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Preventing silicon chips from negative, even disastrous thermal hazards has become increasingly challenging these days; considering thermal effects early in the design cycle is thus required. To achieve this, an accurate yet fast temperature model together with an early-stage, thermally optimized, design flow are needed. In this paper, we present an improved block-based compact thermal model (HotSpot 4.0) that automatically achieves good accuracy even under extreme conditions. The model has been extensively validated with detailed finite-element thermal simulation tools. We also show that properly modeling package components and applying the right boundary conditions are crucial to making full-chip thermal models like HotSpot accurately resemble what happens in the real world. Ignoring or over-simplifying package components can lead to inaccurate temperature estimations and potential thermal hazards that are costly to fix in later designs stages. Such a full-chip and package thermal model can then be incorporated into a thermally optimized design flow where it acts as an efficient communication medium among computer architects, circuit designers and package designers in early microprocessor design stages, to achieve early and accurate design decisions and also faster design convergence. For example, the temperature-leakage interaction can be readily analyzed within such a design flow to predict potential thermal hazards such as thermal runaway.