Advanced chip packaging for AI is increasing US reliance on Taiwan

In short: As AI chip demand grows, the US is leaning more on Taiwan because a critical step called advanced chip packaging is mostly done there.

What's going on

Advanced chip packaging is the stage where several tiny chips are put together into one powerful unit, and sometimes stacked like a layer cake (this is what “3D” packaging means). Another common method, called “2.5D,” places chips side by side on a special base so they can talk to each other faster. This matters for AI because modern AI chips need to move huge amounts of data between the main chip and memory.

A key point in recent analysis is that packaging is now a bottleneck. In other words, even if a chip is manufactured on advanced equipment, it cannot reach top performance until it goes through this packaging step. For many AI chips, including the types used in data centers, the most in-demand packaging is heavily tied to TSMC in Taiwan.

This raises US dependence on Taiwan in a concrete way. Some chips that are made in the United States are still shipped to Taiwan for packaging, and then shipped back to US customers. So domestic manufacturing does not automatically mean the finished AI chip supply chain stays in the US.

What to watch

The US CHIPS and Science Act is pushing more chip production and packaging to be built in the US, and TSMC has discussed US packaging plans. But experts and officials cited in reporting say Taiwan’s lead in skills, equipment, and capacity will be hard to replace quickly. In the next few years, the biggest question is how fast new packaging sites outside Taiwan can ramp up, and whether they can reduce delays and risk if Taiwan’s supply is disrupted.

Source: NYTimes