Annotations (26)
“In the first four or five weeks after I retook the CEO job, I probably spent almost half of the time on how to resolve the problem with NVIDIA. I worked out a number using all the intelligence I could get. About a month after I retook the CEO job, I sent an email to Jensen: I'm coming to Silicon Valley next week. I will be at your home at six o'clock. Let's have just salad and pizza. He sent back: when do we discuss business then? I said, 6:30 we'll start having pizza and salad.”— Morris Chang
Strategy & Decision Making · Leadership & Management · Business & Entrepreneurship
DUR_ENDURING
Pizza dinner then $100M take-it-or-leave-it offer
“We considered Qualcomm to be a prime candidate to be our customer. We really wanted Qualcomm because we knew they were a technology house. All the way up to the latter part of the 90s, we wanted Qualcomm to be a customer. Their operations VP was always pretty polite but gave us very little business. I knew his main foundry was IBM. Sometime in the later 90s, suddenly he started to tell me that he would use us now. Our business with Qualcomm rapidly increased.”— Morris Chang
Strategy & Decision Making · Business & Entrepreneurship · Technology & Engineering
DUR_ENDURING
Refusing partnership preserves technology independence
“After the 40-nanometer node, the next node was 28 nanometers. My peak job at TI was head of worldwide semiconductors. At that time our R&D budget was 4.8% of revenue. I thought it was not enough. I wanted to raise it to 5.5% but my request was denied every time. Coming back to TSMC, I wanted to set a percentage of revenue number so we don't have to argue every year. We were running 6% or 7% already, negotiated every year.”— Morris Chang
Strategy & Decision Making · Leadership & Management · Creativity & Innovation
DUR_ENDURING
Fixed 8% R&D budget removes annual negotiation
“The previous CEO had laid off 600 or 700 people based on bad performance reviews. We never did that. The worst we would do was put them on probation for six months. We almost never really fired people. I had told managers in 2008 during the financial crisis that anyone without much experience would have a knee-jerk reaction to lay off people.”— Morris Chang
Leadership & Management · Economics & Markets · Operations & Execution
DUR_ENDURING
Cost calculus proves layoffs often net negative
“As I settled the R&D budget at 8% of revenue, the R&D people began to have big ideas. They began to tell me our 28 is going to be the sweet spot, like a tennis racket. I decided I would believe him. He now had the resources to push it. I quoted Shakespeare: 'There is a tide in the affairs of men which, taken at the flood, leads on to fortune.' I decided this 28-nanometer was going to be our tide. However, setting the R&D at 8% did not invite any opposition from the board.”— Morris Chang
Strategy & Decision Making · Leadership & Management · Economics & Markets
DUR_ENDURING
Shakespeare quote justifies 3x CapEx increase
“IBM came to see me in 2008 and asked TSMC to co-develop the next generation of technology, 130-nanometer. I anticipated that, so it was no problem at all for us to refuse. Even if I didn't anticipate that, we would never have accepted that kind of co-develop. IBM still considered themselves to be the senior partner in any partnership they established. The company that co-developed something with them was sending its engineers to IBM.”— Morris Chang
Strategy & Decision Making · Business & Entrepreneurship · Technology & Engineering
DUR_ENDURING
Senior partner trap destroys independence
“The trade-off of accepting the 20-node technology was that we delayed our 16 node development. Samsung came up with 16 because they had lost the 20 business, so they went ahead of us in the 16-nanometer department. I got a real shock when I heard that Apple had placed their first orders of 16 with Samsung. We invested so much. We were counting on at least 80% to 90% of the equipment being converted to 16. If Apple went to Samsung for the 16, where did that leave us?”— Morris Chang
Strategy & Decision Making · Business & Entrepreneurship · Psychology & Behavior
DUR_ENDURING
Technology detour creates temporary competitive gap
