TSMC Founder Morris Chang

Transcript from https://podmenti.com/t/c8e6bb651f68a293

The podcast about great technology companies and the stories and places. No, you said technology. Now we definitely have a cold opening.
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Welcome to the spring twenty twenty five season of Acquired, the podcast about great companies and the stories and playbooks behind them.
I'm Ben Gilbert. I'm David Rosenthal. And we are your hosts.
Today we have something very special to share with you.
After becoming obsessed with semiconductors from our T SMC episode four years ago.
David and I wound our way through the rest of the industry, studying fabulous companies like NVIDIA and Qualcomm.
Architecture companies like Arm
and chip design software companies like Synopsys.
And as we were thinking.
What's next in the world of chips unacquireed?
We threw the Hail Mary. We asked friend of the show, Jensen Huang, if he would ask Dr. Morris Chang, the 93 year old founder of TSMC, if he would be open to an interview with us.
Uh it is uh
Kind of insane and super cool that Jensen made time to help us with this. Uh it's uh it's not like he doesn't have a lot of other things going on. Yes.
Well, listeners, it happened.
So today's episode is a conversation that we recorded in Taipei last week at Dr. Chang's office. We flew to Taiwan for a 48 hour whirlwind where we spent some time at TSMC's headquarters in Hinshu Science Park.
uh where many of TSMC's fabs are located. Super cool to see.
Totally.
So conveniently, Dr. Chang just published volume two of his autobiography a couple months ago after a 26 year hiatus from volume one.
But inconveniently it is written in traditional Chinese and not published in the Western world.
We managed to get our hands on an unpublished translation of the book to prepare, and what you are about to hear focuses on a few crucial stories from TSMC's history that Dr. Chang shares in his memoir about Apple and VIA and the birth of the fabless industry.
Yes, and big thank you to Karina Bau, who we were lucky to connect with after we set this up.
And who has been translating Morris' memoirs with funding from Tyler Cowan and Emergent Ventures.
Right now the memoirs are not published in English and we will let you know if and when that happens.
Yep.
All right, listeners, you can join our email list at acquire.fm slash email. You'll get an email every time a new episode drops, once a month, and this is also where we announce past episode corrections plus a fun little game where we give hints at uh what the next episode will be.
I uh always have fun writing those. You do. That's a clear David job.
So with that, this show is not investment advice. David and I may have investments in the companies that we discuss in the show is for informational and entertainment purposes only.
Please enjoy this conversation with Dr. Morris Chang with some of David and my reflections following its conclusion.
We thought as a fun way to
Start things off.
would actually be to talk about the man who introduced us.
Could you tell us
A little bit in your words about your relationship.
With Jensen.
And T SMC's special relationship with NVIDIA.
Yeah.
It starts with the
Um my relationship with Chancellor.
Started uh with uh a letter.
That uh he sent to me.
I I think it was nineteen ninety seven.
And the letter was sent through the post office.
And I receive it.
In Sin Shou.
Uh
Oh, and the love of that that um
They were
And but the uh
The company that uh
Jenza was
The CO of
was a small
Company
What.
They had developed uh some
Really, yeah.
Promising.
Uh
Ships.
But uh they were looking for a
Foundry.
And uh
They had approached the
T S M Cs
Oh, San Jose office.
But uh
They really
Uh
Got no answer.
Well say how they office.
Well I have please contact.
Jensen.
Because
And but they really wanted to do business with
Uh
C S M C
So uh I was going
to the US.
In the
Next week anyway.
So the letter uh
Frankly, uh raised my uh
cuarity and uh also uh
Uh
Irritated me a little bit.
Because uh, you know, I had always
Oh.
Cold.
Oh so it's people that uh
No, we should
Never.
Be um
Oh negligent.
And um
Talking to
Future customers.
Even if uh
The customer seems to be a
Well small one.
And at this point NVIDIA was four years old.
They were facing bankruptcy, I think.
And they had uh maybe fifty or sixty
Employees.
So
T S M C I think at that time or they had the
A few thousand employees that were.
We we had like see the
I remember we had exceeded the
one billion US dollars in revenue.
In ninety five.
And this was ninety seven. So
We were.
Relatively speaking, we're a pretty big company. Yeah. Which is very impressive. You were yourself
Only a ten year old company.
doing over a billion dollars in revenue.
Yeah.
What?
