Leading-edge chip manufacturing has concentrated into a handful of companies. The reasons are structural, and they shape the entire industry above them.
Most companies that design chips do not manufacture them. They send the design to a foundry, a company whose entire business is fabricating other people's silicon. And at the leading edge, where the newest and most capable chips are built, the number of foundries capable of doing the work has shrunk to a very short list. Understanding why explains a lot about how the whole industry behaves.
The cost of staying at the front#
Building a leading-edge fabrication plant is one of the most expensive undertakings in any industry. The facility itself runs into enormous capital cost, and the specialized equipment inside it is both scarce and extraordinarily expensive. A single advanced lithography machine, the tool that prints the finest features onto a wafer, is among the most complex devices ever manufactured, and only a tiny number of companies in the world can make them.
That cost structure has a brutal logic. To justify the investment, a foundry needs enormous volume flowing through the plant. Volume requires customers. Winning customers requires already being at the leading edge. The result is a cycle that rewards the companies already ahead and makes it nearly impossible for a new entrant to break in.
Why falling behind is hard to reverse#
Leading-edge manufacturing is not just about money. It depends on accumulated know-how that is difficult to acquire and difficult to keep:
- Yield. Getting a high fraction of working chips off each wafer takes years of tuning. A new process starts with poor yields and improves only through experience.
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