Imagine your AI assistant not just reacting to commands but taking initiative—securing dinner reservations, adjusting your thermostat, or flagging urgent emails before you see them. That level of agentic AI rests on a chain of specialized processes beginning long before any user interface appears.
Let’s dive in.
Chip Design - Before a design team drafts any commercial blueprint, years of “pre-competitive research” might occur in government labs or via cross-industry consortia—explorations that can take a decade or more to yield practical results. Once a design heads to a commercial team, it typically undergoes extensive development, guided by sophisticated software called Electronic Design Automation (EDA) tools. This stage alone can cost upward of a billion dollars for a complex system-on-chip, since every layer—CPU cores, graphics engines, AI accelerators—requires careful engineering.
Foundries - From there, chip designs move to the front-end manufacturing phase, or “fabrication,” in specialized semiconductor plants known as fabs. These facilities cost billions to build and maintain because they rely on some of the most advanced machines in existence—like extreme ultraviolet lithography (EUV) systems, each with a price tag of more than a hundred million dollars. In such ultra-clean environments, silicon wafers spend up to twelve or more weeks undergoing hundreds of steps to form intricate transistor patterns.
Packaging & Testing - Afterward, the back-end stage cuts individual dies from the wafers, packages them securely, and runs test procedures to ensure reliability. This packaging process can involve advanced techniques, such as stacking multiple dies in a single chip module, which is especially important for specialized AI or high-performance computing applications.
Throughout these steps, there’s an entire ecosystem providing the essential tools and materials. Equipment manufacturers produce precision lithography devices, etching tools, and metrology instruments. Materials suppliers ensure steady provision of ultra-pure chemicals, silicon wafers, and specialty gases. And on the design side, major vendors of intellectual property (IP) blocks and advanced software frameworks help manage the complexity of layering billions of transistors.
Because no single company can handle the entire scope of such enormous and specialized tasks, distinct business models have emerged.
Integrated Device Manufacturers (IDMs)
IDMs combine multiple stages of the semiconductor value chain within a single company. They design, fabricate, and often even package and test their own chips. Because they handle so much in-house, IDMs typically have huge capital expenditures—building and running advanced fabs—while also investing heavily in R&D to keep their architectures competitive. Intel and Samsung are classic examples. Their vertical integration can streamline supply chains and protect intellectual property, but it also demands immense scale and financial resources to continually upgrade manufacturing processes.
Integrated Device Manufacturers (IDMs)
Intel: Designs and manufactures CPUs and other chips for PCs, data centers, and more.
Samsung: Produces its own DRAM, NAND, mobile processors, and numerous other semiconductor products.
Micron: Specializes in memory and storage (DRAM, NAND), handling design and manufacturing in-house.
Texas Instruments: Known for analog and embedded processors, maintaining significant internal manufacturing capacity.
STMicroelectronics: Develops analog, power, and embedded products, with multiple internal fabs worldwide.
Fabless Companies
Fabless firms focus on design and outsource the actual fabrication of their chips to specialized manufacturers called foundries. This model emerged as a way to avoid the enormous upfront and ongoing costs of running fabs. Companies like NVIDIA, Qualcomm, and Broadcom pour resources into advanced R&D, chip architectures, and software ecosystems while delegating wafer production to partners that excel at manufacturing. This structure has spurred innovation, letting fabless designers respond quickly to new markets (e.g., AI accelerators) without the burden of building new production facilities.
Fabless Companies
NVIDIA: Designs GPUs and AI accelerators; outsources manufacturing to foundries like TSMC.
Qualcomm: Focuses on mobile SoCs (Snapdragon) and connectivity chips, primarily outsourced to TSMC or Samsung Foundry.
Broadcom: Offers networking, storage, and wireless chips, using external fabs for production.
AMD: Once an IDM, now a prominent fabless firm creating CPUs/GPUs and relying heavily on TSMC.
MediaTek: Designs chipsets for smartphones, consumer electronics, and uses contracted foundries for fabrication.
Foundries
Foundries specialize in fabrication services, manufacturing chips under contract for clients—both fabless companies and sometimes IDMs that need extra capacity. TSMC (Taiwan Semiconductor Manufacturing Company) is the largest pure-play foundry, mastering cutting-edge process technologies (like 5nm and 3nm) and supplying many of the world’s most prominent chip designers. This model demands not only tremendous capital investments for each new “node” but also world-class process engineering to reliably produce chips at high yields. Foundries effectively pool manufacturing demand from multiple customers, spreading the cost of expensive equipment across a broad client base.
Foundries
TSMC: The largest pure-play foundry, producing for clients ranging from Apple to NVIDIA to AMD.
GlobalFoundries: Spun out of AMD, serves multiple customers with a focus on differentiated and specialized process nodes.
Samsung Foundry: Part of Samsung Electronics, offers advanced fabrication to external customers in addition to its internal IDM role.
UMC: Taiwan-based foundry with mature process offerings across various nodes.
SMIC: China’s biggest contract manufacturer, focusing on a range of process technologies.
