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Repair Windows errors before they cause bigger problemsFix Now →Fix the driver behind crashes, sound loss and screen glitchesFind Drivers →Foundries are taking a larger role in chip manufacturing because their scale can make expensive fabs and process development more economical than building everything in-house. But that does not mean integrated device manufacturers (IDMs) are disappearing—or that TSMC has a monopoly. TSMC’s share of its expanded Foundry 2.0 market rose from 28% in 2023 to 34% in 2024, while Analog Devices said third-party foundries supplied more than half of its wafer needs in fiscal 2024. The likely direction is more outsourcing alongside continued in-house production, with capacity, geography and chip-market cycles shaping how far the shift goes.
What is changing in the IDM model?
An IDM designs chips and manufactures them in its own facilities. A foundry manufactures chips for customers that generally design the products themselves. The distinction is no longer a simple choice between owning every fab and owning none: some IDMs use a hybrid model, keeping selected manufacturing capabilities while buying other wafers from outside suppliers.
That hybrid approach is visible at Analog Devices. In its fiscal 2024 filing, the company said third-party foundries, including TSMC, supplied more than half of its annual wafer requirements; it produced the remainder internally. The figure describes Analog Devices’ sourcing in that fiscal year, not the whole semiconductor industry.
The longer-term shift toward outsourcing is also apparent in figures cited by GlobalFoundries. Its 2021 SEC-filed presentation, citing IC Insights, said more than 33% of semiconductor manufacturing was outsourced to foundries in 2020, compared with approximately 9% in 2000. The figures indicate a substantial change over those two years; they do not establish the current outsourcing share.
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Why are chip companies outsourcing manufacturing?
Fab economics favor scale
Building and operating a semiconductor fab requires large, continuing capital investment. Equipment is costly, and process development adds to the bill. A company that makes chips only for its own product lines may struggle to keep a specialized fab sufficiently utilized to earn a return on that investment. A foundry can spread those costs across many customers and products.
GlobalFoundries’ 2021 SEC-filed presentation argued that foundries have the manufacturing volume needed to generate a return on the required capital investment. It described the resulting pressure on IDMs this way: “It is increasingly difficult for IDMs to profitably scale manufacturing in-house, resulting in more outsourcing of manufacturing to foundries.” That is the company’s explanation of the industry shift, rather than a guarantee that every outsourced wafer is cheaper or better.
Leading-edge processes require sustained investment
Access to advanced manufacturing is another reason to outsource. TSMC reported that research and development spending was 7.1% of its revenue in 2024. In its 2024 materials, it described customers’ access to 7nm, 5nm and 3nm processes; its 2025 report said 7nm-and-more-advanced processes accounted for 74% of its wafer revenue in 2025, compared with 69% in 2024. These are TSMC revenue figures, not the share of all industry wafers made on those processes.
The economics can be particularly difficult for an IDM that needs advanced manufacturing but cannot fill a leading-edge fab with enough of its own products. Using a foundry lets the company buy access to process technology and capacity without carrying the entire cost of developing and operating that production base.
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AI demand adds value to manufacturing and packaging
AI systems need powerful chips, and TSMC links AI deployment to strong demand for advanced-node products. The manufacturing process is only part of the supply chain: advanced packaging connects chip components and supports the interconnectivity needed by complex systems. TSMC has identified CoWoS, InFO and SoIC among the advanced 3D packaging technologies it is developing.
As chip designers and large technology companies rely on external manufacturing, a foundry can serve a broader pool of customers than one IDM’s internal fab. That customer base can support fab utilization and give the foundry a more central role in the ecosystem. It also means the foundry has to allocate capacity among customers with competing needs.
What the market-share figures do—and do not—show
Market-share claims depend on what is being counted. TSMC’s Foundry 2.0 definition is broader than the traditional foundry market: it includes logic wafer manufacturing, packaging, testing, mask-making and non-memory IDM activity. Its share under that definition should not be treated as its share of every semiconductor segment or as a measure of the fraction of all chip production outsourced by IDMs.
| Measure | Reported figure | How to interpret it |
|---|---|---|
| TSMC share of Foundry 2.0 revenue | 28% in 2023; 34% in 2024 | TSMC’s share under its expanded definition, which includes logic wafers, packaging, testing, mask-making and non-memory IDM activity; reported by TSMC in 2024. |
| Estimated size of Foundry 2.0 | Close to US$250 billion in 2023, versus US$150 billion under the narrower traditional foundry definition | TSMC’s 2023 estimate. The different totals reflect different market boundaries, not a like-for-like estimate of the same category. |
| Semiconductor manufacturing outsourced to foundries | More than 33% in 2020; approximately 9% in 2000 | Figures cited from IC Insights in GlobalFoundries’ 2021 SEC-filed presentation. They document the reported historical shift, not a current industry share. |
| Analog Devices wafer requirements sourced from third parties | More than half in fiscal 2024 | Analog Devices’ company-specific disclosure; the company said it made the remainder internally. |
| TSMC wafer revenue from 7nm-and-more-advanced processes | 74% in 2025; 69% in 2024 | TSMC’s reported share of its own wafer revenue, not the industry’s wafer mix. |
Together, these measures show that foundry manufacturing has become more important and that TSMC has gained weight in a broad market category. They do not show that all IDMs are outsourcing, that all foundries are growing equally, or that the same supplier leads every process and product segment.
