Foundry: The Factory That Builds Other Companies' Chips

Say you want to make high-end custom clothing. Not every designer can build a huge fabric mill and a dyeing plant. Building factories and buying cutting-edge machines costs an astronomical amount of money.

The chip world works the same way. Planning a smart chip for a smartphone or an AI server, and drawing its circuits with computer software, can be done in an office with no factory. Designing a cutting-edge chip still takes a lot of money and people, sometimes hundreds of billions of won (hundreds of millions of dollars). But that is far less than the cost of a factory. Building a plant that stamps out nanoscale chips from those blueprints takes tens of trillions of won (tens of billions of dollars) in equipment investment.

So the chip industry split up the work in a smart way. Fabless companies draw the chip blueprints and have no factory. Foundries have huge, advanced manufacturing facilities and do nothing but make chips for others. Of course, some companies, like Samsung Electronics and Intel, do both design and manufacturing, and also run a foundry business on the side.

The most important asset a foundry has is trust. Global design companies like Apple, Nvidia, and Qualcomm have to hand over their latest, most valuable chip designs, the very heart of their business.

Imagine a foundry secretly studying those blueprints and selling similar chips under its own brand. No customer would give it any work. That's why Taiwan's TSMC, the world's No. 1 foundry, made a firm rule of never competing with its customers its top priority from the very start.

When the promise of tight security and manufacturing expertise is kept, top tech companies around the world feel safe handing over the production of the chips their future depends on.

A foundry is nothing like an ordinary subcontract factory that simply assembles parts. It engraves circuits measured in nanometers (nm, one billionth of a meter), far too small to see, into silicon with zero errors, inside a clean room without a speck of dust. It is among the most advanced manufacturing work humans have ever done.

A wafer is the round silicon disk that chips are made on. The share of chips on a wafer that come out defect-free and working is called the yield. Even with the exact same blueprint, how high a foundry can push its yield makes a huge difference in chip prices and supply.

This is why foundries are treated as top-tier technology companies. They operate extreme ultraviolet (EUV) lithography machines that cost hundreds of billions of won (hundreds of millions of dollars) apiece, and they control thousands of complex chemical and physical process steps with no room for error.