“Another guy came to General Instrument and said he had already started a company called Atmel, and they did not have any fabs. This guy wanted General Instrument to make the wafers for them. Back then General Instrument had empty fabs. I told the semiconductor manager, go ahead and work with him. Atmel wanted the fab to be run his way. The General Instrument semiconductor manager wanted to run the fab his way. General Instrument owned the fab anyway.”— Morris Chang
Operations & Execution · Strategy & Decision Making · Business & Entrepreneurship
DUR_ENDURING
Foundry paradox: one process, many customers
“Sitting in Hsinchu, being in the foundry business, I actually see a lot of things before they actually happen. When Qualcomm's operations VP started to tell me that he would use us now, I immediately knew that IBM Semiconductor was in trouble because they were losing Qualcomm. The next step IBM took was not a surprise to me. As a foundry, I can see some things like this IBM thing coming.”— Morris Chang
Strategy & Decision Making · Business & Entrepreneurship
DUR_ENDURING
Foundry sees industry shifts before others
“Our connection with Goldman Sachs came in. I planted a lot of seeds when I ran TSMC. I knew that one day we will probably need top-level investment bank advice. So we established a good relationship with Goldman Sachs very early in our existence. I was a board director of Goldman Sachs. We did the ADR with Goldman Sachs. Now we need funds. This Apple thing came after we had already decided to increase capital spending. We decided not to cut dividend, not to sell new stock.”— Morris Chang
Strategy & Decision Making · Economics & Markets · Business & Entrepreneurship
DUR_ENDURING
Early relationship pays off decades later
“My relationship with Jensen started with a letter that he sent to me, I think it was 1997. The letter said that NVIDIA was a small company with promising chips looking for a foundry. They had approached TSMC's San Jose office but got no answer. I was going to the US the next week anyway, so the letter raised my curiosity and also irritated me because I had always told our salespeople that we should never be negligent in talking to future customers, even if the customer seems to be a very small o...”— Morris Chang
Leadership & Management · Business & Entrepreneurship · Operations & Execution
DUR_ENDURING
Founder personally responds to small customer inquiry
“I decided to give the CEO job to a potential successor while I would still retain the chairmanship. The problem you mentioned happened during the period when someone else was the CEO. The CEO insisted that TSMC was not at fault based on our quality manager's arguments, and had not offered NVIDIA anything. The problem continued. Even though I was not the CEO, I was getting really impatient. Then other problems popped up. I decided to take the CEO position back. In 2009, I did that.”— Morris Chang
Leadership & Management · Strategy & Decision Making · Operations & Execution
DUR_ENDURING
Founder retakes CEO role during customer crisis
“Before we do that, when Rick was CEO between 2005 and 2009, he had split operations into two groups: advanced technology and mainstream technology. I never thought the split was a good idea. Back in 1996, the president Don Brooks wanted to split. I said, why don't we get a consultant? We got McKinsey. After two months and a couple of million dollars, McKinsey told us functional is best. Don Brooks said, tell me one company that's functionalized, and McKinsey immediately answered Boeing.”— Morris Chang
Leadership & Management · Operations & Execution · Strategy & Decision Making
DUR_ENDURING
McKinsey justifies functional over divisional structure
“Jeff Williams wanted 20-nanometer. That was a surprise and a disappointment because the natural progression after 28 was going to be 16. Jeff wanted 20, which was a half step, a detour. My thought was we would have to spend effort on the 20, which would help us on 16, but still it was a detour. Back then, R&D did not have enough resources to do two nodes at the same time. Later we did. For the company in total, Apple came strictly as a pleasant surprise.”— Morris Chang
Strategy & Decision Making · Operations & Execution · Technology & Engineering
DUR_ENDURING
Customer demand forces costly technology detour
“Back in the 90s, in the first 10, 12, 15 years of our existence, we were short of capacity almost all the time. We figured out that we will require a deposit from the customer, and we will even confiscate the deposit if the time comes for him to take the wafers and he doesn't. I told the salespeople, tell the customer we will confiscate the deposit. The salesmen never heard anything like that before. They were in an uproar of happiness.”— Morris Chang
