Gross margin is revenue minus cost of goods sold (COGS), expressed as a percentage of revenue. It measures how efficiently a semiconductor company converts revenue into profit before operating expenses.

Formula

Gross Margin = (Revenue - COGS) / Revenue × 100%

Semiconductor Industry Gross Margins

• TSMC: ~53-55% (foundry, high volume, capital intensive) • NVIDIA: ~70-75% (fabless, high-value AI chips, massive pricing power) • Intel: ~40-45% (IDM, includes manufacturing costs) • Qualcomm: ~55-60% (fabless, licensing revenue boosts margin) • Analog Devices / TI: ~65-70% (analog chips have long product lifecycles, low cost) • Memory (Micron, SK Hynix): Highly cyclical—ranges from -10% to +50% depending on supply/demand

Why Margins Vary

Fabless companies (NVIDIA, AMD, Qualcomm) have higher gross margins because they don't carry fab depreciation in COGS. IDMs (Intel, Samsung) include manufacturing costs. Analog companies achieve high margins through long-lived products with low R&D cost per unit and captive fabs running on fully depreciated equipment.

What Affects Gross Margin

Product mix: Higher-value products improve margin. Utilization: Running fabs below capacity increases cost per wafer (fixed costs spread over fewer wafers). Yield: Higher yields mean more good dies per wafer, reducing cost per chip. Pricing power: Unique products with no alternatives command premium pricing. Technology node: Leading-edge manufacturing has higher cost but enables premium pricing for performance-leading products.