Semiconductor foundries are used to manufacture integrated circuits and transistors for other companies. A niche is created for these companies by the high labor and capital equipment costs that take place in the production of semiconductors. They are ranked high on the value chain from the fabrication plant chip-design semiconductor companies that are used to create schematics for chips. The difference, however, is that the manufacturing is outsourced to semiconductor foundries. They are a valuable part of the semiconductor manufacturing chain and are completely essential.

Foundries do business with more than just run of the mill companies. They are also involved with Integrated Device Manufacturers (Semiconductor companies that manufacture in-house), and work to make lots of advantages for these companies. The foundries themselves have a certain capability advantage or cost advantage most of the time in comparison to IDMs, as they have a dedicated focus on manufacturing. Foundries can also handle more commoditized products, which allows for any IDM to use an in-house capability for a higher-margin or even a more IP-sensitive product.

The chain that leads from product to consumer is a long one. It starts with a contractor, such as a chip designer, who then sells the product to something like an electronic device manufacturer. The manufacturer will then sell their product to a retailer of these products and it is then purchased by the customer.

Because of this long chain, semiconductor foundries are affected on both ends. Rising silicon prices, for instance, increased by end-user demand for production can cause a large rise in the speed of production. A foundry’s success is affected by whether it can gain contracts with IC designers or not, and then be able to produce them cheaply.

Today, semiconductor foundries are an integral part of the semiconductor manufacturing process and on a business scale as well.