Two ways to make a chip

A chip company can design its chips and build them in its own factories. Or it can design them and pay a foundry to build them. A foundry is a factory that makes chips for other companies, to their designs.

Intel does most of both. NVIDIA, AMD, Qualcomm and Broadcom design their chips and buy the manufacturing from foundries such as TSMC. The industry calls them fabless, from "fab", its word for a chip factory.

What a factory costs

A leading chip factory costs billions of dollars and takes years to build. The air inside has to be cleaner than an operating room. The machines that print the smallest features cost more than a passenger jet each. Every new generation of chips needs finer tools, so the equipment keeps changing.

All of that is capital spending. Intel spent $14.6 billion on it in 2025, or 27.7% of its revenue. Five years earlier it spent $14.3 billion, on $77.9 billion of revenue. The factories cost about the same while revenue fell by a third.

What a designer spends instead

A designer's largest cost is engineers, not buildings. NVIDIA spent $18.5 billion on research and development in fiscal 2026, three times its capital spending. AMD spent $8.1 billion on R&D and $1.0 billion on capital spending in 2025. Broadcom spent $11.0 billion on R&D and $0.6 billion on capital spending.

The foundry carries the factory instead. It spreads the cost across many customers, so each one pays for a share of the machines rather than all of them.

What it does to margins

A factory costs the same whether it runs full or not. When fewer chips go through it, each one carries more of that cost. Intel's gross margin fell from 56.0% in 2020 to 34.8% in 2025, and its operating margin from 30.4% to -4.2%.

A designer pays the foundry per chip, so its costs move with its sales. NVIDIA's gross margin was 71.1% in fiscal 2026, and Broadcom's 67.8% in 2025. NVIDIA's revenue grew almost 13 times in five years, from $16.7 billion to $215.9 billion, without building a factory.

What it does to the cash

With little to build, a designer keeps most of its operating cash as free cash flow. NVIDIA's operating cash was $102.7 billion in fiscal 2026, and its free cash flow $96.7 billion. Broadcom's free cash flow was $26.9 billion in 2025.

Intel's operating cash was $9.7 billion in 2025, and its capital spending $14.6 billion. Its free cash flow was negative $4.9 billion. Owning factories gives a chip company control over how and when its chips are made. The cost of that control shows up here, every year.