TSMC's Advanced Packaging Expansion in Chiayi: Alleviating AI Chip Bottleneck and Restructuring the Industrial Chain

Event Overview

On July 13, 2026, Taiwan's Minister of Science and Technology Wu Tsung-tsong announced at the groundbreaking ceremony of the Chiayi Science Park that TSMC will add two new advanced packaging factories (third and fourth plants), making the park a key hub for TSMC's advanced packaging. Previously, the first plant has entered mass production, and the second plant is about to commence production. Once all four plants are completed, the annual output value is expected to exceed NT$300 billion (approximately US$9.35 billion), creating over 9,000 jobs.

The core driving force behind this expansion comes from the strong demand for CoWoS (Chip-on-Wafer-on-Substrate) packaging technology from AI chip designers—especially NVIDIA. TSMC is rapidly expanding its advanced packaging capacity in an attempt to bridge the gap between supply and demand for AI chips.

Technology Roadmap: CoWoS Becomes a Key Bottleneck for AI Chips

Advanced packaging technology, particularly TSMC's CoWoS, has become the lifeline of high-performance computing and AI chips. CoWoS integrates multiple logic chips (e.g., GPUs, CPUs) with high-bandwidth memory (HBM) on a silicon interposer, enabling high-bandwidth, low-latency data communication.

• Technical Barriers: The manufacturing difficulty of CoWoS is extremely high, involving processes such as through-silicon vias (TSV), micro bumps, and precise alignment, with complex yield control. TSMC has accumulated over a decade of experience in this field, forming deep patent barriers.
• Technology Roadmap Evolution: TSMC is evolving from CoWoS-S (silicon interposer) to CoWoS-L (local silicon interconnect) and CoWoS-R (RDL interposer) to meet the bandwidth and cost requirements of different AI chips. In addition, system-in-package (SiP) and 3D IC (such as SoIC) are also developing in parallel.
• Capacity Bottleneck: Although TSMC's CoWoS capacity in 2025 has doubled compared to the previous year, AI chip orders in 2026 still far exceed capacity. The new Chiayi plants will primarily handle the mass production of CoWoS and subsequent advanced packaging technologies, with capacity expected to increase by over 50% by 2027.

Industry Chain Impact: Comprehensive Pull from Equipment, Materials to Packaging and Testing

The expansion of advanced packaging capacity has a profound impact on every node of the semiconductor industry chain:

Upstream: Equipment and Material Suppliers Benefit - Equipment: Orders for advanced packaging equipment from companies such as ASML (lithography), Applied Materials (deposition/etching), Lam Research (etching), and KLA (inspection) will see significant growth.### Upstream: Equipment and material suppliers benefit - Equipment: Orders for advanced packaging equipment from companies such as ASML (lithography), Applied Materials (deposition/etching), Lam Research (etching), and KLA (inspection) will see significant growth. In particular, deep ultraviolet lithography (DUV) and plasma etching equipment used for silicon interposer manufacturing. - Materials: Demand is rising for silicon interposer materials (high-purity silicon wafers), photoresists (e.g., JSR, Shin-Etsu Chemical), chemicals (e.g., BASF), and underfill materials (e.g., Henkel). Substrate manufacturers such as IBIDEN and Unimicron will also benefit from the FC-BGA substrates required for CoWoS.TSMC's expansion in Chiayi has further widened the gap with competitors. Notably, TSMC does not serve only its own process technologies; it opens its packaging capacity to all customers (fabless model), making it a "neutral" packaging platform in the AI chip ecosystem and reducing customers' reliance on a single foundry.

Regional Impact: Taiwan Strengthens Its Position as an Advanced Packaging Manufacturing Hub

The Chiayi Science Park, located in south-central Taiwan, is TSMC's new base after the Hsinchu, Central Taiwan, and Southern Taiwan science parks. This move holds significant implications for Taiwan's semiconductor industry:

• Supply Chain Security: Concentrating advanced packaging in Taiwan increases geopolitical risks. However, TSMC is also building fabs in Japan, the US, Germany, etc., while prioritizing packaging capacity at home to maintain technology confidentiality and supply chain control.
• Employment and Investment: The new Chiayi fab will create over 9,000 high-tech jobs and drive the clustering of related industries such as equipment, materials, and logistics. It is expected to contribute an annual output equivalent to 0.15% of Taiwan's GDP.
• Regional Balance: The semiconductor industry layout between northern and southern Taiwan becomes more balanced, alleviating the environmental burden on the Hsinchu Science Park in the north.

Other countries are also striving to attract packaging capacity: the US encourages ASE and Amkor to build fabs through the CHIPS Act; Japan supports Rapidus and local OSAT companies; China invests heavily in advanced packaging (e.g., JCET, TongFu Microelectronics), but still lags in capacity and yield. In the short term, Taiwan's leading position in high-end packaging is difficult to shake.

Investment Perspective: Advanced Packaging Becomes a Capital Focus

• Long-Term Value: With the surge in AI training and inference demand, the advanced packaging market is expected to grow at a 25% CAGR, reaching over $50 billion by 2030. TSMC's packaging business gross margin is around 40%, lower than its advanced process (53%+), but scale effects and yield improvements are expected to enhance profitability.
• Key Companies:
• - TSMC: Top pick; packaging capacity expansion will boost revenue growth and increase customer stickiness.
• - Equipment suppliers (ASML, AMAT, LRCX, KLA): Benefit from upgraded packaging equipment demand.
• - Materials suppliers (Shin-Etsu Chemical, JSR, TOK): High-end packaging materials command higher margins.
• - OSATs (ASE, Amkor): Though squeezed by TSMC, the overall market expansion can still bring incremental orders.
• Risk Factors: Geopolitical risks (Taiwan conflict), technology roadmap changes (e.g., 3D direct bonding replacing CoWoS), and customers building in-house packaging capabilities (Intel, Samsung) could alter the competitive landscape.

Long-Term Outlook (3–10 years)- Within 3 years: AI chip packaging capacity will remain tight, with CoWoS maintaining its dominant position; after the Jia factory reaches full production, TSMC is expected to increase CoWoS monthly capacity to over 80,000 wafers (currently about 40,000). - 5 years: Hybrid Bonding and 3D SoIC will gradually mature, initially used for specific high-performance applications (such as HPC and data centers). TSMC may move 3D packaging into Jia or subsequent expansion sites. - 10 years: Advanced packaging and advanced process technology will deeply integrate, potentially giving rise to new paradigms such as "System-on-Wafer." Taiwan's position as a packaging hub will face challenges from the United States, Japan, and China, but TSMC's technological accumulation will keep it leading in the high-end segment.