Why (the foundry) semiconductor ecosystem is more fragile than ever
The fabless model -- in which semiconductor companies outsource the production of silicon chips -- was supposed to be a good thing. It would allow design firms like Qualcomm to save themselves the capital expense of a foundry, and have more options for managing their supply chain.
When the semiconductor industry began moving towards ARM's architecture, it was an extension of this logic. ARM could avoid a huge R&D burden by simply licensing its design, while clients like Qualcomm would benefit from a more competitive field, with one less barrier to entry. Breaking up the industry in this way meant less revenue for each company, but also a diversification of risk, and more flexibility. Companies could focus on what they did best, and problems at one manufacturer, or the failure of a single system-on-a-chip (SoC), wouldn't sink the whole ship.
So the theory went. Today, fabless designers are the norm, and ARM's designs are ubiquitous in smartphones and tablets -- but instead of diversification we've seen consolidation. Qualcomm alone controls half of the smartphone SoC market, with Nvidia in an entrenched second place. Smaller competitors like Texas Instruments have been forced out. The idea of an open and diverse industry has given way to the hard reality of foundry retooling costs, and the inability of smaller chip designers to command timely and affordable manufacturing services. The industry is no less aristocratic now than it was 10 years ago, when Intel and AMD controlled it. A handset maker looking to buy a SoC has few choices -- a dynamic that likely played into Apple's decision to produce its own line with the A4.