog Circuits
Shift to Larger Diameter Silicon Wafers:
Volume 10: Shift to Larger Diameter Silicon Wafers: How a Common Material, Silicon, Became a Main Player
Volume 11: Shift to Larger Diameter Silicon Wafers (Part 2): How Silicon Wafers Are Made
Volume 12: Shift to Larger Diameter Silicon Wafers (Part 3): Reasons and History
Horizontal Specialization in the Semiconductor Industry
Volume 13: Horizontal Specialization in the Semiconductor Industry and the Rise of Fabless Companies