Advanced Packaging and the Future of Moore’s Law

Fundamental to all digital technologies, semiconductor chips are a major focal point in twenty-first-century geoeconomic competition. Nations see it as an imperative to invest heavily in semiconductor innovation to produce more powerful and cost-effective chips as a means to advance their growth, competitiveness, and national security. 

In this regard, advanced packaging has emerged as a significant pathway for producing more powerful chips. Given the importance of semiconductors to national and economic security, it is critical to appreciate the scope for innovation in advanced packaging and its implications for the global semiconductor industry. This need is recognized in the CHIPS and Science Act, which authorizes at least $2.5 billion in FY 2022 alone for a newly established National Advanced Packaging Manufacturing program.

Q1: What is advanced packaging?

A1: There are three main steps in the semiconductor manufacturing process—design, fabrication, and “post-fab,” which consists of assembly, test, and packaging (ATP). While assembly, test, and packaging are distinct steps in the semiconductor manufacturing process, they are often performed by the same company at the same facility and are therefore grouped together.

Packaging is the process of encasing fabricated chips in various materials such as metal, glass, or plastic to protect them against corrosion and enable them to connect to external devices. Packaging is essential to semiconductor manufacturing—without effective packaging, semiconductors would not function.

Advanced packaging is a subset of traditional packaging. It is not one specific packaging technique, but rather an assortment of approaches for packaging chips that boost computational capabilities while lowering power consumption and cost. For example, fan-out wafer-level packaging and three-dimensional packaging are distinct packaging methods that are both considered advanced packaging techniques.

Q2: Why is advanced packaging important?

A2: In 1965, Gordon Moore, the late cofounder of Intel, projected that the density of transistors in chips would double every two years, thereby increasing computing power, efficiency, and the complexity of functions chips can perform. This projection is widely known as Moore’s Law and guided the industry’s development for half a century.

However, as transistor size has decreased to miniscule proportions—Intel recently prototyped a chip with a 1.8-nanometer process node—industry recognizes that keeping pace with Moore’s Law through a sole focus on shrinking transistor size is unsustainable. The costs of maintaining this rate of progress are astronomical—each doubling of transistor density requires a parallel doubling in capital investment. Further, the laws of physics raise questions about the practical limitations of transistor size.

Moreover, while transistor density in semiconductors increased exponentially, this did not necessarily lead to a proportionate increase in actual processing power. The density of wires on semiconductor packages that connect semiconductors to each other and other external devices increased at a much slower rate, creating “communication bottlenecks.” A great advantage of advanced packaging is that it can increase the density of interconnects, thereby increasing signal speed and overall processing power.

So, after more than 50 years of Moore’s Law, and as decreasing transistor size becomes more technically and financially challenging, semiconductor firms are turning to advanced packaging as a means of increasing processing power. Historically, packaging was seen solely as a component necessary to house and connect semiconductors. Today, advanced packaging is viewed as an opportunity to advance the leading edge of semiconductor technology, prompting firms to invest heavily in advanced packaging research and capital.

Q3: What is the current landscape of the advanced packaging industry?

A3: Within the scale of the overall semiconductor industry—the global semiconductor market was valued at $440 billion in 2020—semiconductor packaging is big business. In 2020, the packaging market’s value stood at $67.7 billion, and by 2026, experts project it will reach $92.1 billion.

As a testament to the growing importance of advanced packaging, its market value is surging as well. In 2020, advanced packaging accounted for 45 percent ($30.4 billion) of the total share of packaging market, which will increase to 50 percent ($45.9 billion) by 2026, according to estimates. Advanced packaging offers higher profit margins than traditional packaging as well, prompting companies to focus more on developing advanced packaging capacity. The share of wafers using advanced packaging is expected to increase from 28 percent in 2020 to 35 percent in 2026.

