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Fabless-Foundry Model Hit by Technology Chasm

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Creation of technology chasm

In the previous part of this series, we saw that the fabless-foundry model divided the cost of designing and manufacturing. The Asia–Pacific region has emerged as the semiconductor manufacturing hub. However, this model is creating a technology chasm between designers and manufacturers.

With the advancement in technology, semiconductor products are becoming more complex. This is making it even more important for researchers and manufacturers to be in the same physical location to ensure any complexities in design or manufacturing are addressed in real time.

As this criterion is missing in the fabless-foundry model, the technology chasm between designers and manufacturers is widening, in turn increasing the product development cycle.

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Future of semiconductor manufacturing?

The industry is looking at several options to overcome the challenges posed by the fabless-foundry model:

Integrated device manufacturers open up foundry: Intel (INTC) and Samsung (SSNLF) have opened their leading edge fabs to fabless firms, giving tough competition to foundries. Qualcomm (QCOM) will manufacture its next-generation Snapdragon 820 processor at Samsung’s fab, which is equipped with advanced technology.

Fabless firms build foundries: Instead of building their own fabs, large fabless firms may acquire foundries. This can help companies keep their intellectual property in house while achieving production capacity.

Dedicated fabs: Foundry TSMC is considering building dedicated fabs for each customer. Rival GlobalFoundries is considering building dedicated modules within a fab for each customer.

Technology licensing: In 2014, IBM (IBM) went fabless to focus on developing new chip designs. With this, the company aims to enhance its patent portfolio that should generate passive royalty revenue from chip makers who will also benefit by not being subjected to the risks involved in chip fabrication.

Later in the series, we will look at the factors that elevated the US, South Korea, Japan, and Taiwan to become global leaders in the semiconductor space.

You can gain exposure in the semiconductor industry through the VanEck Vectors Semiconductor ETF (SMH), which has 18.93% holdings in Intel and 15.8% in TSMC.

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