The news says "foundry". What is it, and how does making chips for other companies work as a business?

When the news talks about a chip "foundry", it means a company that makes chips for other companies, also called a contract chipmaker. The customer designs the chip. The foundry follows the customer's design and builds it layer by layer on a wafer, then hands the finished chips back. It sells no chips of its own.

The news also says things like "foundries are expanding", "customers are placing orders" and "foundry prices are going up". To read those, it helps to know how the chip business divides up the work.

What kinds of chip companies are there?

The difference is who does the designing and who does the making. There are roughly three kinds, and a restaurant makes them easier to picture:

• Chip design companies: they only design chips and own no wafer fab. Think of a food brand that only designs the menu. The recipes and the name on the sign are its own, but someone else does the cooking. In English this is called fabless, which simply means "no fab".
• Foundries: they only make chips for others, and neither design nor sell chips of their own. Think of a central kitchen. It takes orders from many brands, cooks each one to that brand's recipe and sends it back, and runs no restaurant of its own.
• IDMs: integrated device manufacturers, which design their own chips and also have their own wafer fabs. Think of a restaurant that writes its own menu and cooks in its own kitchen.

An IDM can tune the design and the manufacturing together; the price is building and running its own fabs. A fabless company doesn't have to build a fab and can put its money and people into design; the price is having to line up time and capacity at a foundry.

Why split the work? Why not make your own?

Because wafer fabs are very expensive. An advanced fab needs a building and a great many very expensive tools, takes years to go from breaking ground to production, and costs the kind of money only very large companies have.

Once a tool is bought, it loses value every day, whether it's running or not (Why do chip fabs run 24 hours a day?). So a fab only pays off if it's kept full. But one company's own chips often can't fill a whole fab.

A foundry solves this by pooling orders from many companies. When one company orders fewer chips, there are others, and the tools stay busy. It's the central kitchen again: one brand can't sell hundreds of portions a day, but put a dozen brands' orders together and the stoves never go cold.

In the early days, most chip companies designed and made their own chips. As each generation of fab cost more to build, fewer companies could afford their own, and design and manufacturing gradually moved to separate companies. All three kinds still exist today, and they often work together: some IDMs hand part of their chips to foundries, and some companies with their own fabs use spare capacity to make chips for others. So one company in the news may wear more than one hat.

How does a foundry make a chip someone else designed?

1. Rules first: for each process generation, the foundry gives design companies a set of "design rules": how thin a line can be drawn, how close two lines can be, and models of how the transistors behave, for simulation on a computer. The design company draws to those rules, then has a computer check the drawing for any breaks. It's like the central kitchen saying up front how big the pots are and how hot the stoves get, so the recipes are written to fit.
2. Hand over the design: once the design is final, it's sent off to be made into photomasks, the "negatives" used to print the circuit. This is called tape-out.
3. Start making it: after wafer start, the wafers go through hundreds of steps in the fab, which takes weeks to months. The first few lots of a new product are its pilot run: they're for finding problems, and only once things are stable does large-scale production start.
4. Hand over the wafers: finished, measured wafers go on to the next stage.

What does a foundry care about most?

• Yield: the share of the chips that come out good. Fewer good chips means each good chip costs the customer more, and the promised quantity may not be ready in time (What does "yield" mean in chip news?).
• Delivery dates: how many wafers are promised to the customer, and by when. Wafers take months to make, and if any tool stops along the way, the schedule after it slips too. A lot the customer is in a real hurry for is often marked as a hot lot and goes to the front of the line at every step.
• Confidentiality: the design a customer sends in is the most valuable thing it has. One fab may be making chips for several competing companies at the same time, and no company's design may be seen or used by another. Doing only foundry work and selling no chips of its own has one more benefit: the foundry doesn't compete with its customers, so they feel safer handing over their designs.
• Every process generation: customers want faster chips that use less power, so a foundry has to keep developing the next generation (The news says "2 nm". What exactly is 2 nm?). Older generations mostly stay in production, though. For many chips an older process is good enough, stable and cheaper (mature nodes), so a foundry often offers several generations at once and lets customers choose.

Once the wafers are done, do they go to the customer?

Not yet. A finished wafer holds many chips that haven't been cut apart. Next, every chip is tested, the wafer is cut up, each chip goes into a case and is tested again. This stage is called assembly and test, and it's often done at a specialist test-and-assembly house (What is chip packaging?). Only after that do the chips reach the customer, to go into phones, computers, cars or home appliances.

So on its way from design to shipping, one chip often passes through several companies: the design company, the foundry and the test-and-assembly house, each doing one part.

Next time you see it in the news

• "Foundries are expanding capacity": they're building new fabs or adding tools to existing ones, so they can make more wafers a month. Building a fab takes years, so an expansion announced today often won't ship anything for some time.
• "Customers are placing orders" or "cutting orders": design companies are ordering more or fewer wafers from the foundry. Even after an order goes in, the chips take weeks to months to arrive.
• "Foundry prices are going up": the foundry is charging its customers more, usually meaning the price of one wafer. Each chip then costs the design company more too.
• "Capacity is fully booked": the tools are booked solid, and new orders have to wait in line.

In fab24hr

The hero of the main story, The life of a chip, is a made-up hearing-aid chip called "Glowmere": 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. Act one is the pilot run on the R&D line. In chapter 4, "Two Weeks Early", Ms. Shen, the customer company's founder, calls by video with Leo: their product has to be in stores by the end of the year, and they want a risk start. You give your recommendation. Act two is in the production fab, which is exactly a wafer fab that takes customers' orders: the hot lot H-2417 is stuck in an etch tool, the customer on its lot tag is that small company, and once the tool stops, the customer keeps calling. Act three is at the test-and-assembly house: in chapter 12, "The Night Before Shipping", you're the customer liaison, the first batch ships in the morning, and you need an answer for whatever the customer asks. The companies, chips, people and numbers in the game are fictional; what a foundry is and why the work is split come from public, general sources. For other jargon, see Chip fab jargon in plain English.