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A beginner’s guide to semiconductors

An overview of the semiconductor industry, taking a look at the manufacturing process, key industry players and the current shape of the industry.

Date published
17 Jan 2023
Divya Mathur Portfolio Manager

What are semiconductors and why do they matter?

The generic term semiconductor refers to a material which can both conduct electricity (like copper or aluminium) and insulate (like rubber). More commonly when we refer to semiconductors, what we mean is semiconductor devices, or ‘chips’ (microchips).

Chips are created using semiconductor materials, giving the industry its name. They are crucial elements of almost all electronic devices, varying by function and intelligence. The ‘smarter’ the device, the more ‘intelligent’ the chip needs to be, from your mobile phone to your refrigerator or car. As such, semiconductor manufacturers benefit directly from the rise of digitalisation in society provided they invest in their businesses sufficiently to capitalise on that opportunity.

Semiconductors directly enable technological innovation in other industries and will continue to do so as new products are developed, both in emerging markets and the rest of the world. Firms in this industry are hugely concentrated in emerging markets, especially Taiwan and Korea. Companies in these geographies supply customers across the globe with their products for use across many areas such as computing, communications, consumer electronics, automotive and industrial equipment.

Semiconductor manufacturing process

Semiconductor manufacturing is a critical industry which manufactures integrated circuits - these are sets of electronic circuits on a semiconductor material (or wafer) which is typically made from silicon. The process is highly sophisticated and involves three key steps:

Raw Wafer

1. Making the raw wafer

The silicon wafer is created from a cylindrical ingot which is then sliced into discs roughly 1mm thick. The ingot can be a range of diameters including 150mm and 200mm but most commonly it is 300mm. The majority of semiconductor manufacturers outsource wafer production, purchasing them from a specialist wafer manufacturer.

Circuit Wafer

2. Making the circuit on the wafer (making the microchip)

The chips are created in batches on the silicon wafer, with multiple chips being manufactured at the same time at a minute scale with thousands of automated steps.

Assembled component

3. Completed components are assembled and packaged

An integrated circuit (IC) is a single semiconductor (semi) chip which has other components all integrated. These may include diodes, resistors, transistors or inductors, for example. ICs help to support complex circuits.

Chips are created in batches on the wafer. The factory in which this takes place is called a fabrication plant, or fab. There are high barriers to entry with costs of building and operating a fab reaching tens of billions of dollars.

The largest semiconductor firms by sales are reliant on emerging market companies; although the top ten includes several developed market companies, most of these are fabless and rely heavily or exclusively on emerging market companies for their chips.