Promoting the Development of the Semiconductor Ecosystem in Costa Rica

Annex A. Understanding the semiconductor value chain

The semiconductor value chain involves a complex system of processes and inputs undergoing substantial change due to technology, geopolitical and business developments. To help policymakers 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, 2025[1]).

The semiconductor value chain

Semiconductors vary in their complexity, function and size, and some semiconductors require unique manufacturing processes (BCG/SIA, 2021[2]; Haramboure et al., 2023[3]). At a high level, semiconductors are produced through three simplified steps: design; wafer fabrication and assembly, testing and packaging. Inputs for the manufacture of semiconductor chips can differ based on their type but can be broadly categorised into three categories: i) intangible inputs, including software and intellectual property; ii) materials, including gases, chemicals and substrate materials; and iii) capital equipment, which is required for both front-end and back-end manufacturing.

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[2]). 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 (OECD, 2025[1]). Semiconductor designs rely on many different intellectual property (IP) blocks, often sourced from third-party suppliers, to shorten development time. These IP blocks provide a variety of functionality, such as compute cores, memory and communication interfaces (e.g. HDMI, USB) that can be reused in semiconductor design. They are often proprietary to one company or organisation and are licensed to other companies (OECD, 2025[1]). Together, this input accounts for approximately 4% of value-added in the semiconductor supply chain (BCG/SIA, 2021[2]; OECD, 2025[1]).

Wafer fabrication (also known as front-end manufacturing) is the process of etching an integrated circuit design onto a wafer of semiconducting material (often silicon). It is the most capital-intensive stage, encompassing nearly two-thirds of the industry’s capital expenditures (BCG/SIA, 2021[2]). Fabrication is an advanced and delicate process involving “a cycle of polishing, deposition, resist application, lithography, etching, ion implantation, and resist removal” for each chip layer (OECD, 2025[1]).

• Inputs to wafer fabrication: A key input for fabrication includes unprocessed wafers of semiconducting material, like silicon or other substrate materials, such as gallium and germanium. Along with the wafer inputs, fabrication requires several other advanced material inputs like chemicals, which are important for etching, the wafer cleaning process, and ensuring wafers are uniform, and specialised gases, used in dry etching and for the protection of atmospheric exposure; chemical mechanical planarisation slurries also prepare the surface of wafers, ensuring their uniformity. Important types of wafer fabrication equipment include photolithography, resist processing, deposition, etching and cleaning equipment. The global semiconductor manufacturing equipment market was around USD 139 billion in 2024 (SEMI, 2024[4]). The main types of semiconductor equipment are (1) wafer fabrication equipment, (2) assembly and packaging equipment, and (3) testing equipment. Typically, semiconductor equipment suppliers specialise in one of those equipment categories.

Assembly, testing and packaging (ATP, also known as back-end manufacturing) involves cutting the processed silicon wafers outputted from fabrication into individual chips (called dies), packaging the dies into protective frames and resin shells, which allows them to be connected to a larger system through wires or soldering, and testing them for defects and performance (OECD, 2025[1]). ATP accounts for between 10% and 15% of physical capital expenditure and comprises approximately 5% of value-added in the semiconductor supply chain (BCG/SIA, 2021[2]).

• Inputs to assembly, testing and packaging: Material inputs into the ATP process include lead frames, packaging substrates, bonding wires and die-attach materials such as epoxy resin, metal alloys and ceramics (OECD, 2025[1]). Raw materials account for approximately 5% of value-added in the semiconductor supply chain (BCG/SIA, 2021[2]). Dicing tools, temporary and permanent bonding tools and die placement are examples of assembly and packaging tools (OECD, 2025[1]).

After design, fabrication and ATP, the packaged chips are passed downstream for the assembly on printed circuit boards and final electronic products.

Key business models in the semiconductor ecosystem

The term foundry refers to firms that operate production facilities (also known as fabs) to produce semiconductors for other firms on a contract basis.

“Fabless firms” create semiconductor designs but outsource their manufacturing to foundries. As new electronic and digital applications drive demand for highly specialised and complex chips, a wide variety of firms carry out semiconductor design without either front-end or back-end manufacturing processes.

Outsourced Semiconductor Assembly and Test (OSAT) firms are typically third-party service providers that offer ATP services to fabless design firms, integrated device manufacturers (see below) and system firms (see below).

Integrated device manufacturers (IDMs) are vertically integrated manufacturers that can perform all processes of the value chain, from design to final packaging (OECD, 2025[1]). 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.

“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.

References

[2] BCG/SIA (2021), “Strengthening the Global Semiconductor Supply Chain in an Uncertain Area”, Semiconductor Industry Association, http://www.semiconductors.org/strengthening-the-global-semiconductor-supply-chain-in-an-uncertain-era/ (accessed on 8 March 2024).

[3] 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 (2025), “Mapping the semiconductor value chain: Working towards identifying dependencies and vulnerabilities”, OECD Science, Technology and Industry Policy Papers, No. 182, OECD Publishing, Paris, https://doi.org/10.1787/4154cdbf-en.

[5] OECD (2023), OECD Economic Surveys: Costa Rica 2023, OECD Publishing, Paris, https://doi.org/10.1787/8e8171b0-en.

[4] SEMI (2024), Global Total Semiconductor Equipment Sales Forecast to Reach a Record of $139 Billion in 2026, SEMI Reports, https://www.semi.org/en/semi-press-release/global-total-semiconductor-equipment-sales-forecast-to-reach-a-record-of-dollar-139-billion-in-2026-semi-reports (accessed on 2 May 2025).