AI Race Keeps U.S. Chip Packaging Reliant on TSMC

According to industry observers, advanced chip packaging has emerged as one of the most critical bottlenecks in the global race for artificial intelligence (AI) leadership, with Taiwan Semiconductor Manufacturing Co. (TSMC) dominating a segment that was once considered a relatively overlooked part of the semiconductor industry. Despite years of substantial U.S. investment aimed at strengthening domestic semiconductor manufacturing, reliance on TSMC for both advanced chip production and packaging continues to grow.

Beyond manufacturing AI processors for companies such as NVIDIA, TSMC is responsible for the vast majority of the world's advanced packaging services. Its key packaging ecosystem, including major partners and technology providers, remains heavily concentrated in Taiwan, reinforcing the island's strategic position within the global semiconductor supply chain.

Former IBM technology specialist and current professor at the University of California, Los Angeles, Chris Yerga, who has spent decades working on advanced packaging research, noted that he had been involved in planning a packaging R&D center in Arizona that was awarded US$1.1 billion under the Biden administration. However, after the Trump administration returned to office last year, the project was effectively discontinued. Yerga described the decision as one that ultimately increased dependence on TSMC rather than reducing it.

Former Intel Corporation CEO Pat Gelsinger has also emphasized the importance of packaging, stating that after chip fabrication, advanced packaging is the most critical stage in semiconductor manufacturing. He warned that the U.S. packaging supply chain remains particularly vulnerable.

TSMC currently controls approximately 95% of the global advanced packaging market. Its proprietary CoWoS (Chip-on-Wafer-on-Substrate) technology enables the integration of large AI processors with multiple stacks of high-bandwidth memory (HBM), making it a cornerstone of modern AI computing platforms. NVIDIA's upcoming Rubin AI processor platform, for example, utilizes CoWoS technology to combine two large AI chips and eight HBM stacks into a single module, significantly boosting computing performance and memory bandwidth.

Although TSMC is expanding manufacturing operations in Arizona, CoWoS packaging capabilities are not expected to be introduced at the facility until 2028 or 2029 at the earliest. As a result, chips produced in Arizona must still be shipped back to Taiwan for advanced packaging. Industry analysts estimate that current CoWoS capacity remains approximately 30% below market demand.

TSMC Senior Vice President Zhang Xiaoqiang recently stated that demand for advanced packaging continues to rise rapidly, creating capacity constraints that are expected to persist as AI adoption accelerates worldwide.

Meanwhile, Intel is actively seeking additional advanced packaging customers, while Applied Materials plans to invest US$5 billion in a new research facility in Silicon Valley alongside industry partners. Packaging specialist Amkor Technology is also constructing its first Arizona facility, with potential investment reaching US$7 billion. The plant could eventually handle a portion of TSMC's outsourced packaging requirements.

Despite these efforts, the United States currently accounts for only about 3% of global semiconductor packaging capacity. Industry experts believe that as AI demand continues to surge, advanced packaging is evolving beyond a simple cost and capacity challenge and has become one of the most difficult gaps to close within the U.S. semiconductor supply chain.

According to Jan Vardaman, president of TechSearch International, advanced packaging costs can reach as high as US$500 per chip package, while simpler packaging technologies typically cost around US$40. The significant cost difference highlights the growing economic importance of advanced integration technologies.

The shortage of advanced packaging capacity is also influencing chip design strategies. Some semiconductor startups are deliberately avoiding architectures that depend heavily on CoWoS because the silicon interposer required for such designs can take several months to develop and manufacture.

Looking ahead, industry leaders believe new packaging concepts will be required to support the next generation of AI systems. Australian startup Syenta has proposed an electrochemical packaging approach that could enable ultra-large package designs with fewer process steps while increasing communication bandwidth by as much as twenty times.

At the same time, global collaboration in advanced packaging research is accelerating. Japanese chemical materials manufacturer Resonac Holdings Corporation recently announced the formation of a packaging consortium involving twelve companies near Silicon Valley, complete with a pilot production line aimed at advancing next-generation semiconductor packaging technologies.

As AI computing requirements continue to expand, advanced packaging is increasingly viewed as a strategic technology on par with leading-edge semiconductor manufacturing, making it one of the most influential factors shaping the future competitiveness of the global semiconductor industry.