The term foundry originally was a synonym for an ironworks or general metal works where metal casting operations were performed.

In the 1980s the term foundry has come to be associated with contracted semiconductor manufacturing.

The very first foundries were part of the MOSIS services. MOSIS was one of the first quasicommercial uses for the Internet run by USC-Information Sciences Institute. MOSIS services allowed single integrated circuit (IC) die to be designed by students and researchers at universities and corporations with internet connections. These "projects" were piggy-backed on manufacturing lots of commercial manufacturers like Intersil with a single wafer in the manufacturing boat being a MOSIS wafer and the rest being the company's commercial product.

In foundry economic model, a semiconductor firm need not make the enormous capital investment typically required. A company need only high IC designers and a marketing team to run a perfectly effective business. The foundry model has also helped foster the realization of the virtual corporation model in high tech.

In the 1990s the latest form of foundry services and semiconductor business model came into existence: the system-on-a-chip (SOC). In this model, a foundry may only provide manufacturing while separate "boutiques" provide design services, intellectual property as designable components, and producers of SOCs either as ICs or as proprietary components to end-user electronics such as LAN routers or keydrives. The roles of each of these different businesses and process roles can be very fluid and changing.

The components used in SOC are of the order of complexity of full integrated circuits such as LAN controllers, USB controller, ADCs, DACs, microcontrollers, programmable logic, RAM, Flash ROM, etc. Assembling these components product single integrated circuits which resemble full circuit board-based electronic systems on a single IC or chip (hence the name "SOC"). Some SOC foundries provide the ability to design prototypes using separate, off-the-shelf IC and transition these to SOC form using translation tools. This allows costs to be reduces as production is debugged and ramped up.