Packaging has traditionally been a low value add and labor-intensive step in the semiconductor manufacturing process. Several top firms in advanced packaging are headquartered in the United States, such as Amkor, but nearly all their advanced packaging capacity is located in Asia to capture the advantages of lower labor costs and proximity to electronics assembly plants, the ultimate destination of most chips.­ Approximately 81 percent of the global ATP capacity is now located in a variety of Asian countries, according to Boston Consulting Group and the U.S. Semiconductor Industry Association (SIA). Asia’s dominance of ATP overall extends to advanced packaging as well, along with advanced packaging equipment development and advanced packaging component production.

Q4: How strong is China’s advanced packaging industry?

A4: China maintains a vibrant semiconductor packaging industry, which will facilitate the development of a strong advanced packaging industry. The U.S. SIA estimates that 22 percent of all ATP facilities in the world are located in China. Measured by installed capacity, those ATP facilities boast 38 percent of the worldwide ATP market, the most of any nation. China’s strength in packaging is at least partially due to large U.S. semiconductor companies choosing to locate their ATP facilities in China. For example, U.S.-headquartered semiconductor producers such as Onsemi, Qorvo, and Micron all operate high-volume ATP facilities in China.

China recognizes the importance of advanced packaging and is investing in the development of a robust advanced packaging industry. In the wake of U.S. sanctions designed to hamper the growth of Chinese semiconductor industry, China is reportedly preparing an $143 billion package to boost semiconductor production and innovation, including advanced packaging.

China’s endeavor to promote advanced packaging is supported by major Chinese semiconductor companies. Huawei, a Chinese technology national champion, is partnering with local firms and is reportedly recruiting packaging experts from foreign firms to accelerate its advanced packaging capabilities. SMIC, a partially state-owned enterprise and the largest semiconductor manufacturer in China, is urging other Chinese companies to embrace advanced packaging to increase semiconductor processing power. These companies see investment in advanced packaging capabilities as a means to increase semiconductor power despite both U.S. sanctions and the slowing of Moore’s Law.

Q5: How can the United States promote advanced packaging capacity and innovation?

A5: At present, there is limited semiconductor packaging capacity in the United States, including advanced packaging. The United States’ share of global packaging capacity stands at 3 percent. Other than Intel, no semiconductor firms operate large-scale advanced packaging facilities in the United States.

While the low margins of traditional packaging coupled with high labor and construction costs in the United States limited domestic investment in traditional packaging, the high-tech, high-value advantages of advanced packaging present a compelling opportunity for the United States to boost its domestic packaging capacity. Advanced packaging offers higher profit margins, thereby making large-scale advanced packaging economically viable in the United States. Further, increased automation in advanced packaging reduces the labor component, making it less dependent on low cost labor and more attractive for investment in the United States.

The 2022 CHIPS and Science Act is an important first step to boost domestic advanced packaging capacity and innovation. The act mandates the National Institute of Standards and Technology (NIST) to create a new National Advanced Packaging Manufacturing Program, which will facilitate collaboration between industry and academia for research and innovation in high-performance, space-saving, and multi-functional packaging. It may also provide financial resources to support the construction of advanced packaging facilities.

Increasing domestic advanced packaging capabilities, however, will require long-term commitment and investment. As noted by NIST in a 2022 report, to boost advanced packaging capacity, public-private partnerships must be maintained and deepened, a skilled workforce must be developed, and intellectual property protections must be clearly defined. The challenges from the delays inherent in the U.S. permitting process must also be addressed. Above all, the United States should recognize that advanced packaging is critical to the future of the semiconductor industry and the allocation of resources from the CHIPS Act should reflect this reality and the opportunity it offers.

Sujai Shivakumar is director and senior fellow of the Renewing American Innovation Project at the Center for Strategic and International Studies (CSIS) in Washington, D.C. Christopher Borges is a program manager and associate fellow with the CSIS Geoeconomics Center.

Sujai Shivakumar
Director and Senior Fellow, Renewing American Innovation Project
Chris Borges
Program Manager and Associate Fellow, Geoeconomics Center