Business & Entrepreneurship · Strategy & Decision Making · Operations & Execution
DUR_ENDURING
Confiscation threat without confiscation action
“A month later, I decided I would pay them a visit and ask what's going on. I emailed Jeff and asked for an appointment. Jeff replied by saying come here, but I won't be here. I have asked Tim Cook to see you. This freedom of delegating his boss to see a visitor was a privilege that I seldom had in my career. Tim was very nice and took me to lunch at the cafeteria. We each picked our food and carried our tray back to his office.”— Morris Chang
Strategy & Decision Making · Business & Entrepreneurship · Psychology & Behavior
DUR_ENDURING
Intel doesn't know how to be a foundry
“I saw the future. Gordie Campbell came to see me at General Instrument in my final months. He wanted investment from General Instrument, $50 million. He wanted to start a new company. I said, do you have a business plan? No, it's all in my head. I said, I need at least a business plan. Three weeks later there was no business plan. I called him and he said, I'm sorry I didn't send you anything because I don't need you anymore. I said, how come? He said, I don't need $50 million anymore.”— Morris Chang
Business & Entrepreneurship · Strategy & Decision Making · Technology & Engineering
DUR_ENDURING
Not building fab creates fabless industry
“Bruce Henderson is now considered the father of strategies. He founded Boston Consulting Group. He came to Texas Instruments around 1970 and told the TI CEO he had experience curve theory that would benefit the semiconductor industry. He made the presentation. Mark Shepherd was impressed and decided TI would work with BCG on this learning curve theory. Bruce assigned Bill Bain to work most of the time at TI, like three days a week.”— Morris Chang
Strategy & Decision Making · Economics & Markets · History & Geopolitics
DUR_ENDURING
Learning curve absorbed from BCG founders
“In February of 2011, Jeff Williams called me. Very short conversation. He said we need to pause our discussions for two months because the highest level of Intel has approached Tim Cook and has asked Tim Cook to consider Intel. I wasn't all that worried because in 2011 Intel was no longer a name that when you hear it you would stand up and bow. In the 90s, in the late 20th century, they were a name in semiconductors that if you hear they're in competition with you, you'd be trembling with fear.”— Morris Chang
Strategy & Decision Making · Psychology & Behavior · History & Geopolitics
DUR_ENDURING
Customer trust beats technology superiority
“TSMC is essentially the only trillion-dollar company in the world not on the West Coast of the United States. I didn't realize I didn't think it was that unlikely. It did exceed my expectations. TSMC's size and importance exceeded my expectation, but not by an order of magnitude. We were never going to stop after two fabs. If I didn't know anything about learning curve, I would say maybe we'll stop at just two. But I was a serious student of learning curve and I would never stop at just two.”— Morris Chang
Strategy & Decision Making · Economics & Markets
DUR_ENDURING
Learning curve demands never stopping at two
Frameworks (4)
Layoff Cost-Benefit Analysis
When Not to Cut Headcount
A framework for evaluating whether layoffs are economically justified by calculating separation costs, training costs, and expected rehiring timeline against potential savings.
Components
- Calculate Total Separation Cost
- Estimate Training Cost for Replacement
- Forecast Rehiring Timeline
Prerequisites
- Access to headcount data
- Historical hiring and training costs
- Revenue forecasts
Success Indicators
- Workforce stability maintained through downturn
- Faster recovery when demand returns
- Lower total costs versus layoff scenario
Failure Modes
- Underestimating recovery speed and getting caught short
- Overestimating and maintaining excess headcount too long
High-Stakes Negotiation Protocol
Separating Relationship from Deal
A framework for conducting critical negotiations with long-term partners by deliberately separating relationship-building time from business discussion and making one final offer.