So the following week I went to uh
Uh California.
And uh
Uh I called.
Him back.
Without advanced notice, I I call it.
Jensen, I looked up.
I think there will
Tell one number on the
Stationary that he sent me the letter on.
Jensen himself picked up the phone.
And there was a lot of background noise, so they were
I mean his
He has he was arguing.
Something with the
Uh his people.
Uh but
As soon as I introduced myself.
Oh so.
He immediately shout to the truth.
Those people.
That we're making noises.
Yeah.
Quiet.
Uh.
More science calling me.
Mm-hmm.
Yeah.
So
So uh
I then proceeded to
Make an appointment with him.
Ah, to visit him, to visit Embidia.
Uh.
Uh the next day or
Something like that.
And uh
Uh that was uh our first uh
Visit. The first meeting.
And uh he uh immediately
impressed me with um
His um
Articuleness.
And also
Uh impressed me with his uh
Optimism.
Mm.
Uh well he was also very frank.
He told me that yeah.
Was in
Financial typical these.
But
The chip that uh you want uh now.
So
H
Boundary.
What
Not only.
Uh
Save the company.
It wasn't.
Also
Uh.
Envidia.
A
major customer of TSM C.
I mean that was
You know actually
Quite a bold statement.
We're over a billion dollars, uh and
Uh to be a major
Uh customer of ours.
He would have to p produce
Revenue for us of uh
At least uh
Fifty million uh a year, okay.
Was that chip?
The Riva one twenty eight.
Uh, I forgot the number, but it was a very successful ship.
Yeah.
Uh I don't think it was Riva or anything. Uh
It was uh
A uh a games ship, of course.
It was successful.
In fact
His prediction.
Same true.
Not only did it solve
uh m embedded as financial uh problems, uh
It uh
Prevent it from being
Banklocked, no.
Not only
Did they do that?
Yeah also.
Starter to
Make them
A major customer.
Of T seventy.
Well then two or three years.
They were.
They did become
Well no.
Because
Five.
Uh customers. Yeah.
Very successful.
The chip, yeah.
So
There was a a great partnership.
forged there, T SMC would
Fab the chips, would manufacture them.
Nvidia would design them.
That is true all the way to today at immense scale.
But it hasn't always been
easy and it hasn't always been perfect. And I wanna go to this moment in two thousand and nine.
on the forty nanometer node.
Where
Development was slower.
than TSM C had hoped.
And it was costing customers like NVIDIA.
Time and money.
Can you share the story of how this came to be and how it was resolved?
Well
I uh
Decided to
Um
Yeah.
The CEO job.
Uh to
Uh a
Potential.
Successful okay.
Oh my
Wow.
I will still retain
The chairmanship.
Uh in Taiwan uh usually the chairman
Yeah, top man anyway.
Even though uh
Mm.
Uh.
CO is another person.
So
Uh the problem you just mentioned uh happened during the period
When someone else was uh
The CEO.
Apparently it was uh
A manufacturing problem.
It was also a quality problem.
And uh
It was the quality problem that uh
The COVID.
First reported to me.
But
The CO insists on that.
Uh
Oh people.
Yeah.
We we had the
Director of Quality.
Uh
Insistent on that though.
We were not TSM C it was not our fault.
And uh so on that basis
On the basis of
Oh.
Uh the uh
Um manages.
Arguments.
He had not offered
But yeah, anything. Um
Now, uh as far as the manufacturing problem
Was concerned.
It was a you problem.
And everybody was suffering from it.
Of course.
And we did at that time was uh
Perhaps the biggest customer.
Of that node.
Yeah.
No, no, me to.
And a yield problem in the context of this industry is
When
You are
Trying to make
A bunch of very high quality
Chips.
But you just can't get the percentage that actually work up very high.
Something like that, yes.
But the um
Problem apparently, you know, just
Continued and I I I was
Even
No, I was not the CEO.
I was getting a little impatient.
Uh.
And then of course some other problems.
Hop.
Other problems then.
Just forty nanometer.
And with the Papa.
So I decided to uh
Take the ZO position back, huh?
So in two oh nine I I did that.
And uh there were several
Um
I already
Problems.
that I had to deal with.
Oh well I talk.
B.
C O
Shop.
Back.
One of them was this
Continuing

Continuing.
argument, controversy with their media.
