TSMC (Taiwan Semiconductor Manufacturing Company) Remastered

“Morris has the core insight here. He says, when I was at TI and General Instruments, I saw a lot of integrated circuit designers wanting to leave and set up their own business, but the one thing or the biggest thing that stopped them from leaving those companies was they couldn't raise enough money to form their own company.”— David Rosenthal

Strategy & Decision Making · Business & Entrepreneurship

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Platform beats portfolio

“Morris notices what they're doing—setting up these new plants for all these successive new methodologies and processes of manufacturing integrated circuits and silicon semiconductors and pumping out these chips—is super expensive to do this, super capital-intensive. What TI and everybody else in the industry did, when they would start a new product line that would use a new fab for chips, they charged a lot of money for it because man, they put a lot of money into these things.”— David Rosenthal

Strategy & Decision Making · Economics & Markets · Operations & Execution

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Price low to drive yield learning

“Morris says, it was like in the movie The Godfather. It was an offer I couldn't refuse. Then a day later, Li supposedly is like, actually, I'm going to need you to come in on Friday, so you got three days. Morris comes up with this brilliant idea to create a pure-play foundry company, to be a contract manufacturer. At that time, was this a good idea? Well, no. The answer is no.”— Jerry Sanders

Strategy & Decision Making · Business & Entrepreneurship

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Pure-play foundry seemed insane

“The semiconductor business is like a treadmill that speeds up all the time. If you can't keep up, you fall off. From 22, down to two, down to one. Even when their competitors are only doing the one thing that TSMC has done, if you fall behind by a step, you're toast. In order to stay on that treadmill, the number of tens of billions of dollars that you need to be spending on CapEx is going up. You need to be enormously profitable so you can build the factories for the next generation.”— David Rosenthal

Strategy & Decision Making · Operations & Execution

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Money can't buy process power

“This creates this insane flywheel for TSMC. The fabless market starts to grow, which they're seeding and enabling it. As that happens, TSMC's revenue grows. Because they have 50% gross margins and 40% operating margins, they can take that profit and apply more advanced machinery to build more fabs. Advance the level of their technology. As they pushed the manufacturing process technology forward, they're manufacturing better chips with smaller process links.”— David Rosenthal

Strategy & Decision Making · Economics & Markets

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Profit funds tech leads to more profit

“In 2012, Morris Chang, 78–80 years old, gets the Apple deal done. Bloomberg reported that it was a really big risk for both companies, both Apple and TSMC. Apple was relying on a company that was then seen as an also-ran. The quote is, I think this is actually Jeff Williams, if we were to bet heavily on TSMC, there would be no backup plan.”— Ben Gilbert

Strategy & Decision Making · Leadership & Management

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$9B bet on Apple with Morris at 80

“In 2009, surprise press conference, TSMC, they announce that Morris is returning to lead TSMC as CEO. Rick is out. Morris is coming back for the third act of his career. He's like Jordan. He's beyond Jordan at this point. He's coming back. He's going to be CEO again at age 78. Why does Morris come back? In the press release, there's a quote from Morris and he says, one, this move will not affect TSMC's fighting spirit and is likely to spur greater intensity.”— David Rosenthal

Strategy & Decision Making · Leadership & Management

DUR_ENDURING

Returned at 78 for mobile wave

“Morris, he's on the grind. He gets posted as a Junior Engineer at Sylvania's Ipswich, Massachusetts plant. He's living in a hotel. He doesn't even get an apartment. He goes home back to the hotel from work, and he studies the best textbook that he can find about electrical engineering, which is entitled Electrons and Holes in Semiconductors with Applications to Transistor Electronics written just a couple of years before, in 1950 by William Shockley.”— David Rosenthal

Creativity & Innovation · Psychology & Behavior

DUR_ENDURING

Bar-based mentorship system

“Morris gets assigned as his first project to a problem child within TI. They have entered into a deal with IBM. IBM is working on their first mainframe computer that's going to use transistor logic instead of vacuum tubes, the IBM 7090. Usually, IBM manufactures everything for all their products themselves, but they're like, we need more chips than we're going to be able to make ourselves so we need a second source for chips. IBM's own plant is churning out transistors with about a 10% yield.”— David Rosenthal

Operations & Execution · Technology & Engineering

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0% to 20% yield in 4 months

“After three years, Morris wants to stay and do a PhD, but as he's learning the industry and coming up to speed, it becomes pretty clear to him that if he really wants to go places in this new emerging industry, Sylvania is not really the right bus to be on. Morris says that the moment when this crystallized for him was there was a talk that a senior manager at Sylvania gave at the plant and the quote that the senior manager said that stuck with Morris for the rest of his life was, we at Sylvania...”— Morris Chang

