02 · The Value Chain

From sand to system

The chip industry is a relay race of specialists. Value — and leverage — concentrates at a few chokepoints: lithography, leading-edge foundry, EDA, and memory. Here is the full chain, upstream to downstream.

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The chain at a glance

Each stage feeds the next. The further upstream, the more invisible — and the more concentrated — the supplier base.

Upstream · Inputs

Materials & Equipment

  • Silicon wafers, gases, photoresists
  • Lithography (ASML — EUV monopoly)
  • Deposition / etch (AMAT, Lam, TEL)
  • Metrology (KLA)
Midstream · Design

EDA, IP & Chip Design

  • EDA tools (Synopsys, Cadence)
  • IP cores (Arm)
  • Fabless design (Nvidia, AMD, Qualcomm, Apple, MediaTek)
Midstream · Manufacture

Foundry & IDM

  • Pure-play foundry (TSMC, Samsung, SMIC, UMC)
  • IDMs (Intel, Samsung, Micron, TI, Infineon)
  • Wafer fabrication
Downstream · Output

Packaging, Test & End Use

  • Advanced packaging (CoWoS, HBM stacks)
  • OSAT (ASE, Amkor)
  • End markets: AI servers, phones, autos, industrial

Value flows left → right; pricing power is strongest on the left.

2.1

Upstream: the tool-makers

You cannot build a leading-edge fab without a short list of equipment vendors. The top five — Applied Materials, ASML, Lam Research, Tokyo Electron and KLA — together command roughly 56–66% of the entire equipment market, which surpassed $123B in 2025. ASML alone holds a monopoly on EUV lithography, the only way to print the finest features at 3nm and below.

Wafer-fab equipment — competitive structure

Approximate share of the ~$123B equipment market, 2025
Source: company reports, PatentPC, market estimates
Chokepoint · Lithography ASML is the sole supplier of EUV scanners and holds ~32% of all lithography equipment. No EUV tool has ever shipped to a Chinese fab — the single most important lever in export controls.
Chokepoint · Deposition & etch Applied Materials and Tokyo Electron together control 45%+ of deposition and etch — the steps that build a chip layer by layer.

Where the tools go

Asia-Pacific absorbed ~69% of equipment revenue in 2025, reflecting the location of leading-edge and memory capacity in Taiwan, Korea and China.

2.2

Midstream: design & the foundry model

The industry split long ago into fabless designers (Nvidia, AMD, Qualcomm, Apple, MediaTek), pure-play foundries that manufacture to order (TSMC, Samsung, SMIC), and IDMs that do both (Intel, Samsung, Micron). Two American firms — Synopsys and Cadence — supply the EDA software without which no modern chip can be designed, while Britain's Arm licenses the instruction-set IP inside most of the world's processors.

Foundry market share

Share of pure-play foundry revenue, 2025 (~$320B market)
Source: TrendForce, Tom's Hardware, company filings

The leading-edge node ladder

Who can manufacture at each process node, mid-2026
NodeProducersUse
2nmTSMC, Samsung (ramping)Next-gen AI / flagship SoC
3nmTSMC, SamsungAI GPUs, premium mobile
5/4nmTSMC, Samsung, IntelCurrent AI accelerators
7nmTSMC, Samsung, Intel, SMIC*HPC, mobile
≥14nm+ UMC, GlobalFoundries, SMICAuto, industrial, IoT
*SMIC produces 7nm without EUV, at limited yield/volume.
Why TSMC's lead matters TSMC grew ~36% in 2025 while the rest of the foundry market grew ~8%, lifting its share toward 70%. Leading-edge AI silicon is effectively single-sourced — a concentration risk for the entire AI build-out.
2.3

Downstream: packaging is the new frontier

As transistor scaling slows, advanced packaging has become a competitive battleground. TSMC's CoWoS (chip-on-wafer-on-substrate) packaging is the gating capacity for AI accelerators — every Nvidia GPU needs it, and HBM memory stacks are bonded here. Test and assembly (OSAT) is led by ASE and Amkor.

Advanced packaging

CoWoS, SoIC, chiplets. The real bottleneck for AI GPU output in 2024–26; TSMC has been doubling CoWoS capacity yearly.

HBM integration

High-bandwidth memory is stacked and bonded beside the logic die. SK Hynix leads; Samsung and Micron follow.

OSAT & test

Outsourced assembly & test (ASE, Amkor, JCET). Commoditized but essential; increasingly co-located with foundries.