Technology · Semiconductors
Fabless vs Foundry vs IDM vs OSAT
Four chip business models defined by who owns which assets, with margin and capex profiles from Nvidia, TSMC and Intel filings.
Selborne Research · Semiconductors coverage: 9 guides, 6 company profiles, a primer and Excel model
Educational analysis. This guide is not investment advice or a recommendation to buy or sell any security, and it is not personalised.
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Who Owns the Assets Sets the Economics
Four labels dominate chip industry structure, and each says who owns the design, the wafer fab and the package-and-test line. Margin and capital intensity follow from that map.
| Model | Owns design | Owns wafer fab | Owns assembly / test | Filing language |
|---|---|---|---|---|
| Fabless | Yes | No | Usually no | Nvidia: fabless and contracting manufacturing strategy |
| Foundry | No (customers) | Yes | Sometimes | TSMC: as a foundry |
| IDM | Yes | Yes | Often yes | Intel: integrated design manufacturer, or IDM |
| OSAT | No | No | Yes | ASE: outsourced assembly and test (acronym not used) |
Margin and Capex Profiles From Filings
| Company | Model | Fiscal year | Gross margin | Capex % of revenue |
|---|---|---|---|---|
| Nvidia | Fabless | FY2026 | 71.1% | 2.8% |
| TSMC | Foundry | FY2025 | 59.9% | 33.4% |
| Intel | IDM | FY2025 | 34.8% | 27.7% cash-flow additions (33.4% gross) |
Nvidia shows the fabless pattern: high gross margin and low own-capex, with manufacturing risk sitting in manufacturing and supply commitments ($95.2B at FY2026 year-end) rather than in PP&E. At TSMC, the foundry, margin stays high while plant intensity runs at 33.4% of revenue. Intel shows an IDM under strain: gross margin 34.8%, cash-flow capex 27.7% of revenue, and a foundry segment that lost $10.3B on $17.8B of mostly internal revenue in FY2025.
These are illustrations for the years shown, not permanent grades. A fabless name in a destock year can see margin compress through inventory charges; a foundry with full leading-edge utilisation can print margins well above mid-cycle. The structural point is which costs are fixed on the company’s own books.
GICS Today and the 2026 Proposal
Under the April 2026 GICS methodology, the Semiconductors sub-industry includes solar modules and cells and packaging and test services. Semiconductor equipment includes test, assembly and packaging systems.
The 2026 GICS consultation ran from 17 July to 30 October 2026, with any changes to the structure for 2027 due to be announced in November 2026. It proposed splitting semiconductor classifications by business model, including a Semiconductor Manufacturing Services sub-industry for foundries and OSAT, and moving solar into Industrials. The consultation document stated that the process might not result in any changes. Until any change takes effect, a screen built on the GICS Semiconductors sub-industry still mixes designers, foundries, packaging and test houses and solar makers.
How the Models Fail Differently
Fabless designers fail on customer concentration, foundry capacity rationing and inventory or commitment charges when the channel destocks. A foundry’s risks are under-utilisation against a huge depreciation base and technology transitions that leave a node half-loaded. An IDM carries both: own-product mix and own-fab loading. OSAT turns on unit volume and package mix.
Capital intensity and the capex ladder quantify the plant side. Utilisation and gross margin quantifies what happens when the plant runs light. Use the four definitions first so those ratios are compared within one business model.
Business model sets margin structure and capital intensity; the primer switches the multi-period model between designer, foundry, memory and equipment.
- 17 sections, from the business models and the industry cycle to capital intensity, memory, inventory, equipment orders, stock pay and a reverse DCF
- 44 pages
- a chip designer, a foundry, a memory maker and an equipment maker, all fictional
- 4 worked valuations
- listed chip companies on filed margins, capital intensity, inventory days and stock pay, each with its fiscal year
- 6-company screen
The Excel model is the primer's through-cycle DCF live across 13 sheets: a chip designer, a foundry, a memory maker and an equipment maker, all fictional, plus a column for a company of your own in any of five business-model modes. Each mode turns the industry cycle into revenue its own way: units and selling prices, capacity times utilisation times revenue per wafer, bit demand against bit supply, orders and installed-base services, or wafer starts for a materials supplier. Depreciation sits in cost of goods for fab owners, capacity arrives two years after the capex that pays for it, and the terminal value is struck on mid-cycle cash flow. A reverse DCF reads the margin and the growth a price requires, and the sensitivity grids re-run the model in every cell.
See what's in the Semiconductors Sector Primer →£25 PDF · £59 with the Excel model · £159 for all three Technology industries
Frequently Asked Questions
- What is a fabless semiconductor company?
- A company that designs chips and contracts manufacturing to foundries and assembly houses rather than owning wafer fabs. Nvidia describes a fabless and contracting manufacturing strategy in its FY2026 10-K.
- What is a foundry?
- A manufacturer that fabricates wafers for customer designs. TSMC states that it operates as a foundry. It owns the plant; customers own the product designs.
- What is an IDM?
- An integrated device manufacturer designs and builds its own chips in its own fabs. Intel describes itself as an integrated design manufacturer, or IDM, in its FY2025 10-K.
- What is OSAT?
- Outsourced assembly and test: companies that package and test chips after wafer fabrication. ASE describes that role in its FY2025 20-F without using the OSAT acronym. GICS today groups packaging and test services inside Semiconductors.
- Is GICS splitting semiconductor business models?
- The 2026 GICS consultation (17 July to 30 October 2026, with any changes to the structure for 2027 announced in November 2026) proposed splitting the sub-industry by business model, including a Semiconductor Manufacturing Services group for foundries and OSAT, and moving solar to Industrials. The document stated the consultation might not result in any changes.
Read next
Capital Intensity in Semiconductors
Capex to revenue sets what a chipmaker must earn. Spend reaches capacity about two years later; TSMC and Intel are the worked cases.
Capex to Revenue by Chip Company
Ranked capex as a share of revenue for six chip filers. Business model sets the order from foundry and IDM down to fabless and equipment.
Fab Utilisation and Gross Margin
Depreciation is fixed, so a few points of utilisation move gross margin sharply. TSMC billing utilisation and Intel margin decline as worked cases.
See it applied
These company profiles apply the concepts from this guide to real public companies.