Can the U.S. Overtake China in Advanced Packaging of Semiconductors?

The U.S. is moving to constrain China’s high-tech progress by focusing on the process of packaging semiconductors as part of the U.S. plan to be self-sufficient in the semiconductor sector.  Packaging semiconductors is a process that encases chips in materials that both protect them and connect them to the electronic device they are a part of. China is also attempting to capitalize on the advanced packaging process, which isn’t subject to U.S. sanctions.

Packaging semiconductors previously was not a U.S. priority and was usually outsourced, mainly to Asia. According to Intel Corp, the U.S. accounts for just 3% of the world’s packaging capacity.  Technology analyst Tirias Research said, “Packaging is the new pillar of innovation for the semiconductor industry.”  China, which doesn’t yet have state-of-the-art semiconductor packaging capabilities, has the chance to ramp up its capabilities since packaging is not restricted by the U.S. government and “could help them to bridge the gap.”

The U.S. has now made the packaging of semiconductors a priority.  Under the Biden administration’s CHIPS and Science Act, the U.S. has outlined plans for a $3 billion National Advanced Packaging Manufacturing Program.  Secretary of State Commerce chief Locascio said the goal is to create multiple high-volume packaging facilities by the end of the decade and reduce reliance on Asian supply lines that pose a security risk the U.S. “just can’t accept.” 

Although advanced packaging can’t help China compete with leading-edge semiconductor developments from the U.S., it could allow China to build faster and cheaper systems for computing by putting different chips closer together.  Bloomberg Intelligence said it is a ”pivotal solution” as it “enables seamless integration of varied chip types.”  According to the Semiconductor Industry Association, China has 38% of the world’s semiconductor assembly, testing, and packaging market, the most of any nation.

One reason for the urgency of the U.S. to focus on the advanced packaging of semiconductors is the necessity for the kind of high-powered semiconductors needed for artificial intelligence applications.  Currently, there is a shortage of a particular type of packaging known as Chip on Wafer on Substrate, or CoWos, a key bottleneck in producing Nvidia’s AI chips.  According to Jeffries, the number of chips shipped that use advanced packaging is forecast to increase tenfold in the next 18 months but could soar to 100 times if it becomes standard in smartphones.

The U.S. Commerce’s National Institute of Standards and Technology said the U.S. needs to boost its assembly, test, and packaging services to avoid supply chain disruptions and reduce national security risks.  According to IBM Global Enterprise Systems Development, advanced packaging is relatively “overlooked” in funding terms.  The U.S. will need to double its funding allocation to increase its packaging capacity to 10%-15% of the global total and ideally to take 25% of capacity in ten years to ensure a secure supply chain and that “having a hub in North America for advanced packaging is super important.”

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On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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