Semiconductor technology: What’s the difference between a fabless company, a foundry, and an IDM?

This blog post is the second in a series that discusses intellectual property (IP) opportunities for high-tech businesses looking to innovate in the competitive semiconductor industry.

Semiconductor products are ubiquitous in day-to-day life, seeing widespread use in many industries. Given its range of possible uses, the industry offers smart businesses ample opportunities to grow — but it’s also important to understand the current ecosystem for semiconductor technology.

Previously, we took a broad look at the current patent landscape, as well as government policies to encourage semiconductor fabrication in more jurisdictions. Here, we’ll be moving forward to discuss how semiconductors are designed and manufactured.

Briefly, there are three different types of semiconductor companies: fabless, foundry, and integrated device manufacturer (IDM). In this blog post, we’ll examine what each company type is, and how they might work to serve specific business and IP needs.

What is a fabless company?

A fabless company focuses on innovating and designing microchips, while outsourcing the fabrication (or “fab”) to a third-party foundry. By separating the design process from the manufacturing process, fabless companies enjoy increased agility and flexibility in bringing their innovations to market.

Indeed, the fabless model is gaining serious traction; S&S Insider valued the global fabless market at US$4.21 billion in 2023, and further predicts that it will grow at a CAGR of 9.60% from 2024 to 2032, reaching US$9.57 billion by 2032.

Advantages of the fabless model

Fabless companies can capitalize on several benefits:

1. Increase cost efficiency: Building and maintaining a fab is extremely costly. To compete with an established player, a new market entrant will be looking at an investment upward of $10 billion.
2. Emphasize core competencies: Fabless companies can focus on developing their strengths in design and innovation, instead of diverting their limited resources toward manufacturing and infrastructure.
3. Speed up time-to-market: A third-party foundry will have more experience and expertise in advanced manufacturing technology than an in-house fab, enabling faster production of new and cutting-edge products.

Risks of the fabless model

While the fabless model is appealing due to cost and flexibility factors, it does come with its own set of challenges:

1. Greater supply-side vulnerability: Any business that outsources production is vulnerable to supply chain disruptions, which can result from events like high demand, natural disasters, or geopolitical tensions. A recent example is the chip shortage that happened during the COVID-19 lockdown.
2. Protecting IP: When outsourcing production, a business must by definition share its proprietary information with a third party — making it essential to seek robust IP protections.
3. Overreliance on third-party suppliers: Businesses that are over reliant on their partners risk having their strategy set, instead of supported, by those partners. For example, a business could become susceptible to poor quality control, disadvantageous timelines, or a loss of supply altogether.

That said, existing fabless companies have found that, for their business, the benefits of the fabless model are ultimately greater than the risks.

With that in mind, let’s take a look at some of the biggest fabless companies currently on the market.

Fabless companies: The industry’s major players

Globally, the top fabless companies include:

	Company	Country	Revenue (2024)	Market capitalization (March 2025)
1	Nvidia	USA	US$60.9 billion	US$3,045 billion
2	Broadcom	USA	US$51.6 billion	US$934.9 billion
3	Qualcomm	USA	US$39 billion	US$173.83 billion
4	AMD	USA	$25.8 billion	US$161.81 billion
5	Mediatek	Taiwan	$16.06 billion (NT$530.6 billion)	US$95.89 billion
6	Marvell	USA	$5.508 billion	US$79.45 billion

Due to the cost-effectiveness and scalability of the fabless model, there are significant opportunities for emerging players to join these industry giants, further driving innovation in semiconductor technology.

What is a foundry?

A foundry, also called a fab, manufactures microchips based on a fabless company’s designs. In particular, “pure-play” foundries do not design their own products at all.

Global Market Insights valued the global semiconductor foundry market at US$136.3 billion in 2024, and further anticipates it to grow at a CAGR of 9.1%, meaning it will reach US$321.1 billion by 2034.

Though the market is profitable, foundries are expensive to build and maintain; for example, Micron’s plans to build a new foundry in Idaho is estimated to cost $15 billion. In addition, to maximize cost efficiency, companies with fabs need to keep them running at close to 100% capacity.

In other words, establishing new fabs poses high barriers to entry — which has contributed toward the fabless model gaining traction among emerging companies.

Foundry Model Advantages: Precision manufacturing, advanced process, yield improvement, defect control, process innovation, and leadership. Serves multiple customers, large-scale production, and flexibility in offering customized processes.

Foundry Model Challenges: Extremely capital-intensive to build and upgrade. Largely rely on big fabless customers.

