Why Are There Only a Few CPU Manufacturers?

The world of CPU manufacturing is dominated by a handful of companies, with the likes of AMD, Intel, and a few global players like Samsung and TSMC leading the market. This article explores the primary reasons behind this phenomenon, focusing on cost, investment requirements, and geographical challenges.

High Investment Costs

The primary reason for the limited number of CPU manufacturers is the substantial investment required to build advanced fabrication plants, or fabs. Fabricating chips for modern computing devices requires bleeding-edge technology, typically ranging from 7nm to 10nm nodes, which come with astronomical costs. According to industry experts, the cost of building a state-of-the-art 10nm fab can range from 15 to 20 billion US dollars. This high investment is not feasible for many companies, leading to a consolidation of the market.

Business Models and Market Segments

While it may seem that only a handful of companies dominate the market for modern computing devices, it is crucial to understand the diversity of the semiconductor industry. There are numerous companies involved in chip manufacturing, but they cater to different market segments. For example:

NXP Semiconductors specializes in automotive applications. Texas Instruments manufactures microprocessors for various devices, including scientific calculators. Samsung produces not only CPUs but also DRAM modules for RAM sticks and NAND flash for thumb drives.

These companies, however, do not necessarily compete directly with the major CPU manufacturers. Their products are often targeted at specific applications, such as power controllers for electric cars and CMOS image sensors. While these chips are still semiconductors, they are used in different contexts and do not fall under the same strict technological demands as CPUs for modern computing devices.

Geographical and Technical Challenges

Chip manufacturing also faces significant geographical challenges. Building a fab requires access to specialized equipment, such as EUV (Extreme UV) machines, which can cost over 100 million dollars per unit. Additionally, fabs have specific requirements, such as access to large amounts of water and stringent environmental controls. These requirements make it challenging to locate and build a fab in places like the middle of a desert or areas with limited resources.

Entry Barriers and Technological Advancements

The entry barrier in the CPU manufacturing industry is extremely high, both in terms of cost and technological expertise. Companies looking to enter this field often struggle to compete with established players like TSMC and Samsung, who have a significant head start. These companies have already invested heavily in research and development (RD), making it difficult for new entrants to catch up:

High startup costs: The expense of setting up a modern CPU fab can be higher than the GDP of some small countries. This includes the cost of advanced equipment, skilled labor, and ongoing RD for shrunk process nodes. Product cycle and competition: Companies must first establish a reputation by gradually moving from older nodes, such as 90nm, to more advanced nodes like 7nm and 5nm. The complexity and cost of this transition can be overwhelming. For example, moving from 90nm to 5nm typically takes about 15 years, as seen with TSMC and Samsung. Advanced technology: Continuously advancing technology, such as GAAFETs (Gate-All-Around Field-Effect Transistors), further elevates the entry barrier. Companies must decide whether to innovate or piggyback on existing technology to avoid significant losses.

In summary, the limited number of CPU manufacturers is a result of high investment costs, complex technological requirements, and geographical and technical challenges. While there are many companies involved in chip manufacturing, the majority focus on less demanding applications. For higher-end computing devices, the market is dominated by a few leading companies due to the immense resources required to compete in this field.