Outsourced Assembly and Test (OSAT) Firms
OSAT companies handle the back-end processes: slicing finished wafers into individual chips, packaging them (often in protective resin or advanced 3D configurations), and rigorously testing them before shipping to device manufacturers. While packaging has historically been less capital-intensive than front-end wafer fabrication, it’s becoming increasingly sophisticated as the industry moves toward complex multi-die packaging and 2.5D/3D integration. Major OSAT providers like ASE Group, Amkor, and JCET serve both IDMs and fabless clients, allowing those design or fabrication companies to focus on their core strengths.
Outsourced Assembly and Test (OSAT) Firms
ASE Group: One of the world’s largest OSAT providers, headquartered in Taiwan.
Amkor Technology: A global leader in packaging and test services with facilities in Asia, Europe, and the Americas.
JCET: A major China-based OSAT, with international partnerships and advanced packaging capabilities.
Powertech Technology (PTI): Specializes in memory packaging and testing, especially DRAM and NAND.
Siliconware Precision Industries (SPIL): Offers a variety of packaging solutions, later merged under the ASE umbrella but still recognized as a key brand in the space.
A Global Integrated Structure Based on Geographic Specialization
The semiconductor supply chain is truly global: in designing, manufacturing, packaging, and testing semiconductors, there isn’t a single country that performs every stage of the process entirely in-house. Instead, each region has evolved specific comparative advantages over decades, causing different steps of the chain to become concentrated in a few key locations.
One of the main reasons for this global approach is the extraordinary combination of deep scientific knowledge and massive capital investments that semiconductors demand. No one geography can match every requirement—whether it’s the specialized research environment of the United States, the high-tech fabrication clusters in Taiwan and South Korea, the world-class packaging and assembly hubs in Southeast Asia, or the growing footprint of China in multiple areas. This specialization means that a chip might begin life as a design in California, use silicon refined in Japan, be fabricated in a Taiwanese foundry, and then finally be packaged in Malaysia before the finished device is shipped worldwide.
Consider the journey of a modern smartphone processor, often referred to as a “system-on-chip” (SoC). Let’s take, for instance, the chip that powers an iPhone—an example widely discussed in tech media and teardown reports.
Design & Architecture
Apple (in the US) creates the chip’s overall architecture, leveraging ARM intellectual property cores (originally from the UK) and advanced EDA (electronic design automation) software from US-based Synopsys or Cadence.
Apple’s in-house team adds custom CPU and GPU features, along with specialized logic for tasks like AI, camera processing, and secure authentication.
Manufacturing (Front-End Fabrication)
When the design is ready, Apple doesn’t build the chips itself. Instead, it sends the “tape-out” (final design file) to TSMC (Taiwan Semiconductor Manufacturing Company).
TSMC’s fabs in Taiwan use cutting-edge 5nm (or even 3nm) processes to print billions of transistors onto silicon wafers, requiring specialized equipment.
Much of this equipment—like the extreme ultraviolet (EUV) lithography machines—comes from ASML in the Netherlands, which in turn sources critical optical components from Germany’s Zeiss.
Packaging & Testing (Back-End)
After front-end fabrication, the wafers may be shipped to OSAT firms in places like Taiwan, China, or Malaysia for packaging. These companies slice individual dies from each wafer, encapsulate them with protective materials, and test them to ensure they meet speed and efficiency targets.
In some cases, TSMC itself handles advanced packaging through technologies like “InFO” or 2.5D packaging, which can bond multiple silicon dies into a tight module for enhanced performance and lower power draw.
Additional Components & Final Assembly
The SoC’s journey is just one part of an iPhone’s global supply web. For memory, Apple might contract with Samsung in South Korea or SK Hynix for DRAM, or Kioxia in Japan for NAND storage chips.
Meanwhile, radio-frequency (RF) modules could come from US-based Broadcom or Japanese firms, power management chips might be designed by European suppliers, and so on.
These and hundreds of other parts converge at manufacturing facilities—often run by Foxconn or Pegatron in China or Vietnam—where the final phone is assembled.
Logistics & Global Delivery
Once assembled, phones are shipped to warehouses and retail outlets around the world.
Consumers in the US, Europe, or elsewhere buy the phone, completing the chain that started with design in California and traversed multiple nations specializing in specific steps.
What This Example Shows
Multiple Countries, Multiple Specialties: Designing a high-end chip isn’t just about one company’s brilliance; it relies on IP from the UK, EDA software from the US, fabrication in Taiwan, packaging in China or Malaysia, equipment from the Netherlands, optical lenses from Germany, and so forth.
Economic & Geopolitical Ties: No single region can easily replicate this network without incurring massive costs and time to build equivalent skills or facilities. Each link depends on the others—hardware, software, raw materials, engineering know-how, government incentives, and advanced infrastructure.
Efficiency & Innovation: By sourcing from the best suppliers at each step, companies like Apple can produce top-tier devices without having to invest in every phase themselves. This specialization drives faster innovation cycles and competitive pricing—but also introduces vulnerabilities if any segment of the chain is disrupted.
Many reports estimate of at least $1 trillion in upfront spending to replicate a fully “self-sufficient” semiconductor ecosystem, along with a substantial rise in the prices of finished chips for consumers. That’s not to mention the time—often a decade or longer—needed to grow a workforce and supply base with enough technical expertise to run advanced fabs at commercial scale.
Very informative Priya. Gives a nice overview of how intricate the AI tech industry is.