How the Semiconductor Industry Works
A chip passes through several kinds of companies before it reaches your phone. Knowing the chain helps you see who depends on whom.
Why this matters for beginners
Knowing where a company fits helps you compare it fairly and see which risks it shares with others. This is general education, not personal advice.
Main explanation
Chip designers create the blueprint of a chip. Nvidia is a well-known example: it designs chips and pays others to manufacture them.
Foundries are manufacturers that build chips for designers in huge, very expensive factories.
Equipment suppliers make the machines those factories need.
Chip users, such as phone, car or cloud companies, buy chips and put them in their products.
This lesson is about understanding the industry, not evaluating or recommending any stock.
Example using a real company
Nvidia designs graphics and AI chips; a foundry such as TSMC manufactures them using machines from equipment makers such as ASML; cloud companies buy them for data centres.
- →Design → Manufacture → Equipment supports manufacturing → Chips go into end products.
Common beginner mistakes
- ✕Thinking every chip company builds its own chips.
Key terms
- Chip designer
- A company that creates chip blueprints, often without owning factories.
- Foundry
- A manufacturer that builds chips designed by others.
- Value chain
- The steps and companies a product passes through.
Key takeaways
- 01Designers, foundries, equipment makers and users each play a different role.
- 02A problem at one step can affect the whole chain.
Check yourself
- 01What does a foundry do?
Try the concept on a real company
Open a chip company and decide which step of the value chain it mostly sits in.
Educational examples only. Not buy or sell recommendations.