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Are foundries replacing IDMs?
No. The evidence points to a changing division of work, not the end of integrated manufacturers. Analog Devices’ fiscal 2024 sourcing is an example of an IDM using outside capacity for a large share of its wafers while retaining internal production. Companies can keep manufacturing where proprietary processes, product needs or supply considerations make it valuable, and outsource other production where a foundry offers more attractive scale or technology.
That flexibility matters because semiconductor products are not interchangeable. A company’s requirements may differ by process node, performance, power use, production volume and product life cycle. A foundry may be the practical choice for a particular wafer or generation without making in-house manufacturing obsolete across the company.
Does TSMC have a monopoly?
The reported 34% share of Foundry 2.0 revenue in 2024 makes TSMC a major participant in that expanded category, but it is not a monopoly. The market definition includes Samsung, Intel and other IDM manufacturers, as well as packaging and testing providers. Buyers may also value alternative suppliers for capacity, regional production or supply security, although changing a qualified manufacturing source is not as simple as switching an ordinary component supplier.
Leadership in advanced logic also does not equal dominance in every specialty or mature-node market. TSMC reported weaker or correcting demand in some automotive, industrial and IoT mature-node markets even as AI-related advanced-node demand was strong. Market conditions can therefore differ sharply between segments.
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What could limit further foundry gains?
Capacity shortages can reduce customer control
Foundries serve multiple customers, including companies competing in related markets. When demand spikes, a customer may face limits on available capacity and less control over production schedules, yields and costs. Analog Devices identifies those dependencies as risks in its disclosures. Outsourcing can avoid the expense of building a fab, but it also makes a company reliant on a supplier’s production and allocation decisions.
Geographic concentration creates supply risk
Analog Devices warns that tensions in the Taiwan Strait could disrupt TSMC operations. GlobalFoundries’ presentation said about 77% of 2020 foundry revenue came from wafers manufactured in Taiwan or China, a historical figure that illustrates geographic concentration at that time. It should not be read as a current geographic share.
TSMC’s reported expansion offers some geographic diversification, but it does not remove the underlying challenge of replicating advanced production across locations. In its 2025 report, the company said its first Arizona fab entered high-volume production in the fourth quarter of 2024, its second Arizona fab was expected to enter high-volume manufacturing in the second half of 2027, and construction began on a third Arizona fab in 2025. It also reported that its first Kumamoto fab began volume production at the end of 2024, a second was under construction, and a Dresden specialty fab was progressing. These are company-reported milestones and plans; they do not mean all of TSMC’s production has shifted away from Taiwan.
Regional diversification costs money and time
Building similar capabilities in several regions can improve resilience, but it is expensive and operationally complex. More locations do not instantly duplicate the supplier networks, staffing, process experience and output of an established production base. The cost and pace of expansion can limit how quickly a foundry satisfies customers seeking geographically diversified capacity.
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Demand is cyclical and uneven
Strong demand in AI-related advanced chips can coexist with weaker demand in other applications or on other process nodes. TSMC’s reporting on mature-node markets is a reminder that the semiconductor industry does not move as one uniform cycle. A foundry’s growth prospects depend on the mix of processes and end markets it serves, not just on headline demand for AI chips.
How to assess the shift as an investor
Foundry growth can benefit manufacturers that attract outsourced production, but a larger addressable market is not by itself proof of stronger profits, reliable capacity or lower risk. When comparing companies, focus on the factors that determine whether demand can be served profitably and dependably:
- Process leadership and yields: whether a manufacturer can deliver the required technology consistently, not just announce a new node.
- Capacity and utilization: whether investment is matched by enough customer demand to keep expensive facilities productive.
- Advanced packaging: whether packaging capabilities complement wafer manufacturing for complex products.
- Geographic resilience: where production is located, how quickly additional sites can contribute, and what risks remain concentrated.
- Customer mix and trust: whether the manufacturer depends heavily on a small number of customers and can serve competing customers without compromising confidence.
- End-market and node mix: how much exposure a company has to AI-led advanced production versus cyclical automotive, industrial, IoT or other markets.
These distinctions are useful when reading company filings: an outsourcing statistic describes a sourcing choice, a market-share figure describes a defined market, and a capacity plan describes expected production—not guaranteed financial results. None alone establishes whether a particular semiconductor stock is suitable for an individual investor.
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