The Semiconductor Puzzle: Enough to Shake the world!

Day 8 of Uncovering the Semiconductor Industry

If you think semiconductors come from just one massive factory, they don’t (in most of cases, if they do - at a high cost). The semiconductor industry is one of the most complex and globally interwoven value chains in existence. From design teams in Silicon Valley to raw material suppliers in Japan, from cutting-edge fabrication plants in Taiwan to assembly and testing hubs in Southeast Asia—the journey of a single chip spans multiple continents, billions of dollars, and thousands of highly specialized companies.

But before diving into the value chain, let’s clear up a common misconception: Are semiconductors and chips the same thing?

Semiconductors vs. Chips: What’s the Difference?

While people often use “semiconductor” and “chip” interchangeably, they are not quite the same.

Semiconductors are primarily divided into two categories:

• -Integrated Circuits (ICs): These microelectronic devices integrate multiple components into a single unit. In 2020, ICs accounted for approximately 83% of total semiconductor sales.

• -Optoelectronic, Sensor, and Discrete (OSD) Semiconductors: These include sensors, LEDs, and power transistors, which are essential for applications like medical devices and industrial automation.

Our focus here is on chips (ICs), which accounted for about 83% of all semiconductor sales in 2020. Chips power everything from smartphones and laptops to AI servers and electric vehicles.

Now that we have clarity on what we’re talking about, let’s break down the semiconductor value chain, so that if terms like foundries, fabless, wafers, etc. occur - they sound more familiar and less intimidating.

1. Fabless Chip Designers: The Nerds/Innovators

Fabless companies focus purely on designing semiconductor chips while outsourcing manufacturing to external foundries. This model allows them to innovate without the burden of building billion-dollar fabrication plants. Some of the most well-known fabless companies include:

• NVIDIA, AMD, and Qualcomm – Leaders in GPU, CPU, and mobile chip designs.

• Apple, Meta, and Alphabet – Tech giants developing custom silicon for consumer electronics, AI, and cloud computing.

• Broadcom and Marvell – Specializing in networking and data infrastructure chips.

By handing off manufacturing to foundries, these companies can focus on pushing the boundaries of chip performance, power efficiency, and AI capabilities.

2. Foundries: The Factories That Bring Designs to Life

Foundries are the backbone of semiconductor manufacturing, operating state-of-the-art fabrication plants that convert chip designs into physical silicon wafers.

(A wafer is a thin, circular slice of ultra-pure silicon used as the base for making microchips. It starts as refined silicon, which is shaped into a crystal ingot and sliced into thin discs.)

The most notable foundries include:

• TSMC (Taiwan Semiconductor Manufacturing Company) – The world’s largest foundry, producing chips for Apple, AMD, and NVIDIA.

• Samsung Foundry and GlobalFoundries – Fabricating chips across various industries, from mobile processors to automotive electronics.

• Intel and SMIC (Semiconductor Manufacturing International Corporation) – Major players in the global chip race, with Intel both designing and manufacturing its own chips.

Across the globe, only a couple of manufacturers produce semiconductors, as the process requires significant R&D and capital. The Taiwanese company TSMC is by far the leading manufacturer and has a market share of more than 50%. Samsung, in South Korea, is second, with a market share greater than 10% in Q4 2022. Together with Intel, TSMC and Samsung are the only companies that can produce very specific and very small types of chips.

Manufacturing at this scale requires cutting-edge lithography, etching, and deposition techniques, often using extreme ultraviolet (EUV) light to print the smallest transistors onto silicon wafers.

Quick Fact: The manufacturing of a semiconductor starts with sand, watch the hyperlinked video to see the process!

3. Testing & Packaging

Once manufactured, chips go through rigorous testing and packaging to ensure they meet performance standards. Leaders in this field include:

• Teradyne and Advantest – Providing automated testing solutions.

• Amkor Technology and ASE Group – Specializing in chip packaging and assembly.

• Agilent Technologies – Offering essential testing equipment.

This stage is critical for quality control—a defective chip in a high-performance server or an autonomous vehicle could have catastrophic consequences.

4. Design Software, R&D Tools, and IP: The Brains Behind the Chips

Before a single transistor is printed, semiconductor companies rely on advanced design software and simulation tools. Key players include:

• Synopsys and Cadence – Providing Electronic Design Automation (EDA) software.