Strategy & Decision Making · Business & Entrepreneurship

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Ultimate dysfunction signal

“Never make strategic decisions based on economics. This is a prime example. We talked about this all the time on this show, VCs passing overvaluation on something. Andreessen getting cold feet about a $300 million valuation on Uber. This Intel move, passing on being partnering with Apple. And maybe more specifically than economics because you could imagine that you would want to pass on this if Intel then can be the upside from the deal.”— David Rosenthal

Strategy & Decision Making · Psychology & Behavior

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Never let price kill strategic deals

“If you're only looking at the outcomes that happened, you cannot reverse engineer what the probability that would happen is. This is a very abstract way of me saying, the strategy of if you build it they will come that Morris implemented is a bad strategy, and it also worked. This is what Sequoia and Don Valentine hated. They would never invest in developing a market. That was like rule number one. We invest when the market already exists, not when we need to develop it.”— Ben Gilbert

Philosophy & Reasoning · Strategy & Decision Making

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Outcomes don't reveal strategy quality

“Morris realized he has a new problem in America and at Harvard. His parents aren't coming over. He's on his own. He's got to support himself and make his own way. At that time, his race is probably going to limit his opportunities. As he says, in the early 50s in the United States, there were Chinese laundrymen, Chinese restaurateurs, Chinese engineers, and Chinese professors. Those were the only respectable professions for Chinese. No lawyers, no accountants, no politicians.”— David Rosenthal

Strategy & Decision Making · Psychology & Behavior

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Constraints shaped educational path

“Legend has it, Morris has a couple of job offers. The one he really wants is from the Ford Motor Company. Ford offers him a salary of $479 a month to go take an entry-level job. And then he has a competing offer from Sylvania's new Semiconductor Division. They offer him a salary of $480 a month, $1 more. Legend has it that Morris asked Ford to beat Sylvania's offer. They didn't, so he took the Sylvania job offer.”— David Rosenthal

Strategy & Decision Making

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$1 changed everything

“After these two setbacks, at TI and GI, I did not think that my aspiration to be the CEO of a major US company was in the cards. Well, turns out he was right. He was not going to be the CEO of a major US company. The Taiwanese government wanted to come up in the world. They knew that technology was the way.”— David Rosenthal

Strategy & Decision Making · Psychology & Behavior

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Took Taiwan job against all advice

“In the early 2000s, when TSMC finally caught up to the leading edge level of technology with other semiconductor companies, there were 22 companies that were at the leading edge. By the late 2000s, it had gone from 22 down to 14 that were at the leading edge. By the mid-2010s, there were six. Today, there are two at 5-nanometer process is the current leading edge. It's only TSMC and Samsung. The next process is going to be 3 nanometers. TSMC is going to launch that next year.”— David Rosenthal

Economics & Markets · Strategy & Decision Making

DUR_CONTEXTUAL

22 to 2 competitors at leading edge

“On one side of the machine, you drop molten tin. On the other side of the machine, you then hit it with a highly specialized laser. You perfectly pulse them. It explodes into a plasma, which creates extreme ultraviolet light. Of course, this is hard enough to do as you can imagine how that might work, but you actually have to do that 50,000 times per second.”— Ben Gilbert

Technology & Engineering

DUR_CONTEXTUAL

50K laser pulses/sec at moon precision

“Morris, before he turns 18, has lived through 3 major wars: the Second Sino-Japanese War, World War II, and the Chinese Civil War. His early childhood years were like middle class, not wealthy, but pretty well-to-do. Then when he was six, the Second Sino-Japanese War breaks out. Morris and his mom flee the main part of China to Hong Kong. Then December 8th, 1941, three hours after Pearl Harbor, the Japanese attacked and invade Hong Kong. They flee again back to China.”— David Rosenthal

Psychology & Behavior · History & Geopolitics

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Fled three wars before age 18

“Morris basically begs all of his old colleagues in the US, European, and Japanese semiconductor industries to just give the dregs to TSMC. The IDMs would let us manufacture their wafers only when they didn't have capacity, or when they didn't want to manufacture the stuff themselves anymore. Now, when they didn't have the capacity, and asked us to do the manufacturing, then as soon as they got the capacity, they would stop giving us orders, so it wasn't a stable market.”— Morris Chang

Business & Entrepreneurship · Strategy & Decision Making

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Survived on unwanted business

“Morris gets accepted to Harvard. His reaction entering Harvard was sheer ecstasy, almost disbelief. What a country! The United States was at its peak in its moral leadership, its political leadership in terms of democracy, and it was the richest country in the world. Not to mention stable. You could say what you want. You could count on the fact that it's likely that 10 years from now, whatever economic structure or political structures exist will continue to exist.”— Morris Chang

Business & Entrepreneurship · History & Geopolitics

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Stability enables innovation