Nvidia announced last fall that the first wafers for its Blackwell chips, which are designed for artificial intelligence workloads, had been manufactured at TSMC’s new fab in Arizona. This was a milestone for U.S. efforts to replicate Taiwan’s chip manufacturing ecosystem, but only a partial one. The chips still needed to be transported back to Taiwan for packaging before they could be completed.
Packaging is the last stage in the chip manufacturing process, when chips are assembled and sealed so that they can be used in devices. For the U.S., onshoring advanced packaging capabilities for leading-edge chips is a geopolitical imperative, but technical complexity and cultural differences have made it difficult to replicate Taiwan’s tightly integrated packaging ecosystem abroad.
At Touch Taiwan, an electronics expo that took place in Taipei this month, semiconductor equipment suppliers told Domino Theory that packaging is becoming more difficult as chips become more advanced. AI chip packages are larger, integrating multiple processing chips and high-bandwidth memory into a single computing system. They also require more redistribution layers, or tiny wiring structures that help route electrical signals within the package and between the chip and external components.
As chip packaging becomes more complex, fewer companies can do it, creating a bottleneck centered in Taiwan. In addition to being the world’s largest manufacturer of chips, TSMC also accounts for about 90% of advanced packaging for AI chips, said Tommy Tsai (蔡秉和), director of the president’s office at C Sun, an advanced packaging equipment supplier in Taiwan. TSMC developed CoWoS, or the technology for integrating multiple chips into one package, and has been offering the technology commercially since the early 2010s. Demand for CoWoS was relatively modest until ChatGPT came out at the end of 2022, at which point the demand for AI chips from companies like Nvidia, the world’s leading chip designer, skyrocketed. Nvidia has secured roughly 60% of TSMC’s advanced packaging capacity, straining access for companies like Google, AMD and Microsoft that also design AI chips. “Everyone is looking for AI chips,” said Tsai.
Last year in March, TSMC pledged an additional $100 billion to build out its semiconductor ecosystem in the U.S., bringing the total amount of pledged investment into its Arizona facilities to $165 billion. This investment includes multiple chip fabrication plants, a research and development center, as well as two advanced packaging facilities. So far, only one fab has entered volume production, with the second fab not slated to begin volume production for at least another year. TSMC has not announced when it will begin construction on the advanced packaging facilities.
At a tabletop exercise organized by National Chengchi University’s Institute of International Relations and Chinese Nationalist Party (KMT) officials in Taipei last week, experts explained the difficulty of replicating Taiwan’s advanced packaging ecosystem in the U.S. While TSMC’s expansion into Japan and Germany was “more market driven,” TSMC was “mainly forced to go [to the U.S.] … to make America great again,” said Konrad Kwangleei Young (楊光磊), a former TSMC executive and the CEO of the Industry-Academia Innovation College.
Young noted a “heaven and hell” difference between operating in the U.S. and in Taiwan. The most important operational challenge for TSMC in Arizona is the talent shortage, which is exacerbated by cultural differences. American engineers don’t have the same “serventiship” mentality that Taiwanese do, making them less suited to the foundry model, which requires the obedient execution of instructions. Americans are always asking “why,” Young said during his presentation, drawing a few chuckles from the audience.
While it is challenging for TSMC to adapt to the U.S., Taiwan’s advanced packaging suppliers face a more acute version of the same problems, said Young. For one, advanced packaging capabilities remain less developed in the U.S. than Taiwan, which means the supplier ecosystem isn’t yet built out. Moreover, Taiwan’s advanced packaging suppliers tend to be smaller companies that are deeply embedded with TSMC and Taiwan’s dense chip supply chain. “They are used to the Taiwanese environment, so they will have a harder time,” Young said.
Until advanced packaging capacity is built out in the U.S., whether by TSMC or someone else, the Arizona fabs will continue to send their nearly finished chips back to Taiwan.
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