A semiconductor fab is a factory that turns silicon wafers into integrated circuits. A chip design company develops the chip’s architecture and implementation. Some design companies outsource wafer production to a foundry; integrated device manufacturers (IDMs) design and manufacture chips themselves. The terms describe different roles in making a chip, not two mutually exclusive kinds of company.
What each term means
- Fab: A factory or operation that processes silicon wafers to create integrated circuits. It refers to manufacturing, not to the company that designed a chip.
- Chip design company: A business that defines a chip’s architecture, functions, and implementation. It may design chips for other businesses or for products it sells itself.
- Foundry: A manufacturing business that fabricates chips based on customer designs. A foundry is the service or business; a fab is the factory.
- Fabless company: A chip design company with no or limited wafer-fabrication capability. It contracts with a foundry to manufacture its designs.
- IDM: An integrated device manufacturer that designs and manufactures chips. The degree and organization of that integration vary by company.
- OSAT: An outsourced semiconductor assembly and test provider. OSATs handle back-end services, including assembly, testing, and packaging, rather than front-end wafer fabrication.
Where fabs and design companies fit in chip production
- Design: Engineers define the chip’s architecture and create its implementation.
- Front-end fabrication: A fab processes wafers to form integrated circuits. The fab may belong to an IDM or be operated by a foundry serving customers.
- Back-end assembly, test, and packaging: The wafer is separated into individual dies; working dies are tested and packaged as completed devices. These steps may be handled internally or outsourced to an OSAT.
Design and fabrication are separate activities, and wafer fabrication is not the same as final assembly, test, and packaging. The Semiconductor Industry Association describes fabrication as highly capital-intensive and notes that leading-edge fabs can cost several billion dollars to construct; that is not a universal current cost estimate for every fab.
How the business models compare
| Role or model | What it does | Relationship to fabrication |
|---|---|---|
| Fabless design company | Designs chips, focusing on product design and innovation | Contracts a foundry for wafer fabrication |
| Foundry | Manufactures chips using customer designs | Provides wafer fabrication as a service; customers can include fabless firms and companies with their own manufacturing |
| IDM | Designs and manufactures chips | Combines design and manufacturing within an integrated company |
| OEM chip designer | Designs chips for its own end products | May outsource fabrication |
| OSAT | Provides assembly, test, and packaging | Performs back-end services, not front-end wafer fabrication |
These labels describe operating models, not a complete set of mutually exclusive company categories. A company may take part in more than one stage or change how it organizes its business.
Why the labels are not always either-or
Foundries manufacture for different kinds of customers
Foundries can serve both fabless companies and IDMs. TSMC describes itself as a pure-play foundry: it says it manufactures customer products and does not design, manufacture, or market semiconductor products under its own name. In its 2024 reporting, TSMC said it manufactured 11,878 different products using 288 distinct technologies for 522 customers. Those are company-reported figures for 2024, not timeless measures of scale.
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Some companies design and manufacture
An IDM combines both roles, so “chip design company” does not mean “fabless company.” Intel illustrates how categories can overlap: in an April 2024 announcement, it described itself as both a semiconductor manufacturer and a fabless technology leader, and identified Intel Foundry as an operating segment. That is a dated description of the company’s structure and terminology at that time.
Some product companies design their own chips
An OEM may design chips for its own phones, cars, data centers, or other products while outsourcing wafer production. This model is distinct from designing chips for sale to outside customers, even though both involve chip design.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.How to tell what a company actually does
Instead of relying on a single label, check four things:
- Does the company design chips, manufacture them, or do both?
- Does it own or operate wafer-fabrication capacity?
- Does it fabricate its own products, customer designs, or both?
- Does it handle assembly, test, and packaging itself, or use an OSAT?
The Semiconductor Industry Association’s 2023 regulatory filing estimated that fabless companies accounted for about 47% of design-related value added, IDMs about 51%, and OEMs less than 2%. These are the association’s estimates in that filing—not current market-share figures or measures of revenue or chip volume.
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