Various package structures and methods of forming package structures are described. According an embodiment, a structure includes a first package and a package component attached to the first package by external connectors. The first package comprises a device attached to a first pad and a second pad. The device is a surface mount device (SMD), an integrated passive device (IPD), or a combination thereof. The device is attached to the first pad and the second pad through a dielectric layer. A spacer material is disposed laterally between the first pad and the second pad and is disposed between the device and the dielectric layer. An encapsulant surrounds the device and the spacer material.