A fabless company is one that designs and sells hardware and semiconductor chips but outsources the fabrication of such chips and hardware. This practice leverages the research and development resources, as well as the design skill and distribution networks, of the fabless company while taking advantage of the specialized manufacturing skill and capacity of specialized semiconductor foundries. Fabless companies tend to be located in higher-cost, highly industrialized countries, which semiconductor foundries tend to be located in countries with lower labor costs, such as China and Taiwan. The practice of fabless manufacturing can create significant savings for fabless companies. "Fab" in "fabless is short for "fabrication."
The Global Semiconductor Alliance (formerly the Fabless Semiconductor Association) defines "fabless" as follows: "Fabless (without fab) refers to the business methodology of outsourcing the manufacturing of silicon wafers, which hundreds of semiconductor companies have adopted. Fabless companies focus on the design, development and marketing of their products and form alliances with silicon wafer manufacturers, or foundries."
In effect, a fabless company is one that has separated the design of a product from the manufacture of it. Historically, semiconductor manufacturers were vertically integrated, meaning they designed, manufactured and marketed their own products. They also possessed and operated their own silicon wafer manufacturing facilities. A transition to fabless manufacturing started in the 1970s as private equity investors began funding small, start-up integrated circuit manufacturers. These smaller companies found it hard to compete given the extremely high cost of tooling and manufacturing, especially given the pace of innovation in the silicon chip industry in the 1980s. As a solution, these small companies began to outsource the manufacture of their products to integrated device manufacturers (IDM), large semiconductor manufacturers which had excess production capacity. This shift provided the foundation for fabless manufacturing. Now, hundreds of semiconductor designers outsource the manufacturing of their silicon wafers designs to semiconductor foundries.
The fabless model is an attractive and popular option for many semiconductor companies. By adopting a fabless business strategy, a company can focus time and resources on the design of innovative integrated circuits, while avoiding the high capital costs of building, operating, and upgrading a manufacturing facility.
Below is a list of the world's largest fabless companies based on 2017 revenue: