Reshaping Semiconductor Supply Chains: ATP Expansion in the Americas Amid Geopolitical Uncertainty
As the U.S. pushes to reduce reliance on Asia for semiconductors, Mexico and other regional partners emerge as key players in assembly, testing, and packaging (ATP). But can these countries overcome workforce, infrastructure, and trade challenges to compete globally?
The COVID-19 pandemic exposed our supply chain vulnerabilities stemming from an over-reliance on a single region for semiconductor manufacturing. Currently, over 75%-80% of leading edge to mature node chips (5nm nodes or larger) are produced in Asia, with about 85-95% of all semiconductors used globally falling into this category. The CHIPS and Science Act, with particular aim at strengthening the U.S. semiconductor industry, has enjoyed strong bipartisan support. Analysts widely recognize the need to advance research and development (R&D) in artificial intelligence (AI) chips while also boosting U.S. production and capabilities of larger node semiconductors—including legacy chips critical to industries such as automotive, aerospace, and defense.
While the CHIPS Act seeks to expand domestic manufacturing capabilities across production nodes, 90% of semiconductor final assembly, testing, and packaging (ATP) for all semiconductor chips still occurs in Asia. ATP is often outsourced to OSATs (outsourced semiconductor assembly and test) firms, which operate on thin profit margins and rely on high labor availability, making it economically unfeasible for most U.S.-based facilities to compete in standard ATP production.
Regional Partnerships for Semiconductor Expansion
To address this challenge, the CHIPS Act established the International Technology Security and Innovation (ITSI) Fund to help select partner countries build regional ATP capabilities to the support U.S. semiconductor industry global competitiveness. These strategic partners include Mexico, Costa Rica, Panama, and the Dominican Republic in the Western Hemisphere, along with Indonesia, Kenya, the Philippines, Vietnam, and India.
Mexico, a leader in advanced manufacturing and electronic component assembly, has already begun attracting investment from major semiconductor firms such as Texas Instruments, Micron, and Wolfspeed for ATP operations in Mexico. Its geographical proximity to the U.S., experienced low cost labor force in advance manufacturing, and integrated supply chain make it a logical choice for semiconductor capacity building. However, significant challenges remain, including technical workforce development specific to ATP capabilities, infrastructure enhancements, and the scaling of high-volume ATP operations to compete with well-established Asian counterparts. For this reason, workforce training is a crucial pillar of the ITSI Fund from the CHIPS Act; and the prospect of potential funding has already spurred collaborative training programs in ATP skills between universities in the United States and universities and technical training programs in Mexico, Costa Rica, and Panama.
Economic and Infrastructure Challenges and the Role of Innovation
For Mexico and other partner nations, beyond workforce development, basic supporting infrastructure also remains a major challenge. In Mexico, energy reliability and water availability—both essential for semiconductor ATP facilities—are key concerns. Addressing these issues is a priority under President Claudia Sheinbaum’s national plan, including the expansion electricity generation and diversifying energy sources. Regulatory changes are also underway to support industrial energy needs and attract foreign investment.
Even with a quick turn-around in infrastructure build-out and workforce development, large scale ATP operations face stiff competition from existing OSAT firms in Asia, which already benefit from amortized investments in machinery and skilled labor. Additionally, semiconductor manufacturing operates on an economies-of-scale model, making it difficult for new entrants to navigate the industry's cyclical nature, characterized by periods of oversupply and low demand.
To compete with established semiconductor ecosystems, new ATP facilities must embrace process innovations and technological advancements. This includes optimizing materials usage, reducing energy and water consumption, and improving packaging techniques for less advanced nodes. Replicating existing models will not be enough; Mexico and its regional partners must pioneer more efficient, cost-effective, and sustainable ATP solutions to remain competitive.
A critical component of this strategy will involve international R&D collaboration. Higher Educational Institutions in Mexico and elsewhere will need to foster cross-border strategic R&D alliances and satellite centers with industries and universities such as Arizona State University (ASU), known for its leadership in ATP research. Such collaborations could drive next-generation packaging innovations and automation improvements for more common mature nodes, helping regional ATP facilities achieve global competitiveness.
Uncertain Future for ATP Development in Mexico
While regional semiconductor capacity-building efforts have progressed, uncertainty surrounding Trump’s trade policies and the potential elimination of ITSI Funds have made the future of ATP expansion in Mexico and elsewhere unpredictable.
Former President Donald Trump’s proposed policies could significantly impact regional semiconductor development and thwart plans to develop supply chains to be less reliant on Asia. His move to eliminate grant funding for foreign countries could impact ITSI Funds, limiting Mexico’s and other partner countries’ ability to integrate and add the added value of ATP into the U.S. semiconductor supply chain. Moreover, if we were to move forward with his proposed 25% tariffs on Mexican imports, he could disrupt the momentum Mexico has gained in attracting semiconductor ATP investment. Such measures could significantly delay or sideline North American ATP capacity building, thus prolonging Asia's dominance in ATP output.
For Mexico and its regional partners to thrive in the semiconductor industry, they must overcome workforce and infrastructure challenges while making substantial investments in technological innovation to become competitive. Strengthening talent development, expanding infrastructure, and fostering collaborative R&D—alongside securing a favorable trade environment, potentially through partnerships with key European and Asian stakeholders if U.S. support wavers—will be essential for building a resilient ATP industry in the Western Hemisphere. Without these elements aligning, ATP infrastructure growth and investment could stagnate, further entrenching Asia's dominance in this sector within semiconductor manufacturing.