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What does “fabless” mean?
The Semiconductor Industry Association defines a fabless company as “A semiconductor design company with no or limited wafer fabrication capability.” The SIA glossary describes the defining distinction: the company develops chip designs without operating, or with only limited, wafer-fabrication capacity of its own. Samsung Semiconductor likewise explains that a fabless company has semiconductor design skills but no production line. Samsung Semiconductor’s glossary
Fabless does not mean that a chip is made without a factory. A foundry fabricates chips on wafers for customers, including companies that do not have or do not use their own fabrication capacity. The fabless designer and the foundry are different roles in the same production chain.
How fabless, foundry, IDM, and OSAT roles differ
| Role | Main work | Relationship to fabrication and other companies |
|---|---|---|
| Fabless semiconductor company | Develops and designs semiconductor products. | Has no or limited wafer-fabrication capability and arranges for foundries to make its designs. It may also use a foundry or an OSAT provider for packaging and other finishing work. SIA glossary |
| Foundry | Manufactures chips on wafers. | Produces chips for customers that do not have or do not use their own wafer-fabrication capacity. SIA glossary; Samsung Semiconductor glossary |
| Integrated device manufacturer (IDM) | Designs and manufactures semiconductor products within one vertically integrated company. | Combines design and manufacturing rather than relying solely on an external foundry for fabrication. SIA glossary; Samsung Semiconductor glossary |
| Outsourced semiconductor assembly and test provider (OSAT) | Provides outsourced assembly, testing, and packaging. | Performs finishing stages for chip makers; a fabless company may use an OSAT provider or a foundry for packaging. SIA glossary |
These roles separate the stages of making a chip: design, wafer fabrication, and assembly, testing, and packaging. The U.S. Department of Commerce describes this division in its Quadrennial Supply Chain Review, published in January 2025. The specific arrangement varies by company and product; not every fabless company sends every stage to a separate vendor.
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Why use the fabless model?
The model lets a company concentrate resources on chip design and development while relying on specialist manufacturers for wafer production. A company without its own production line can outsource fabrication to a foundry, as Samsung Semiconductor explains.
This division of work does not establish that every fabless company is cheaper, more profitable, or more resilient than an IDM. Those outcomes depend on the particular company and its business; “fabless” identifies how fabrication capability is arranged, not a guaranteed financial advantage.
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TSMC illustrates the foundry role, not the fabless role
TSMC is an example of a foundry, not a fabless chip designer. In its 2024 annual report, TSMC says its pure-play foundry model focuses on manufacturing its customers’ products and that it does not design, manufacture, or market semiconductor products under its own name. TSMC 2024 annual report
For its 2024 operations, TSMC reported serving 522 customers and producing 11,878 different products using 288 distinct technologies. These are TSMC’s company-specific figures for 2024, not counts for the fabless industry as a whole. TSMC 2024 annual report
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What the term does—and does not—tell you
- It tells you that the company’s semiconductor business centers on design and that it has no or limited wafer-fabrication capability. SIA glossary
- It does not mean that the company makes no physical chips: external foundries can manufacture its designs.
- It does not specify who handles every later stage. Packaging and testing may involve a foundry, an OSAT provider, or a mix of partners. SIA glossary; U.S. Department of Commerce review
- It is not a synonym for “foundry” or “IDM”: a foundry manufactures for customers, while an IDM combines design and manufacturing within one vertically integrated company. SIA glossary; Samsung Semiconductor glossary
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