The European Union (EU) has been in pursuit of “Open Strategic Autonomy”, “derisking”, and “supply chain resilience” in strategic sectors like semiconductors. However, the majority of its attention and resources in the semiconductor sector have been allocated to encourage the design and fabrication of advanced nodes or increase the European share in global chip production. Occasionally, the EU shows interest in the ‘advanced packaging’ of semiconductors. The traditional and humble assembly, testing, and packaging (ATP) segment has not featured heavily in European policy pursuits, despite mainland China’s dominance of this segment of the semiconductor supply chain. Yet, the recent Nexperia case is particularly instructive, as evidenced by the Chinese government deciding to retaliate in response to the Dutch restrictions on Nexperia’s Chinese owner. By doing so, it was able to impose export controls on European-fabricated chips precisely because Nexperia’s testing and packaging capacity was in mainland China. The case provides an excellent example of European vulnerability in the semiconductor supply chain because of Chinese dominance in the traditional ATP segment.
The Nexperia Crisis and Europe’s Overlooked Vulnerability
Nexperia is a Dutch company that develops and manufactures legacy chips. It supplied around 40% of the European automotive industry’s needs, with major European companies like Volkswagen, Stellantis, and BMW relying on its chips. In 2017, its owner, NXP, decided to sell it to a Chinese state-owned investment company, JAC Capital, and a Chinese private equity firm, Wise Road Capital, to focus on advanced chips. Its new owners sold it to Jiaxing-headquartered Wingtech Technologies in 2019.
Originally, Wingtech’s acquisition of Nexperia attracted little concern, even from the US, which cleared the transaction under its investment screening mechanism. Between 2019 and 2025, though, US-China relations continued to worsen, resulting in an ever-expanding scope of retaliatory measures. In December 2024, Wingtech was put on the US Entity List, restricting its access to US technology, but not affecting its subsidiaries. Then, on 29 September 2025, the US decided to expand the scope of its Entity List to subsidiaries of listed entities.
A day later, the Dutch government restricted Wingtech’s operational control of Nexperia under the Cold War-era Availability of Goods Act, invoking it for the first time since its enactment. Soon after, at the request of individual board members of Nexperia Netherlands, a Dutch court suspended its Chinese CEO, appointed a non-executive director, and transferred almost all of Nexperia’s shares to a court-appointed administrator.
China retaliated swiftly, imposing export control measures on chips being packaged and tested by Nexperia China. This disrupted the production lines of downstream users of Nexperia chips. The Dutch government entered into discussions with the Chinese government. Separately, the US and China concluded a deal in November 2025, and China lifted the export controls, allowing Nexperia chip supplies to resume worldwide.
The important thing to note here is that Nexperia was not a producer of advanced, cutting-edge chips like its previous owner, NXP. Instead, it produced “basic”, “mature”, or “legacy” chips, which do not feature heavily in discussions of European supply chain resilience or in the US-China chip wars. Secondly, while the front-end production of Nexperia’s chips happened in Europe, mainly in Germany, 80% of Nexperia’s packaging and testing capacity was in China. While the packaging that happened in China was not technologically advanced, Nexperia’s supply-chain exposure to China at an “unsophisticated stage” of the supply chain was sufficient to create a chokepoint and provide a strategic advantage to the Chinese government.
China’s Dominance of Traditional Assembly, Testing, And Packaging
Nexperia’s supply chain set-up is not exceptional, though. Mainland China is a leading hub of ATP, or the ‘back-end’ process. ATP consists of the final steps in the semiconductor supply chain, such as cutting a finished wafer into separate chips, assembling them on a frame, wiring the assembled chips to connect them to external devices, and enclosing them in a protective case or package. In contrast to more capital-intensive semiconductor design and production, traditional ATP is a labour-intensive and less technically sophisticated process. This means that countries with lower wages have a competitive advantage, leading to ATP being offshored from Europe and the US to Asia for decades.
Unsurprisingly, 30% of ATP activity was concentrated in mainland China in 2022, compared to 3% in Europe. Moreover, just like some semiconductor companies specialise only in semiconductor design or manufacturing, some companies specialise in ATP and are called Outsourced Semiconductor Assembly and Test (OSAT) companies. Four out of ten of the largest OSAT companies were headquartered in mainland China. No significant OSAT company is European, and after decades of offshoring, Europe had only nine back-end factories on its soil in 2023.
Despite this clear dependence on mainland China, the EU has sidelined traditional ATP in its policy discourse. Even when ATP is mentioned, it is only in reference to either ‘advanced packaging’ or ‘packaging of advanced chips’. For example, the European Chips Act has the objective of building Europe’s capacity to innovate in ‘packaging of advanced chips’ and wants to enhance production capacities in ‘advanced packaging, test, and assembly’. Consequently, the only approved State aid decisions covering ATP were for two advanced packaging facilities in Italy and Germany. The proposal for ‘Chips Act 2.0’ is again focused on ‘advanced 3D packaging capabilities’, the capacity to ‘package, reuse and recycle advanced semiconductors’, ‘packaging and assembly automation’ and, for photonics, ‘advanced integration and packaging technologies’. Similarly, the EU-led Industrial Alliance for Processors and Semiconductor Technologies only has marginal references to ‘advanced packaging’.
While advanced packaging is expected to rise in importance and market share, traditional packaging accounted for 71% of total output in 2022, and even in 2028, it is expected to account for 63%. This means that for the next few years, traditional ATP will remain a vital segment of the semiconductor supply chain and of critical importance to downstream users such as the European automotive and defence industries. The EU can ill afford to ignore the humble traditional ATP.
