Foundry model

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This article is about the business model for making integrated circuits. For other uses of the term foundry, see foundry (disambiguation).

In microelectronics, the foundry model refers to the separation of a semiconductor fabrication plant operation from an integrated circuit design operation, into separate companies or business units.

1 Overview
2 History
3 Ongoing issues
4 See also
5 References

[edit] Overview

Although many companies continue to both design and manufacture integrated circuits (achieving efficiency through vertical integration), these Integrated Device Manufacturers (IDMs) are not alone in the marketplace. Economic forces have led to the existence of many companies that only design devices, known as fabless semiconductor companies, as well as merchant foundries that only manufacture devices under contract by other companies, without designing them.

IC production facilities are expensive to build and maintain. Unless they can be kept at nearly full utilization, they will become a drain on the finances of the company that owns them. The foundry model uses two methods to avoid these costs: Fabless companies avoid costs by not owning such facilities. Merchant foundries, on the other hand, find work from the worldwide pool of fabless companies, and by careful scheduling, pricing, and contracting keep their plants at full utilization.

[edit] History

Originally, microelectronic devices were manufactured by companies that both designed and produced the devices. This was necessary because manufacturing involved tweaking parameters, precise understanding of the manufacturing processes being used, and the occasional need to redesign. These manufacturers were involved in both the research and development of manufacturing processes and the research and development of microcircuit design.

However, as manufacturing techniques developed, microelectronic devices became more standardised allowing them to be used by more than a single manufacturer. This standardization allowed design to be split from manufacture. A design that obeyed the appropriate design rules could be manufactured by different companies that had compatible manufacturing methods. An important development that allowed this was the introduction of advances in electronic design automation (EDA), which allowed circuit designers to exchange design data with other designers using different foundries.

Because of the separation of manufacture and design, new types of companies were founded. One type of company was called a fabless company. These companies did not have any semiconductor manufacturing capability but rather contracted production from a manufacturer. This manufacturer was called a merchant foundry. The fabless company concentrates on the research and development of an IC-product; the foundry concentrates solely on fabricating and testing the physical product.

An absolute separation into fabless and foundry companies is not necessary. Some companies continue to exist which perform both operations and benefit from the close coupling of their skills. Some companies manufacture some of their own designs and contract out to have others manufactured or designed, in cases where they see value or seek special skills. The foundry model is a business vision that seeks to optimize productivity.

The very first merchant foundries were part of the MOSIS service. The MOSIS service gave limited production-access to designers with limited means, such as students, researchers at a universities, and engineers at small startups. The designer submitted designs and these submissions were manufactured with the commercial company's extra capacity. Manufacturers could insert some wafers for a MOSIS design into a collection of their own wafers when a processing step was compatible with both operations. The commercial company (serving as foundry) was already running the process so effectively were being paid by MOSIS for something they were already doing. A factory with excess capacity during slow periods could also run MOSIS designs in order to avoid having expensive capital equipment standing idle.

Under-utilization of an expensive manufacturing plant could lead to the financial ruin of the owner, so selling surplus wafer capacity was a way to maximize the fab's utilization. Hence, economic factors created a climate where fab operators wanted to sell surplus wafer-manufacturing capacity, and designers wanted to purchase manufacturing capacity rather than try to build it.

Although MOSIS opened the doors to some fabless customers, earning additional revenue for the foundry and providing inexpensive service to the customer, running a business around MOSIS production was difficult. The merchant foundries sold wafer capacity on a surplus basis, as a secondary business activity. Services to the customers were secondary to the commercial business, with little guarantee of support. The choice of merchant dictated the design, development flow, and available techniques to the fabless customer. Merchant foundries might require proprietary and non-portable preparation steps. Foundries concerned with protecting what they considered trade secrets of their methodologies might only be willing to release data to designers after an onerous nondisclosure procedure.

In 1987, the world's first dedicated merchant foundry opened its doors: Taiwan Semiconductor Manufacturing Company (TSMC). The distinction of 'dedicated' is in reference to the typical merchant foundry of the era, whose primary business activity was building and selling of its own IC-products. The dedicated foundry offers several key advantages to its customers: First, it does not sell finished IC-products into the supply channel; thus a dedicated foundry will never compete directly with its fabless customers (obviating a common concern of fabless companies). Second, the dedicated foundry can scale production capacity to a customer's needs, offering low-quantity shuttle services in addition to full-scale production lines. Finally, the dedicated foundry offers a "COT-flow" (customer owned tooling) based on industry-standard EDA systems, whereas many IDM merchants required its customers to use proprietary (non-portable) development tools. The COT advantage gave the customer complete control over the design process, from concept to final design.

[edit] Ongoing issues

Like all industries, the semiconductor industry faces upcoming challenges and obstacles.

The cost to stay on the leading edge has steadily increased with each generation of chips. The financial strain is being felt by both large merchant foundries and their fabless customers. The cost of a new foundry exceeds $1 billion. These costs must be passed on to customers. Many merchant foundries have entered into joint ventures with their competitors in an effort to split research and design expenditures and fab-maintenance expenses.

Security issues continue to hamper all aspects of the foundry business. In the 1980s, there were rumors of incidents of design theft in which the employee of a foundry, perhaps acting on the employer's behalf, reputedly stole design schematics from customer orders. Stolen data is rarely directly copied, because blatant copies are easily identified by distinctive features in the chip, placed there either for this purpose or as a byproduct of the design process. However, the data may be sold to a competitor, who may save months or years of tedious reverse engineering.