Anyway, uh
I remember uh in the first few days
Uh after I talk back
The uh CEO ship.
Uh I called uh all the major customers, including Jensen.
And Qualcomm was a I believe a name that's
Clothes also, yeah.
Yeah, walk home.
The top customers.
Uh didn't change very much, uh
Uh since then.
Except for
Maybe one. Yeah. Apple. Apple, yeah. Apple came later, yeah. Uh
And uh in my call with Jensen uh
Uh he
Uh he was uh
Still uh
Were friendly with
With me, yeah.
Uh but uh he also.
Uh reminded me.
In a very
Serious.
Song.
No.
We had
Mm.
Quality, delivery, manufacturing.
Probably.
On the forty nanometer.
All right, so I said I knew that.
And uh it w it's one of my only
Um.
Uh uh give me.
A couple of weeks and I'll get back with you.
And um
As I said, uh uh I did have uh
Several problems.
Uh.
Um
The uh
Forty nanometer.
Manufacturing problem.
And
The uh
problem with the argument.
That we were having.
Worth uh envidia.
Aside from that, uh
Uh we also had the
Uh the problem of uh
Oh.
The price thing will be
I was shopping.
Fast uh.
And the cost.
Yeah.
Yeah.
No.
I mean, you don't want to see that, you know.
percent has kept dropping, you know.
'Cause you had committed to a schedule of price drops with customers, but you weren't able to drive down your manufacturing costs at the same
Right.
All right. So that was uh one problem. Uh
Another problem was uh
was the immediate one that
Should I meet too.
We take the COship.
Because um
The previous
See you.
And um
Laid off.
Except he didn't use the term lay off, you know.
Hm
Use the
Bad performance review.
The worst.
Performance view people and they were about.
Six or seven hundred of them, you know.
And he laid them off.
Um
Uh on the basis of the
Uh
Poor performance review.
Yeah, well.
We never did that, you know.
Yeah.
Yeah.
I mean.
We the worst we will do.
was to
For them
Um
Please Lamon probation.
For six months.
And
Quite often, you know.
At the end of the six months.
Everybody will go back.

Who is
Or his or her old job.
And some of them
We'll get um
Transferred.
Because the way
In the wrong jobs, no.
So some of them would get
Tells you.
Well we
Almost. Never.
really fired people.
Even after the probation period.
So under your watch.
You never
Did a layoff and you never
looked at
performance reviews, which are meant to help coach people.
As the means to determine.
That's right. Yeah. And I I actually, you know
Uh told uh
The manager's starting up.
But uh and uh
Well, in uh two oh eight.
Of course there was uh
A financial crisis.
And uh
The semiconductor business impact.
Effective though.
And uh
Oh revenue.
Drop. Oh.
It's dropped.
Pretty seriously. Yeah.
No, I was not as you I was the chairman.
But I just knew.
But uh
Anyone.
Any
General Manager, any CO
General manager.
uh without very much experience.
Oh
Well
He or she would do.
In a situation like that.
It's a kind of a knee jerk kind of reaction, you know.
Oh he says oh
This is my test.
I got to
So
You know.
All the money possible.
And I got to, you know.
They are people, you know.
But this is the semiconductor industry and Moore's Law.
means no matter what happens
You will always need people.
Well
I know.
Well so much in Doctor in the
But same I can not range with people.
Actually.
Think the same way as I
Described, you know what I mean?
Oh, they are layup. They are they they are people too.
Oh, I had a lot of experience.
At Texas Institute.
But
A taxes influence.
I was not a CEO.
I was just
One of the top men is just
under the CO level.
And when the company decided to
We'll have a layoff.
These
CO
Convert words.
The top managers.
Uh who included me.
And their first reaction
Was exactly the same.
And I'm talking about
Oh the
Seventies, early seventies.
Yeah.
First reaction.
Or whole try of.
Was exactly the same as
What?
Oh T S M C O did.
Yeah.
To
Late two overweight, two over nine.
Which was, you know.
Go by performance.
Well.
No, I was the only one.
At Texas Instruments.
In the
Early seventies.
That's it.
No
That would not be
Uh
Credible.
uh way of doing it. People
Would not respect us.
If we
Lay off.
Bye.
Performers.
Rightings.
And why is that?
Because it's very subjective. Performance reviews
The performance ratings are done by everyone's
On supervisor.
So
Seven hundred.
worst performing people in the company.