• Siemens and Arm – With Arm’s IP cores powering billions of devices globally.

• Ansys and Keysight – Offering simulation tools for chip architecture.

These tools allow engineers to model, test, and optimize chip performance before production even begins.

5. Manufacturing Equipment & Fab Services: The Tools That Build Chips

Fabrication plants need ultra-precise equipment to manufacture semiconductors at nanometer scales. Leaders in this space include:

• ASML – The exclusive supplier of EUV lithography machines.

• Applied Materials, TEL, and Lam Research – Providing etching and deposition tools.

• KLA and Inficon – Offering metrology and inspection systems.

Without these specialized machines, today’s high-performance chips wouldn’t be possible

6. Raw Materials & Components: The Foundation of Chipmaking

Silicon wafers, chemicals, and optical components are the raw materials of semiconductor fabrication. Key suppliers include:

• 1. Silicon (Si) - USA, China, Japan

  • Silicon wafers are the foundation of semiconductors.

  • The U.S. (Applied Materials, MEMC), China, and Japan (Shin-Etsu, Sumco) dominate silicon wafer production.

• 2. Neon Gas (Ne) - Ukraine, Russia

  • Essential for laser lithography in chip manufacturing.

  • Ukraine (Ingas, Cryoin) and Russia supplied over 50% of the world's neon before the Ukraine war.

1. 3. Palladium (Pd) - Russia, South Africa

• Used in semiconductor plating and sensors.

  • Russia and South Africa are the top producers, with Russia alone supplying 40% of the global demand.

• 4. Gallium (Ga) - China

  • A crucial element for GaN chips used in high-performance electronics.

  • China controls over 95% of global gallium production.

• 5. Germanium (Ge) - China, Canada, Russia

  • Enhances semiconductor performance, particularly in fiber optics and solar cells.

  • China leads with over 60% of global production, followed by Canada and Russia.

• 6. Cobalt (Co) - Congo, China

  • Used in semiconductor deposition and power electronics.

  • Congo supplies 70% of the world’s cobalt, but China controls most refining capacity.

• 7. Rare Earth Elements (REEs) - China

  • Used in chip components, including magnets, capacitors, and power semiconductors.

  • China dominates REE production, controlling about 60% of global supply.Without these foundational materials, the entire semiconductor supply chain would grind to a halt.

Here’s a country-wise value chain segmentation for the leading companies:

• 
  Fabless Chip Designers: United States, United Kingdom

• Foundries: Taiwan, South Korea, United States, China

• Testing & Packaging: United States, Taiwan

• Design Software, R&D Tools, and IP: United States, United Kingdom, Germany

• Manufacturing Equipment & Fab Services: Netherlands, United States, Japan, Switzerland

• Raw Materials & Components: Japan, Germany

Integrated Device Manufacturers (IDMs): The One-Stop Shops (We got it all)

Unlike fabless companies, IDMs design, manufacture, and sell their own chips, maintaining full control over the production process. Notable IDMs include:

• Intel, Samsung, and Micron – Prod

  ucing CPUs, memory chips, and system-on-chips (SoCs).

• Texas Instruments and Infineon – Dominating analog and embedded chip markets.

• SK hynix and NXP – Leaders in memory and communication technologies.

The IDM model allows for more vertical integration, giving companies greater control over supply chains and production timelines.

---

I guess it’s too much for today!!
So to sum up, the semiconductor industry isn’t just a factory—it’s an intricate web of specialized companies spanning multiple continents. A single smartphone chip might be designed in the U.S., fabricated in Taiwan, tested in Malaysia, and packaged in China before being shipped worldwide.

This vast, interconnected system makes the semiconductor industry both incredibly powerful and highly vulnerable to geopolitical tensions, trade restrictions, and supply chain disruptions.

The global supply chain is a delicate web, where a disruption in one corner of the world can send shockwaves across industries. Take the Ukraine-Russia war, for example—Ukraine supplied over 50% of the world’s neon gas, a critical ingredient in semiconductor manufacturing. When the war shut down key suppliers like Ingas and Cryoin, neon prices soared 600%, slowing chip production and worsening the already strained global semiconductor shortage. The result? Delays in everything from PS5s and iPhones to cars and cloud servers—a stark reminder of how deeply interconnected our world really is.

Let’s go deeper into the supply & intermingling of India into it in the next blog.
See yaaaa
-Abhishree