Semiconductor consolidation

Semiconductor consolidation is the trend of semiconductor companies collaborating in order to come to a practical synergy with the goal of being able to operate in a business model that can sustain profitability.

Since the rapid adoption of the modern day chip in the 1960s, most companies involved in producing semiconductors were extremely vertically integrated. Semiconductor companies owned and operated their own fabrication plants and also the processing technologies that facilitated the creation of the chips. Research, design, testing, production, and manufacturing were all kept "in house". Advances in the semiconductor industry made the market extremely competitive and companies began to use a technology roadmap that helped set goals for the industry. This roadmap came to be known as Moore's Law, a statistical trend seen by Intel's co-founder Gordon Moore in which the number of transistors on an integrated circuit is doubled approximately every 2 years. This increase in transistor numbers meant that chips were getting smaller and faster as time progressed.

As chips continued to get faster, so did the levels of sophistication within the circuitry. Companies were constantly updating machinery to be able to keep up with production demands and overhauls of newer circuits. Companies raced to make transistors smaller in order to pack more of them on the same size silicon and enable faster chips. This practice became known as "shrinkage".

Companies were now in a race against each other and themselves to create the next fastest chip, as all goals were to meet or exceed Moore's Law. With the shrinking of sizes in semiconductors, production became much more intricate. Fabrication machines, which were producing chips at the millimeter level in the 1960s, were now operating in the micrometer and heading into the nanometer scale. As of 2011^[update], most cutting edge processor makers are working in the 32 nm level and heading into full 22 nm production; sizes comparable to the human DNA strand. The process at which most of these intricate chips are being produced at is called photolithography, and the cost of equipment and operating them has grown astronomically, resulting in an inevitable consolidation of semiconductor companies.

Companies like Xilinx and Western Design Center were pioneers and the first to realize the practicality of not having to sustain a fabrication plant model. As costs continued to grow and competition grew fierce, resources could not be focused on maintaining a business model that had to sustain research and production. The solution became the Fabless semiconductor company model, where a company could focus all its resources to the design, marketing, and sale of its devices while outsourcing the production of its devices to manufacturers called fabs.

This business model grew in such popularity that the new initiative was being promoted by a group called the Fabless Semiconductor Association (FSA) which is now the Global Semiconductor Alliance.

These fabs, commonly referred to as foundries, were able to update assembly and photolithography systems much more easily than their counterparts as all they focused on is handling bulk orders that come from these fabless businesses. In addition, the bottom line of these two business models became much stronger.

Although many companies grew and profited well from a fabless business model, new hurdles still had to be dealt with. The modern day microprocessor now has billions of dollars of research put behind it, with months and even years of research in creating the micro circuitry and teams of hundreds of engineers testing and developing a chip. Now even keeping fabrication and development apart is not enough^{[citation needed]}.