Semiconductor Device and Method of Forming Partially-Etched Conductive Layer Recessed Within Substrate for Bonding to Semiconductor Die

A semiconductor device has a substrate with a die attach area. A conductive layer is formed over a surface of the substrate and extending below the surface. An insulating layer is formed over the surface of the substrate outside the die attach area. A portion of the conductive layer is removed within the die attach area to expose sidewalls of the substrate. The remaining portion of the conductive layer is recessed below the surface of the substrate within the die attach area. A semiconductor die has bumps formed over its active surface. The semiconductor die is mounted to the substrate by bonding the bumps to the remaining portion of the first conductive layer recessed below the first surface of the substrate. The sidewalls of the substrate retain the bumps during bonding to the remaining portion of the conductive layer. An encapsulant is deposited between the semiconductor die and substrate.