By using the finite element method and large strain two-dimension plane strain model, the flaking damage of Cu-Fe-P lead frame sheet is investigated. The characterization of microstructure under surface flaking is the larger Fe particles embedded in the copper matrix. The numerical analysis reveals that at the interface of Cu and Fe there are greater strain mutation and intense stress concentration that is increased with particle diameter and the extent of deformation. This strain and stress concentration makes the interface initiate crack and develop crack easily. The micro-crack around the Fe particle is also attributed to surface flaking damage under the finish rolling deformation. The larger Fe particles should be avoided in the production of Cu-Fe-P alloy.