Components
- Schedule Relationship Time First
- Do Exhaustive Preparation
- Make One Final Offer
- Set Firm Deadline
Prerequisites
- Established relationship with counterparty
- Deep understanding of both parties' constraints
- Clear alternative to agreement
Success Indicators
- Rapid decision from counterparty
- Relationship preserved or strengthened
- No prolonged haggling
Failure Modes
- Offer perceived as unfair triggers walk-away
- Insufficient preparation leads to unrealistic number
- Relationship time feels manipulative
Fixed Percentage Resource Allocation
Eliminating Budget Politics
A framework for setting strategic investment levels (R&D, marketing, etc.) as a fixed percentage of revenue to eliminate annual political fights and enable long-term planning.
Components
- Identify Strategic Investment Categories
- Analyze Historical Spending Patterns
- Declare Fixed Percentage Permanently
Prerequisites
- Multi-year financial history
- Clear definition of investment categories
- Board support
Success Indicators
- Elimination of annual budget battles
- Consistent investment levels
- Long-term projects get completed
- Team morale improves in strategic functions
Failure Modes
- Percentage set too low creates resource starvation
- Exceptions made during crisis undermine credibility
- Not adjusting when business model changes fundamentally
Credible Threat with Flexible Execution
Using Strong Words Without Harsh Action
A framework for creating powerful deterrents through strong language while maintaining relationship flexibility in actual execution.
Components
- Use Strongest Possible Language
- Communicate Through Sales/Front-Line
- Build in Quiet Flexibility
Prerequisites
- Clear capacity constraints
- Customer demand exceeds supply
- Sales team buy-in
Success Indicators
- Customers take commitments seriously
- Rare need to actually enforce
- Improved forecast accuracy
- Stronger customer relationships
Failure Modes
- Following through too rigidly damages relationships
- Never enforcing destroys credibility
- Inconsistent application
Mental Models (13)
Optionality Preservation
Decision MakingStructuring decisions to maintain future flexibility rather than foreclosing options. Chang's choice to work with small NVIDIA despite their near-bankruptcy preserved the option of a major future customer relationship without committing significant resources upfront.
In Practice: Chang's decision to personally respond to Jensen's letter despite NVIDIA being tiny
Demonstrated by Leg-mc-001
One-Shot Negotiation
Decision MakingMaking a single final offer with a deadline rather than engaging in extended haggling. Removes negotiation as a strategy, forces clarity, and preserves relationship by separating the business transaction from the personal connection.
In Practice: Chang's $100M settlement offer to NVIDIA with 48-hour deadline
Demonstrated by Leg-mc-001
Opportunity Cost of Layoffs
EconomicsThe true cost of layoffs includes not just severance but separation expenses, lost productivity, training costs for replacements, and time to rehire. If recovery happens within 12 months, the total cost exceeds any temporary savings.
In Practice: Chang's explanation of why TSMC avoided layoffs even during recessions
Demonstrated by Leg-mc-001
Learning Curve Dynamics
EconomicsAs cumulative production volume increases, per-unit costs decrease in a predictable pattern. This creates powerful incentives to achieve scale quickly, price aggressively to gain volume, and never stop expanding capacity. The company with the most volume has the lowest costs and can price competitors out.
In Practice: Chang's explanation of learning curve theory he absorbed from BCG and Bill Bain at TI
Demonstrated by Leg-mc-001
Credible Commitment
PsychologyStrong words and clear consequences create behavioral change without requiring enforcement.
