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A fab is a factory for producing chips. It is a short form of "fabrication".

Typically an advance in chip-making technology requires a completely new fab to be built. In the past the equipment to outfit a fab was not terribly expensive and there were a huge number of smaller fabs producing low-run chips. However the cost of the most up-to-date equipment has since grown to the point where a new fab typically costs on the order of several billion dollars.

This has led to the rise of "fabless" design firms who don't bother producing their own chips. Instead they create the design itself, and have another company produce the actual chips for them. They are also known as IP firms. ARM is perhaps the best example.

Another side effect of the cost has been the ongoing question of what to do with the older fabs. For many companies these older fabs are useful for producing other designs for other markets, such as embedded processors and microcontrollers. However for companies with more limited lines, it's often best to either rent out the line, or close it entirely.

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