The semiconductor value chain involves a complex system of processes and inputs undergoing substantial change due to technology, geopolitical and business developments. To help policy makers read this report, this annex provides a simplified overview of the semiconductor supply chain, key inputs and common business models. For more detailed OECD analysis on this topic, please refer to the paper “Mapping the Semiconductor Value Chain” (OECD, forthcoming[1]).

Semiconductors vary in their complexity, function and size, and some semiconductors require unique manufacturing processes (Haramboure et al., 2023[2]; BCG/SIA, 2021[3]). At a high level, semiconductors are produced through four simplified steps: design; wafer production; fabrication and assembly, testing and packaging.

Design involves determining the chip’s requirements, planning the chip’s architecture and using a test bench to validate the final design. It requires relatively little physical capital expenditure compared to the other stages but accounts for approximately half of the total value-added in the semiconductor supply chain (BCG/SIA, 2021[3]). Chip designers make important decisions that determine processes undertaken in the fabrication and assembly testing and packaging process.

• Inputs to the design process: Design is reliant on specialised software inputs, especially electronic design automation tools, which are crucial to managing the billions of transistors, circuit elements and other components found on semiconductors. Semiconductor designs rely on building blocks known as intellectual property (IP) cores, which are modular components or logic blocks that can be reused in semiconductor design.

Wafer production involves the production of raw wafers of a semiconductor material, typically silicon. Specialist producers create a pure silicon cylinder (boule or ingot) by heating and cooling silicon to form a highly ordered crystal structure. Wafers are sliced from this cylinder using specialist equipment and polished to remove surface imperfections. The semiconductivity of a wafer can be adjusted by adding tiny amounts of other elements (dopants) using a tool called an ion implanter.

• Inputs to wafer production: Key inputs to this step include raw semiconducting materials, typically silicon, dopant materials (like boron or phosphorus) for modifying electrical properties, ion implanters tools for controlled doping, and crystal machining tools, crystal growing furnaces and other capital equipment.

Fabrication (also known as front-end manufacturing) is the process of etching an integrated circuit design onto a wafer of semiconducting material (often silicon). The wafer fabrication process typically involves several repeated steps to build the final chip. First, the wafer is polished for a smooth surface. Next, a layer of material is deposited onto the wafer, followed by the application of a light-sensitive coating called "photoresist." Using lithography, specific patterns are created by exposing parts of the photoresist to light. The wafer is then etched to remove unwanted material, and ion implantation is used to embed dopants in targeted areas to control electrical properties. Finally, the photoresist is removed, and these steps are repeated for each layer required to create the complete chip structure. Fabrication is among the most complex and expensive manufacturing processes known to man, involving hundreds of highly sensitive processes.

• Inputs to fabrication: This step of the semiconductor manufacturing process requires hundreds of inputs, which vary based on semiconductor type, design and technology. Key material inputs often include photomasks, photoresists, speciality gases and chemicals. Specialist tools are also required for the major process steps – lithography, etching, deposition – as well as cleaning, chemical mechanical planarisation, process automation and metrology and inspection.

Assembly, testing and packaging (also known as back-end manufacturing) produces the final semiconductor for inclusion in electronic products. The processed wafer from fabrication is sliced into individual dies, which are then encased in protective frames to prepare them for soldering onto printed circuit boards. Each chip undergoes rigorous testing for defects and performance to ensure quality before final assembly into products.

• Inputs to assembly, testing and packaging: Key material inputs include metal lead frames to hold the chips, packaging materials like plastic or ceramic, bonding wires to connect the chip to the packaging or other electronics, and materials to attach the chip to other components, like epoxy resins. The process relies on dicing tools, assembly tools, and testing equipment.

• The term foundry refers to companies that operate front-end production facilities (also known as “fabs”) to produce semiconductors for other companies, usually on a contract basis.

• Outsourced assembly, testing and packaging (OSAT) firms are typically third-party service providers that offer assembly, testing and packaging services to external customers, like fabless design firms.

• “Fabless firms” create semiconductor designs but outsource their manufacturing to foundries and OSAT firms. As new electronic and digital applications drive demand for highly specialised and complex chips, a wide variety of firms carry out semiconductor design but outsource front-end or back-end manufacturing processes.

• “System firms” design semiconductors for use in their own products, like cars, smartphones or services, typically relying on OSAT firms and foundries for semiconductor production. In contrast, fabless firms typically design and sell chips.

• Semiconductor IP vendors design and sell pre-designed, reusable functional blocks (IP cores) used in chip designs.

• Integrated device manufacturers (IDMs) are vertically integrated manufacturers that can perform all processes of the value chain, from design to final packaging. IDMs may also offer front-end or back-end contract manufacturing services to fabless or system firms, or outsource some manufacturing processes to OSAT firms or foundries.

[3] BCG/SIA (2021), Strengthening the Global Semiconductor Supply Chain in an Uncertain Era, Boston Consulting Group (BCG)/Semiconductor Industry Association (SIA), https://www.semiconductors.org/strengthening-the-global-semiconductor-supply-chain-in-an-uncertain-era/.

[2] Haramboure, A. et al. (2023), “Vulnerabilities in the semiconductor supply chain”, OECD Science, Technology and Industry Working Papers, No. 2023/05, OECD Publishing, Paris, https://doi.org/10.1787/6bed616f-en.

[1] OECD (forthcoming), “Mapping the semiconductor value chain”, OECD Science and Technology Policy Papers, OECD Publishing, Paris.