In Practice: Chang's use of confiscate language for deposits that TSMC never actually confiscated
Demonstrated by Leg-mc-001
Pre-Commitment to Strategy
Strategic ThinkingRemoving flexibility through public commitment paradoxically creates strategic strength by eliminati
In Practice: Chang's decision to set R&D at permanent 8% of revenue
Demonstrated by Leg-mc-001
Strategic Detour Risk
Strategic ThinkingServing a major customer's non-standard request can force technology development detours that delay
In Practice: Apple's 20-nanometer request forcing TSMC to delay 16-nanometer development
Demonstrated by Leg-mc-001
Partnership Dependency Trap
Strategic ThinkingPartnerships with asymmetric power structures (senior partner / junior partner) cause the weaker par
In Practice: IBM's co-development proposal that would have required TSMC engineers to work at IBM facilities
Demonstrated by Leg-mc-001
Architectural Unbundling
Strategic ThinkingSeparating a previously integrated value chain into specialized horizontal layers. Fabless chip desi
In Practice: Gordie Campbell's realization that not building a fab dropped startup costs from $50M to $5M
Demonstrated by Leg-mc-001
Platform Information Advantage
Strategic ThinkingPlatform businesses that connect multiple parties see patterns and shifts before participants. TSMC
In Practice: Chang's observation that sitting in Hsinchu as a foundry, he could see industry shifts before they h
Demonstrated by Leg-mc-001
Strategic Inflection Points
TimeMoments where the competitive landscape is restructuring and aggressive action c
In Practice: Chang's Shakespeare quote justifying massive CapEx increase for 28-nanometer
Demonstrated by Leg-mc-001
Relationship Banking
TimeInvesting in relationships years before you need them so that when crisis comes,
In Practice: Chang's explanation of deliberately cultivating Goldman Sachs relationship early
Demonstrated by Leg-mc-001
Competitive Timing Windows
TimeTechnology transitions create temporary windows where trailing competitors can c
In Practice: Samsung getting to 16-nanometer first by skipping the 20-nanometer node that TSM
Demonstrated by Leg-mc-001
Connective Tissue (3)
Shakespeare's Julius Caesar: 'There is a tide in the affairs of men which, taken at the flood, leads on to fortune'
Chang invoked Shakespeare's metaphor about recognizing and seizing strategic moments to justify tripling TSMC's capital spending for the 28-nanometer node. The quote captures the essence of recognizing inflection points: there are moments in competitive dynamics where aggressive action can secure permanent advantage, but the window is time-bound. Shakespeare's tide metaphor maps precisely to technology transitions in semiconductors where being first to scale at a new node creates learning curve advantages that compound over years. The literary reference served both as personal conviction and board persuasion, elevating a financial decision to a historical inevitability.
Chang explaining his decision to massively increase CapEx for 28-nanometer despite board concerns
Boeing's functional organization structure for aircraft manufacturing
McKinsey cited Boeing as the exemplar of functional versus divisional organization when advising TSMC whether to split operations by product line. Boeing doesn't organize around the 707, 737, and 757 as separate divisions; instead, all aircraft flow through centralized engineering, manufacturing, and quality functions. This maps to TSMC's foundry business where the same customers use multiple nodes and the same fabs serve multiple customers. A divisional structure would create artificial boundaries in a business where the power comes from standardizing processes across all production. The Boeing parallel reinforced that semiconductor manufacturing, like aircraft manufacturing, is a process industry where functional excellence beats product-line autonomy.
McKinsey justifying functional over divisional structure for TSMC
Henry Kissinger as National Security Advisor versus Secretary of State
Chang reflected on Kissinger's position as National Security Advisor with a couple hundred staff having more power than the Secretary of State commanding thousands globally. This parallel explained why he offered Mark Liu the 60-person business development role rather than keeping the 10,000-person operations role. Power comes from strategic positioning and proximity to decision-making, not from headcount. Kissinger's small NSC staff shaped all major foreign policy because they sat in the White House and controlled information flow to Nixon. Similarly, TSMC's business development group, though tiny, determined which customers to pursue, which technologies to prioritize, and where to allocate billions in CapEx. Liu's rejection of this role showed he didn't understand that strategic roles with small teams often have more impact than operational roles with large organizations.
Chang explaining why he thought a small business development role was more powerful than large operations role
Key Figures (5)
Jensen Huang
8 mentionsCo-founder and CEO of NVIDIA
Sent letter to Chang in 1997 when NVIDIA was near bankruptcy seeking foundry services.
- Quiet. Morris Chang is calling me.
Rick Tsai
4 mentionsTSMC CEO 2005-2009
Sophie Chang
3 mentionsMorris Chang's wife
Don Brooks
2 mentionsTSMC President, 1996
McKinsey
2 mentionsManagement consulting firm