Foundries: The world’s top players

The top five players are:

	Company	Country	Market share (Q4 2024)
1	Taiwan Semiconductor Manufacturing Company (TSMC)	Taiwan	67%
2	Samsung	South Korea	11%
3	United Microelectronics Corporation (UMC)	Taiwan	5%
4	GlobalFoundries	USA	5%
5	Semiconductor Manufacturing International Corporation (SMIC)	China	5%

Outside of the top five, all other foundries worldwide saw a combined market share of just 8%. This establishes the market dominance of the world’s top foundries, which enjoy huge leverage over global supply chains of semiconductor products.

Although many industry titans have extensive manufacturing capabilities, there are also some foundries that focus on only specialty products, such as consumer electronic processors. To follow up on the example mentioned earlier, Micron’s foundry will focus on only memory manufacturing. As another example, SpaceX and Starlink are funding a new facility in Bastrop, TX, for manufacturing chips for Starlink’s own systems. It seems that new market entrants may enjoy a greater competitive edge if they focus on a specific niche.

IP protection for foundries

Historically, many foundries primarily rely on trade secret protection. This is because many manufacturing processes typically occur behind closed doors, making it difficult to detect infringement — which is one of the main factors determining whether patent protection is the right strategy.

Taiwan’s TSMC is especially well known for its strong company culture around trade secrets to protect its proprietary manufacturing processes.

However, in recent years, pure-play foundries have begun pursuing patent protection as a more integral part of their IP strategy. Even TSMC has been filing more patent applications, cementing the need to seek patent protection as part of a comprehensive IP portfolio for semiconductor companies.

What is an integrated device manufacturer (IDM)?

An integrated device manufacturer (IDM) handles the entire production process of chips, from design to manufacture.

Before the rise of the fabless/foundry model, IDMs dominated the semiconductor market. Certainly, many of those IDMs remain industry leaders today; the world’s top 10 IDMs brought in US$536 billion worth of semiconductor-related sales in 2024 alone. However, and crucially, market growth for IDMs has stagnated, with a CAGR of just 1%-4% between 2007 and 2024.

Benefits and risks of the IDM model

There are some clear-cut advantages to the IDM model, including:

1. Full control over the production process, enabling quality assurance
2. Tighter integration between design and manufacturing needs
3. Employing bespoke manufacturing processes, which is necessary for companies with specialized products

However, the drawbacks can be difficult to surmount, especially for smaller companies with limited resources:

1. Extremely high capital investment required to support both R&D and fabrication efforts, and to keep up with technological advances
2. Less ability to develop core competencies, especially compared to fabless/foundry companies

IDMs: The world’s top players

The top 10 IDMs globally, by revenue, are:

	Company	Country	Revenue (Q1, 2024)
1	Samsung	South Korea	US$14,873 million
2	Intel	USA	US$12,139 million
3	SK Hynix	South Korea	US$9,074 million
4	Micron	USA	US$5,824 million
5	Infineon	Germany	US$3,959 million
6	Texas Instruments	USA	US$3,661 million
7	STMicroelectronics	Switzerland	US$3,465 million
8	NXP Semiconductors	Netherlands	US$3,126 million
9	Sony	Japan	US$2,511 million
10	Murata	Japan	US$2,460 million

The future of IDMs

Traditionally, IDMs have designed and manufactured only their own products. However, in the face of increased competition from the fabless/foundry model, some IDMs have begun revising their operating model.

We can find a prominent example in Intel. Once considered the archetypal IDM, Intel recently unveiled a plan called “IDM 2.0”: on top of its existing functions, it will outsource some production to third-party foundries, as well as become a foundry for third-party fabless companies.

However, IDM 2.0 has yielded slower progress than anticipated, and Intel’s new leadership faces uphill challenges to keep the company profitable in the hyper-competitive semiconductor landscape.

Identifying business opportunities in the semiconductor industry

The industry is experiencing a changing of the guard, moving away from traditional IDMs to a blend of various approaches. To thrive, businesses must strike a balance between innovation, adaptability, and strategic collaboration in a fast-paced, capital-intensive environment.

Innovative companies will also appreciate that semiconductor industry models continue to evolve. For example, chiplet-based architectures and heterogeneous integration (HI) could be reshaping the traditional boundaries between fabless, IDM, and foundry models. This could lead to a more collaborative ecosystem, which could also make ownership and licensing of IP rights even more critical in the future. As competitive as the industry has gotten, smart, agile businesses can still become serious players, especially by leaning on the fabless model. For our next post in this series, we’ll be taking a deeper dive into current trends in semiconductor technology, as well as best practices for protecting IP, in order to identify key opportunities to enter the market. Till then, if you have any questions, please feel free to contact us!