Diversifying away from assembly, testing, and packaging in China
What choices does Europe then have? It can either ‘onshore’, i.e., encourage ATP facilities on EU soil, or ‘friendshore’, i.e., encourage a shift of ATP capacity to more reliable partner countries.
(a) Onshoring ATP capacity on European soil
While labour costs in Europe may not be as low as in China or Southeast Asia, Eastern European countries can be strong choices for setting up ATP facilities in Europe. The 2024 Back-End Semiconductor Manufacturing Attractiveness Index by Kearney recognised Poland and Hungary as good candidates for back-end manufacturing, placing them above Southeast Asian countries such as Thailand, Vietnam, Indonesia, and the Philippines. Poland, in particular, was chosen by Intel as the site for its USD 4.6 billion packaging plant, although the plan was put on hold due to changed Intel priorities. Kearney ranked Poland highly because of its strategic position near European semiconductor networks, for example those in Germany, while offering relatively low operational costs. Hungary was similarly picked because of a mix of government incentives, competitive operational costs, and the availability of infrastructure and talent.
To encourage more ATP facilities, and not just the advanced kind, on European soil, the EU first needs to acknowledge the importance of ATP in its policies, including in the proposed Chips Act 2.0. Secondly, it needs to allow State aid to be offered for traditional ATP facilities, rather than prioritising only advanced packaging. For critical downstream industries like automotive and defence, having some ATP capability close to home will promote economic and traditional security. It also needs to ensure that the existing ATP capability is not further eroded and receives the necessary institutional attention and support.
(b) Friendshoring ATP capacity to friendly and reliable partner countries
While some semiconductor companies may be incentivised to set up ATP capability in Eastern Europe, labour costs remain a critical component of traditional ATP. For companies intent on diversifying away from mainland China and Taiwan, Southeast Asia has emerged as a natural choice. Malaysia is the front-runner in Southeast Asia, as many European semiconductor companies, like Infineon, NXP, and STMicroelectronics, already have back-end facilities there. In fact, after Nexperia Netherlands split its operations from Nexperia China as part of its ongoing dispute with Wingtech, it decided to scale up investment in Malaysia to replace its lost packaging and testing capability in China. Six Malaysian OSAT companies are among the top 20 in the world. Vietnam has also emerged as a choice for back-end facilities for semiconductor companies like Amkor, Intel, and Hana Micron.
India is another emerging option. India and the EU have already mentioned ‘advanced semiconductor manufacturing and packaging’ as one of the areas for collaboration in 'Towards 2030: A Joint European Union-India Comprehensive Strategic Agenda'. However, here the EU can draw a lesson from the US. Under the US-India initiative on Critical and Emerging Technology (iCET), the Biden-era White House encouraged ‘the development of joint ventures and technology partnerships on mature technology nodes and packaging in India’. So, the focus was on something more pragmatic and mutually beneficial, rather than the fancier advanced packaging. Crucially, this initiative was not limited to mere discussions and press statements. iCET played a role in helping Micron set up a USD 825 million ATP plant in India in less than 18 months by ensuring close cooperation between national governments and coordination on federal incentives.
This is not the only US initiative the EU should take note of. The government set up a USD 500 million International Technology Security and Innovation (ITSI) Fund, with one of its stated objectives being to promote ‘the expansion of the international assembly, testing, and packaging capacity needed to diversify the global semiconductor supply chain’. It proposed to do so by engaging with “like-minded partners to identify key regulatory and policy levers to attract semiconductor supply chain investments, identify workforce and infrastructure development needs, and engage in targeted capacity-building”.ITSI partnerships were created with Vietnam, Indonesia, the Philippines, Panama and Costa Rica.
For the ‘friendshoring approach’, the EU needs to consider two things. It needs to undertake stronger bilateral actions to encourage the development of ATP capacity in reliable partner countries. Existing mechanisms, such as the EU-India Trade and Technology Council, the EU-Vietnam Global Gateway, or the Industrial Alliance for Processors and Semiconductor Technologies, can be utilised to encourage ATP diversification away from mainland China. Secondly, countries like the Philippines, Malaysia, Indonesia, Costa Rica, and India are offering financial incentives for the semiconductor industry, and ATP is a key area of their focus. The EU can encourage its semiconductor companies, particularly suppliers to its downstream industries, to take advantage of these financial incentives.
Conclusion
If European companies, along with other Western companies, decide to shift away from China in traditional ATP, this would present an excellent opportunity for many developing countries that have been pitching themselves as the “+1” option for those pursuing a “China+1” strategy.
Chinese OSAT companies can also take a leaf out of the book of other Chinese manufacturers that have been setting up factories in regions such as ASEAN to reach Western markets. It would be interesting to see how the Chinese government might react in such a case. The Chinese government is keen to move up the value chain in many areas, but is also unwilling to lose its strength in the lower-end segments of value chains. For India, courting Taiwanese OSAT companies like ASE or PTI may be a more practical alternative.
The EU could coordinate its actions with other advanced economies, such as the US, that want to reduce their dependence on China, as well as with developing countries keen to find a place in the semiconductor value chain. European, American and Japanese downstream users of chips packaged in China would also be key stakeholders.
Ultimately, the EU is not wrong to promote advanced packaging, but this should not mean leaving a point of dependence on mainland China in a strategic sector unaddressed. Simple measures, such as the inclusion of traditional ATP in its semiconductor policies and closer cooperation with partner countries, could go a long way towards reducing its dependence on China.