And
Who gave
The seven hundred people
The bad ratings.
Seven hundred.
Supervisors, you know.
What is objective?
It's not something that uh people will respect.
If in a year you have to hire people back.

Laid off people back.
Then you shouldn't lay off.
Because
Yeah.
Lay off
The separation is
Pennsylvania.
It's usually half a year.
About heavy, yeah.
And it takes
At least half a year.
To train a person. Uh-huh.
So
If you need the people back
Well then, yeah, you shouldn't.
You should lay off.
So what did you do when you came back as CEO, both about
the um employment issue and about the customer issue.
You mean customer issue being uh Nvidia, yeah. Yeah.
Well.
To finish the employment issue.
The laid off employees.
As I said there were
Seven hundred of them.
Six or seven hundred of them.
Uh
It came to my home.
Uh to demonstrate and protest.
Now uh
The company.
C S M C.
Was pre warned.
that hundreds of people
Would appear.
Uh.
In front of my home.
So they notified.
The police department.
Uh in my district.
So the police department
S
Fifty, sixty.
Police officers.
So uh
Try to
Maintain the order.
No, uh
More than a hundred.
Hotestus.
Appeared.
And uh the neighbours, my neighbors in the they had trouble getting in and out.
Uh that was only the first time.
A month or so later.
Uh the problem.
Was uh still not.
Mm-hmm.
Solved.
I was still
No P.
See you.
So
They appeared again.
Some protesters.
About twenty five of them.
Decided to
Spend the night sleep over.
In the little park.
That's about a block away from my home.
My wife literally didn't.
Didn't sleep that night, you know.
She will wake up and
went over to that window to take a look to see what was going on.
But uh then
Very early.
The next morning.
Um
Uh my wife.
Six o'clock six o'clock.
The next morning.
I wave, you know.
And uh
Uh talk.
One of the uh
Bodyguards.
And uh
Well too.
I uh
Neighborhood market.
And then got the
The uh Chinese style breakfast.
Oh Chinese bread, you know.
Fine, but you know.
I don't know whether you ever had it or not.
Probably not. Yeah.
Yeah.
Bun bun.
Uh.
Yeah, so it means milk, yeah.
And take
Enough.
Oh, that breakfast is not for
Twenty five, thirty people.
Yeah.
Um
Back to
To the park.
The part.
And uh
Distribute them to the
Protesters.
And uh
They were
Thankful. Yeah.
And they actually decided to
Not
Go to
The president's uh
Um
Palace President's Mansion.
And they told.
My wife.
Th they will not do that.
Not they.
And all this
uh kind of precipitated my uh
Uh taking back the CO job.
Well uh there's another thing, you know, uh I told them
Yeah, previous CO
Uh before he
He laid off the
Six, seven hundred people.
I said
If you're going to be able to do
You because I knew, as I said.
I knew that
It will be
Yes, me shook reaction, uh
So
Confront a
A crisis.
Uh such as
The crisis.
Uh we had.
It'll be his needs your reaction to lay off.
So I said to him.
Yeah.
You want to lay off.
Bring it for the ball.
I'll call a special war meeting.
Yeah, and I I knew
Well I will ask the board to do.
Yeah.
Which was not to
Wind.
The permission.
That's right.
But he desire to
Circumvent that.
The CO, yeah.
Because
Well he did.
He did not consider that to be lay off, you know.
It was just a
Punishment for the
Poor performers.
Hm.
Well.
As far as CO is concerned, I didn't.
Keep him.
Uh.
More than one nice
Talk with him.
I
Intend to
And I told him
Right.
You were still
A
Potential.
Mm.
Successor to me.
So I kept him.
At the same job question.
We have job ways.
And the same.
Salary and bonus.
But
He was now
The
Present.
Mm.
New businesses.
Mm.
And back then, you know, we we had uh high hopes for
The so called new businesses.
What's yours?
Solar cells.
And L E D.
It's the great irony that
your core business of manufacturing integrated circuits.
ended up becoming th the largest market opportunity of all. You didn't need any new businesses.
And uh the biggest marketing, uh biggest market opportunity?
Why is that so ironic, sir?
Well, it's always interesting to me when companies
think, oh, we should look at other new businesses.
When in reality semiconductors became a six hundred billion dollar a year market.
And
you know, solar is a small fraction of that.
