Morris Chang - TSMC Founder Interview

“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

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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

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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

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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

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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

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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

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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

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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

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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

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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

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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

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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

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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

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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

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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

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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

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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

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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

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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

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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

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Learning curve demands never stopping at two