A chip-set is a collection of many integrated circuits which work together to make up an electronic device. These are housed on a large board and marketed as a single product like a motherboard. Chipsets comprise various controllers that govern data flow between the processor and other components and hence are crucial for determining system performance. For example, the Northbridge and the Southbridge on a computer motherboard handle the communications between the processor, RAM and I/O units etc. Chipsets are designed to work with specific families of microprocessors.
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