Executive Summary

In the United States, both the semiconductor industry and the government are engaged in ambitious plans to expand domestic semiconductor manufacturing capacity. Previous CSET research has covered in detail these efforts to “re-shore” this manufacturing.¹ The research found that the Creating Helpful Incentives to Produce Semiconductors (CHIPS) for America Act incentives, if carefully targeted and augmented by adequate regulatory and workforce support, could reverse the observable decline in U.S. semiconductor manufacturing capacity since 1990. This paper expands on that work and argues that targeted investment incentives to increase U.S.-based advanced packaging capacity are also important. Historically, packaging was viewed as a labor-intensive and low value-added “back-end” activity (as opposed to high value-added “front-end” semiconductor fabrication). As a result, firms offshored these activities to overseas locations, primarily in Asia. Two macro trends are driving a change in how packaging is viewed:

• First, firms increasingly recognize how important packaging is to processing power, particularly as Moore’s Law slows. As a result, firms are investing large amounts of capital to develop equipment, materials, and systems that support the advanced packaging ecosystem.
• Second, innovation in advanced packaging will be a key determinant of the depth and breadth of innovation in other emerging technologies.

This paper’s key findings and recommendations include:

Leadership in advanced packaging is essential for future semiconductor industry competitiveness. As the limits of Moore’s Law are reached, advances in packaging are increasingly essential to maintain innovation roadmaps and improve system performance.

There is limited semiconductor packaging capacity in the United States, and the associated ecosystem is lacking. The global semiconductor industry has continued a multi-decade trend of locating most assembly, test, and packaging facilities in Asia. Likewise, the packaging ecosystem is concentrated in Asia. The result of these investments is a dearth of packaging capacity in the United States, and the trend extends to advanced packaging.

Re-shoring advanced packaging is essential to increase semiconductor supply chain security. Increasing U.S. semiconductor supply chain resilience is an economic and national security priority. The United States needs to increase domestic capacity in both semiconductor manufacturing and advanced packaging. Multiple provisions within the CHIPS Act authorize, but do not require, funds to be directed toward advanced packaging projects. Funds should be targeted to incentivize these steps and the resilience of the associated ecosystem (for example, substrates).

The current focus on increasing the capacity for advanced semiconductor fabrication should be paired with a concurrent emphasis on U.S.-based advanced packaging. The CHIPS Act rightly focuses on increasing domestic semiconductor fabrication. The United States should also use funds made available by this legislation to increase the advanced packaging that integrated device manufacturers (IDMs) and foundries provide. This can be accomplished by favoring fabrication project proposals that include co-located packaging facilities.The United States should create and implement programs to increase domestic advanced packaging innovation. Improvements in advanced packaging will partially dictate future semiconductor industry leadership. Innovations will occur in areas such as chiplets, wafer-level packaging, and packaging equipment automation. The United States can and should make investments and provide incentives to ensure continued semiconductor industry leadership in these areas.

1. See, for example: Will Hunt, “Reshoring Chipmaking Capacity Requires High-Skilled Foreign Talent” (Center for Security and Emerging Technology, February 2022), https://cset.georgetown.edu/publication/reshoring-chipmaking-capacity-requires-high-skilled-foreign-talent/; Will Hunt, “Sustaining U.S. Competitiveness in Semiconductor Manufacturing” (CSET, January 2022), https://cset.georgetown.edu/publication/sustaining-u-s-competitiveness-in-semiconductor-manufacturing/; John VerWey, “No Permits, No Fabs: The Importance of Regulatory Reform for Semiconductor Manufacturing” (CSET, October 2021), https://cset.georgetown.edu/publication/no-permits-no-fabs/.