Europe and the future of Advanced Semiconductor Packaging

Europe faces geopolitical fragility when it comes to the semiconductor industry. Europe’s heavy reliance on Taiwan for front-end semiconductor manufacturing and wafer supply is a strategic vulnerability, one that pandemic-era disruptions made impossible to ignore. As a result, Europe’s semiconductor policy has been primarily focused on fabs by prioritising new investment and expanding domestic wafer supply. However, it still lacks the essential advanced packaging that binds chips together and that turns wafers into high-performance systems.

Why advanced packaging matters

As the semiconductor industry rapidly changes, advanced packaging technologies—such as 2.5D interposers, 3D stacking, fan-out packaging, and high-density system-in-package (SiP) integration, best exemplified by TSMC's CoWos—are becoming increasingly important to advanced semiconductors because they make chips work together more effectively. Packaging has become critical for AI chips, next-generation automobiles, and defence systems because it determines power efficiency, thermal performance and security by shaping how chips are combined and connected.

This has coincided the growth of AI data centres. Large clusters of specialised processors inside data centres are necessary for AI models, and these chips depend on sophisticated packaging to effectively connect processing and memory. Packaging therefore affects the speed of the chips, electricity usage and heat. Therefore, a shortage of advanced packaging could slow Europe’s capacity to build AI data-centres at scale.

Strategic bottleneck 

However advanced packaging capacity is scarce and concentrated. The most advanced packaging lines are dominated by a small number of countries such as Taiwan, South Korea, and the United States. This poses a strategic bottleneck for lack a similar scale. Taiwan is leading this shift because of its vast semiconductor supply chain, encompassing both wafer production and creative packaging. Companies such as TSMC are developing next-generation packaging solutions that enhance system performance and energy efficiency, while also bolstering Taiwan's strategic position in the semiconductor industry.

Significant delays brought on by this concentration could have detrimental effects on European industry. Long lead times can result from bottlenecks at the packaging stage even in cases when the supply of wafers is secure, especially when demand is drowned out by larger strategic purchasers.

Europe’s gaps in advanced packaging stems from structural weakness rather than a lack of ambition. Policy attention has been skewed towards visible front-end technology such as Fabs. Europe is strong in R&D, but is weak when it comes to scale, such as high-yield processes, expensive tooling, substrate supply, testing capability and a large workforce. That is what it would require to run packaging lines at volume. Moreover, packaging facilities require high capital investment and investors want predictable demand over a long period.

The geopolitics of advanced packaging 

Europe’s exposure, however, is not only industrial, but also political in a world of technological and economic rivalry. Concentration in Taiwan means the EU is vulnerable to cross-strait instability and and great-power competition. The wider US-China tech competition is fragmenting supply chains through export controls and subsidies. Moreover, the earthquake in Taiwan on April 3, 2024, served as a reminder of how concentrated supply chains can be impacted by significant geographical events leading to significant disruptions . To improve domestic "end-to-end" capacity instead of exporting wafers overseas for packaging, the United States invested in an advanced packaging and testing facility by Amkor in Arizona.

Nvidia’s CEO stated that advanced packaging capacity has expanded rapidly but remains a bottleneck, even as Nvidia transitions to newer CoWoS variants. The implications for Europe are that packaging constraints are bound up with politics: in periods of scarcity, access is shaped not just by market price, but by strategic priorities, alliance politics, and where “trusted” capacity is located.

EU response

However, Europe is starting to respond, there are pilot lines and EU programmes that target heterogenous integration and packaging-related capabilities. The EU-funded APECS-PL project, part of the EU Chips Act, pioneers advanced packaging and heterogeneous integration for electronic components and systems. Additionally, as part of the Chips Act, the European Commission approved a €1.3 billion Italian state aid fund to support Silicon Box in the construction of an advanced packaging and testing facility in Novara.

Advanced packaging capacity located in Europe would not only reduce geopolitical exposure; it could also support European competitiveness by enabling shorter iteration cycles between design, qualification and production. This could help Europe move from being primarily a downstream user of advanced packaging services to becoming a credible producer of trusted high-value integrated systems.

Conclusion

Europe should be realistic in its goals. If the objective is competitiveness, Europe needs a policy approach that treats advanced packaging as strategic infrastructure, something that must exist at scale, not only in demonstration form. Europe should therefore expand Chips Act–style incentives so they explicitly support high-volume advanced packaging and testing (2.5D/3D integration, fan-out, SiP, and advanced test), instead of focusing predominantly on front-end fabs.

Furthermore, Europe should leverage defence, space, and critical infrastructure procurement to create demand and long-term availability, because utilisation risk is a significant obstacle. To reduce the cost of capital this can be combined with blended finance and loan guarantees.

Ultimately, semiconductor autonomy is no longer synonymous with owning every wafer step. The capacity to connect chiplets, memory stacks and accelerators into high-performance systems, often utilising packaging technologies that are scarcer than wafers is become increasingly important for competitiveness in AI, autonomous systems and secure edge computing. If Europe wants genuine resilience, advanced packaging must be treated as strategic infrastructure. That means building OSAT-scale capacity and anchoring it with demand and finance tools that de-risk investment. Otherwise, Europe risks solving one dependency in front-end manufacturing and ignoring packaging.