A New Front Is Opening Up in the US-China Conflict Over Chips
(Bloomberg) -- President Joe Biden has adopted a two-pronged approach to constrain China’s high-tech progress, curbing Beijing’s access to leading-edge chips while bolstering semiconductor production in the US.
He’s about to ratchet up the pressure further, shifting focus to an emerging arena of the contest for technological supremacy: the process of packaging semiconductors that’s increasingly seen as a path to achieving higher performance.
Only the US isn’t alone is recognizing the potential of so-called advanced packaging: China, too, is capitalizing on an area that isn’t subject to sanctions, capturing global market share and achieving progress denied it in manufacturing high-end chips.
“Packaging is the new pillar of innovation in the semiconductor industry – it will change the industry drastically,” said Jim McGregor, founder of technology analysts Tirias Research. For China, which doesn’t yet have state-of-the-art capabilities, “it’s definitely easier for them to ramp up” here, since it isn’t restricted by the US government. “Packaging could help them bridge the gap,” he said.
Up until very recently, the business of packaging semiconductors – encasing chips in materials that both protect them and connect them to the electronic device they’re part of – was, at best, an afterthought for the industry. So it was outsourced, mainly to Asia, with China a prime beneficiary: today, the US accounts for just 3% of the world’s packaging capacity, according to Intel Corp.
Yet suddenly, advanced packaging is everywhere: Intel is banking on it as a core part of the US chip giant’s strategy to return to competitiveness; China sees it as a means of building out domestic semiconductor capacity; and now Washington is turning to it as part of its own plans for self-sufficiency.
More than a year after the CHIPS and Science Act came into being, the Biden administration has outlined plans for a $3 billion National Advanced Packaging Manufacturing Program, after recently tapping a director for the center. The goal is to create multiple high-volume packaging facilities by the end of the decade, said Under Secretary of Commerce Laurie Locascio — and reduce reliance on Asian supply lines that pose a security risk the US “just can’t accept.”
The president “has made it a priority to ensure America’s leadership in all elements of semiconductor manufacturing, of which advanced packaging is one of the most exciting and critical areas,” White House spokeswoman Robyn Patterson said.
Read more: US Launches $3 Billion Effort to Boost Advanced Chip Packaging
With advanced packaging rapidly becoming a new front in the global conflict over chips, some argue it’s long overdue.
The administration has until now focused on subsidies to bring back chipmaking to the US, but “we can’t ignore packaging because you can’t do one without the other,” said Representative Jay Obernolte, a California Republican who is one of two vice-chairs of the Congressional Artificial Intelligence Caucus. “It wouldn’t matter if we did 100% of our chip manufacturing onshore if the packaging is still offshore,” he added.
Assembly, testing and packaging – usually considered together as “back-end” manufacturing - was always the least glamorous end of the semiconductor industry, with less innovation and lower added value than the “front end” business of making chips with features measured in the billionths of a meter. Yet the level of sophistication is rising fast as new technologies enable chips to be combined, stacked and their performance enhanced in what industry executives are calling an inflection point.
Advanced packaging can’t help China compete with leading-edge semiconductor developments from the U.S., but it allows Beijing to build faster, cheaper systems for computing by stitching different chips closely together. In that case China could save its latest chip technology, which is expensive and likely available in limited volume, for the most important part of the chip and use older, cheaper technologies to make chips that carry out other functions like battery management and sensor controls, combining the whole in a powerful package.
It's a “pivotal solution,” said Bloomberg Intelligence technology analyst Charles Shum. “It doesn’t merely enhance chip-processing speed but crucially enables seamless integration of varied chip types.” As a result, he said, it’s “set to reshape the semiconductor-manufacturing landscape.”
Beijing has long made a strategic priority of semiconductor packaging technologies, including in President Xi Jinping’s Made in China program announced in 2015. China has 38% of the world’s assembly, testing and packaging market, the most of any nation, according to the US-based Semiconductor Industry Association. While it lags behind Taiwan and the US in advanced technology, analysts agree that unlike in wafer processing, it’s in a much better position to be able to catch up.
China already boasts the most back-end facilities by number, including the world’s third-largest assembly and testing company, JCET Group, which trails only Taiwan’s ASE Group and Amkor Technology of the US in revenue. What’s more, Chinese companies are building market share, including through JCET’s acquisition of an advanced facility in Singapore and construction of an advanced packaging plant in its hometown of Jiangyin.
“For China, one way around technology transfer restrictions is advanced packaging, because so far it’s a safe space that everyone invests in,” said Mathieu Duchatel of the Institut Montaigne think tank, a Taiwan-based China expert who studies the geopolitics of technology.
It’s a realization now touching Washington as it seeks to deny Beijing access to the kind of advanced computing technologies that could be put to military use – with questionable success.
When Huawei Technologies Inc. quietly released its Mate 60 Pro smartphone in September, China hawks in Washington raised questions as to why US export controls had failed to prevent a development supposedly beyond Beijing’s capabilities.
In testimony to the House Sept. 19, Commerce Secretary Gina Raimondo defended the Biden administration’s focus on denying China access to leading-edge chips and the equipment to make them. But she was primed on advanced packaging. The US needs to ramp up its own advanced packaging capacities, she said, since “chips can only get so small, which means all the special sauce is in the packaging.”
One reason for the sudden focus on that special sauce is its necessity to the kind of high-power semiconductors needed for artificial intelligence applications. Indeed, a shortage of a particular type of packaging known as Chip on Wafer on Substrate, or CoWoS, is a key bottleneck in the production of Nvidia Corp’s AI chips.
