The news says "fabless", "foundry" and "IDM". What's the difference?

When the news talks about chip design companies, foundries and IDMs, the difference is which stages of a chip's journey, from design to shipping, each one does itself. An IDM (integrated device manufacturer) designs its chips and makes them too. A chip design company, called fabless, only designs and has someone else make the chips. A foundry only makes chips that other companies designed. Add the test-and-assembly house (OSAT), which packages and tests chips, and you have the kinds of company a chip often passes through.

This article puts all four side by side in one table. For more on any of them, the table's last row has links.

What stages does a chip go through from design to shipping?

Roughly three:

1. Design: engineers draw the circuit on a computer and simulate and check it many times. Once it's final, the design is handed over. This is called tape-out. IC, short for integrated circuit, is the formal name for a chip, so this stage is also called IC design.
2. Manufacturing: the design is first made into photomasks, which work like negatives for printing the circuit. In the wafer fab, wafers go through hundreds of steps that build the circuit up layer by layer. This takes weeks to months.
3. Assembly and test: assembly and test means packaging plus testing. Each chip on a finished wafer is tested, then the wafer is cut apart, each chip goes into a case, and it's tested again once it's packaged. Only the good ones ship.

These three stages need very different things. Design runs on people and design software. Manufacturing needs a whole cleanroom and a great many very expensive tools. Assembly and test uses yet another set of tools. So the three stages are often done by different companies. What happens in each one: How are computer chips made?

Which stages does each kind of company do?

	IDM	Chip design company (fabless)	Foundry	Test-and-assembly house (OSAT)
Designs the chip	Yes	Yes	No, but sets the design rules first	No
Builds the circuit on wafers	In its own fabs	Hands it to a foundry	Yes	No
Assembly and test	Can be in-house, with some handed out	Hands it to a test-and-assembly house	Mostly not	Yes
What it sells	Its own chips	Its own chips	Making wafers for others	Assembly and test for others
Read more	What is a fab in semiconductors?	How are chips designed?	The news says "foundry". What is it?	What is an OSAT?

Think of printing a book. A chip design company is like a publisher: it writes the book and sells it under its own name, but hands the printing to a printer. A foundry is like the printer: it prints whatever manuscript each customer sends and publishes no books of its own. A test-and-assembly house is like the bindery: it trims the printed sheets, binds them and checks every page. And an IDM is a publisher with its own printing plant.

Two things in the table are easy to miss:

• The customer designs the chip, but the foundry sets the rules first: how thin a line can be drawn and how close two lines can be. A design drawn to those rules is one it can actually make.
• The part number printed on a chip's case belongs to the company that sells it: a fabless company's chip carries the design company's part number, even though other companies made and packaged it.

Why split the work among so many companies?

• Wafer fabs are very expensive: building an advanced fab and filling it with tools takes a great deal of money, and the time is counted in years. Once it's built, it only pays if it stays full, and one company's own chips often can't fill a whole fab. A foundry takes orders from many companies, so its tools always have work. The news says "foundry". What is it? goes into this in more detail.
• Each can focus: design companies put their money and people into design; foundries focus on getting each process generation stable; test-and-assembly houses focus on many kinds of packaging and testing. The same tools and experience serve many customers' chips.
• Small companies can make chips too: without building a fab first, a company with only a design team can still get its own chip made. Before the 1980s, most chip companies had their own fabs. Then companies with fabs began letting others use their spare capacity, companies that only made chips for others appeared, and design-only companies grew in number.

So why do IDMs still build their own fabs?

With its own fab, a company can tune design and manufacturing together. If the designers want something, they can work it out directly with the process engineers in their own fab; if the process can do something special, the design can use it right away. How much to make and which lot goes first are its own decisions too, with no waiting in line behind other companies.

The price is building and running the fab itself. When orders are thin, the tools sit idle and still lose value every day.

Are the lines between the four always clear?

No. The four names describe roles more than companies, and one company often plays more than one:

• Some IDMs have their own fabs but still hand some of their chips to foundries, and some of their assembly and test to test-and-assembly houses.
• Some companies with fabs use spare capacity to make chips for others: they make their own chips and take foundry orders too.
• Some companies keep only part of their own fabs and hand the rest of the work to foundries. This is called "fab-lite".
• Some foundries also do part of the packaging, especially advanced packaging (The news says "advanced packaging").
• Some companies that make products such as phones, computers or cars also design their own chips, then have foundries and test-and-assembly houses make them.

So when reading the news, rather than asking "which kind of company is this?", ask "for this chip, who does which stage?"

Next time you see it in the news

• "A chip design company launches a new chip": the design is its own. The chip was most likely made by a foundry and packaged and tested by a test-and-assembly house, but the case still carries the design company's part number.
• "An IDM is outsourcing more": a company with its own fabs is handing more of its chips to foundries or test-and-assembly houses.
• "Moving to a fab-lite model": keeping part of its own fabs and handing the rest of its chips to foundries.
• "In-house chips": a company that makes products is designing its own chips; manufacturing still mostly goes to a foundry, and assembly and test to a test-and-assembly house.

In fab24hr

The main story, The life of a chip, follows a made-up hearing-aid chip called "Glowmere" from the moment its design is handed over all the way to the test-and-assembly house. It's the first chip a small hearing-aid company has designed itself. In the prologue, "Tape-out", the design goes to the wafer fab and is made into a set of photomasks. In this article's terms, the small company does the design stage: a company that makes products, designing its own chip. Act one is the pilot run on this fab's R&D line. Act two moves to the production fab, where Glowmere is a customer's chip; the hot lot H-2417 stuck in an etch tool is one of its lots. Act three is at the test-and-assembly house: in chapters 10 to 12 you're the test engineer, the assembly process engineer and the customer liaison. To spend a shift in one of these places, tap "Clock in", choose "A day in the fab", then on the "Your role today" card tap "R&D line", "Production fab" or "Test-and-assembly house", swipe to the job, and tap an area if the job has them. The companies, chips, people and lot numbers in the game are fictional; how the four kinds of company divide the work comes from public, general sources, and every company does it differently. For other jargon, see Chip fab jargon in plain English.