What Is a Fabless Company?
The period of time “fabless company” refers to a company that designs and markets {{hardware}} while outsourcing the manufacturing of that {{hardware}} to a third-party partner.
The period of time is most often used in terms of difficult chip designers, who hold the intellectual property (IP) for the chips they advertise. Well known examples include Apple (AAPL), NVIDIA (NVDA), and Qualcomm (QCOM).
Key Takeaways
- A fabless company is one who develops and holds IP while outsourcing the fabrication of its {{hardware}}.
- The period of time is most often used inside the computer {{hardware}} market to discuss with difficult semiconductor manufacturing.
- This industry type lets in fabless firms to have the benefit of lowered onerous paintings costs and economies of scale, while that specialize in the continued development and monetization of their IP portfolios.
How Fabless Companies Artwork
Fabless firms emerged on account of the fact that the companies that develop the IP for brand new chip designs and other sorts of difficult {{hardware}} are usually headquartered in complex international locations during which the cost of onerous paintings is rather best. As a result of this, fabricating the {{hardware}} in-house by way of a vertically integrated supply chain might simply finally end up uneconomical, leading to depressed margins and no more capital available to fund further research and development (R&D).
As a result of this, many a good fortune firms have decided on to outsource the fabrication of their {{hardware}} to faithful manufacturing firms. The ones firms are incessantly situated in international locations with lower onerous paintings costs, during which local fabricators have built up actually intensive enjoy and revel in on this kind of specialized manufacturing.
Inside the context of chip manufacturing, the companies that specialize most straightforward in fabricating the chips—without developing their own IP or promoting and advertising and marketing the top product—are most often referred to as “chip foundries.” An important such company is the Taiwan Semiconductor Manufacturing Company (TSM), which controls more or less 52% of the global market and generated on the subject of $35 billion in revenues in 2019.
This present day, the cost of developing a brand spanking new production facility that would possibly hope to compete with an established player an identical to TSM might simply worth upwards of $10 billion. When combined with the rather low operational costs of the established foundries, this barrier to get admission to creates crucial incentive for fabless firms to continue outsourcing their manufacturing process.
Precise-International Example of a Fabless Company
The usa is home to one of the crucial most a good fortune fabless firms on the planet, a variety of which are internationally dominant in their respective markets. For example, Qualcomm is a $100 billion fabless company that holds an infinite portfolio of IP in relation to semiconductors, particularly those geared toward mobile phones. Its revenues, which reached on the subject of $24 billion as of September 2020, are significantly derived from the royalty streams earned on its IP licensing agreements.
NVIDIA Corporate is every other remarkable example of a a good fortune American corporate the usage of the fabless industry type. A consultant in graphics processing unit (GPU) technology, the company now holds IP in areas an identical to mobile phone central processing units (CPUs), chipsets for motherboards, {{hardware}} and software for professional graphics visualization methods, and quite a lot of software products for each and every commercial and consumer-facing methods. As with each fabless firms, NVIDIA’s industry type is based in large part on revenues from its IP portfolio and alliances with extraordinarily subtle manufacturing partners.
