Packaging still routes through Taiwan

A chip can be etched in Arizona and still be unusable until it flies 7,000 miles to Taiwan, because the wafer-making step and the package-building step are now two different choke points in the same supply chain. CNBC reported on April 8 that even leading chips made in the United States are still being sent to Taiwan for advanced packaging before they can be delivered to customers. (cnbc.com) Packaging is the step that turns a thin slice of silicon into something a server can actually plug in and use. For artificial intelligence chips, that package often has to connect the main processor to stacks of high-bandwidth memory using extremely short, dense wiring that ordinary packaging cannot handle. (tsmc.com) Taiwan Semiconductor Manufacturing Company’s best-known version of that is called Chip on Wafer on Substrate, and it is built for artificial intelligence and supercomputing parts. TSMC says this method places logic chiplets and high-bandwidth memory together on a large interposer so the parts can talk at very high speed inside one package. (tsmc.com) That is why a factory in Arizona does not automatically mean a full supply chain in Arizona. If the wafer is made in Phoenix but the package is assembled in Taiwan, the most delicate part of the journey still runs through the island that already sits at the center of advanced semiconductor manufacturing. (cnbc.com) The bottleneck got worse when artificial intelligence demand exploded in 2023 and 2024. Nvidia’s graphics processing units and other accelerators need huge amounts of advanced packaging capacity, and CNBC reported that Nvidia has reserved most of TSMC’s most advanced packaging output. (cnbc.com) The United States saw this gap coming, which is why TSMC and Amkor announced on October 4, 2024 that they would bring advanced packaging and testing to Peoria, Arizona. Their agreement specifically named Integrated Fan-Out and Chip on Wafer on Substrate as the packaging technologies they planned to support for customers using TSMC’s Phoenix fabs. (tsmc.com) But that Arizona packaging buildout is still a plan, not the system doing the bulk of the work today. TSMC said in March 2025 that its broader United States expansion would include its first U.S. advanced packaging investments, which is another way of saying the center of gravity for that capability has remained elsewhere up to now. (tsmc.com) Elsewhere mostly means Taiwan, where TSMC has spent years building the factories, suppliers, engineers, and process know-how needed for these packages. In its 2024 annual report, TSMC said it held 34% of the broader “Foundry 2.0” market that includes logic manufacturing, packaging, testing, mask making, and related output. (tsmc.com) So the surprise is not that the United States can make advanced chips now. The surprise is that the chip’s passport still is not enough, because the final step that makes the silicon useful is often the step Taiwan still does best and at scale. (cnbc.com)