Uh, LEDs are a small fraction of that, you were already in the best market.
I know.
Yeah.
I I knew I did I did not
Really
Man.
I did not really think.
That
Solar or L E D.
What
Right.
Replace
Oh in the way circuits business.
But
I knew the integrated circuits.
Was gonna be great, you know.
But uh
At that time.
Which was uh
Oh.
Oh.
Bye.
At that time.
With
Also thought.
Right.
Solar and
L E D.
What's that gonna be?
Very promising, yeah.
It didn't work out, of course.
The solar business
Couldn't have been
Pretty good.
However.
China wounded.
Subsidized.
Yeah.
And uh
They know.
uh control that business.
So low cells.
The prices were extremely low.
Still low.
Still wrong.
So it it didn't take off.
PSMs.
And take off.
Um
And L E D did not take off either.
Because L E D
It's not
The the market is not as big as uh solar.
Oh well.
It's controlled.
The patterns.
are controlled.
by just a few companies.
And they they wouldn't let the the the few companies
The controller patterns of LED.
Oh not up at all.
So a few years later.
The uh CO
That was
Put on the new businesses.
Uh decided that uh
Uh
Uh his
New assignment.
Wasn't working out you know.
So
Igual.
And he's now running media tech, is that correct?
He is now the uh
Uh a vice chairman
Uh and uh T CO of Media Tech, yeah.
Mm.
So coming back to this moment in two thousand and nine, you
rehi you offered to rehire anyone who was laid off that was
interested in coming back.
And you're setting the new sort of vision and strategy as CEO or in many ways returning to the old one.
How did you resolve the NVIDIA?
Dispute.
Yeah.
In the first
Four or five weeks.
After I we talk to the CO job.
I probably spent
Almost half of the time.
Oh
How to resolve the
Problem was that yeah.
As far as youths were concerned.
Well we were
Doing our best.
Because you know.
We had to do it anyway, you know.
Uh.
Yeah, not just NVIDIA, but
Yeah.
Qualcomm and Intel and
And they were
A very important note for the nanometer was very important note.
uh in the progression of uh morse law, you know.
Yeah.
Uh only after forty can we
If we do it fully well, can we
Can we do the uh
Uh twenty eight. Twenty eight was the next one.
And I called.
Uh the
The uh
Salespeople.
That were in direct that had been in direct contact with them, but yeah.
And of course I called the
Everybody that was
Somehow involved somewhat involved in the
Problem.
So
It was a matter of money, no.
As far as uh
Hogwarts.
Oh no.
The manufacturing.
Lies.
Wood.
Already doing what we could.
I mean it was.
Vice
Just said they wasn't just
Poi andiamo.
It's for for TSM C, you know.
But in video.
Because um they they had born
The blunt.
Of the
Mm.
The problem, the damage.
Oh.
It's a matter of money.
Well I worked out in number.
I
familiarized myself
With all aspects of the problem.
And then what are a number?
And I I also knew that.
And very customers were.
We're after them, you know.
They had demands on video too.
So and I I use all the intelligence I could get.
Yeah, I think
That was it turned out that it was
It was good.
So about a month
I have to
I
We talk.
The COs.
Job.
I
Shen email to
Jensen.
I said.
I'm coming to Silicon Valley.
Next week.
Oh.
The state.
I will be.
At your home.
At six o'clock.
Let's have
Just
Sarah and
Peace out.
Which was something though we we uh have had uh many times in the past.
No.
Oh.
Immediately.
Uh.
Mm. Send back.
Oh.
And email, he said.
When do we discuss business then
Did he ask who was gonna pay for the pizza and salad?
Yeah is that.
So I
I
Anticipated that. So I said.
Six thirty
Or start having.
He's on the salad.
Able shop.
Or go to your
Office.
At your home.
And we'll discuss business.
So on the appoint of the date.
Uh they I
Showed up.
And we follow the schedule.
Exactly.
Six or the yeah.

Well, they were present, Peace out and so.
Yeah.
Thing is that uh you know.
Uh huh.
His wife.
Lori.
What make the pizza uh the sour, you know.
Yeah.
And the peace I was delivered.
I'm outside.
Maybe maybe they made their own pizza too, I forgot.
Would not surprise me.
Yeah.
Anyway, I have I had
I had had it many times, uh at his time.
All right.
So it it will cost shop.
Uh it was I who looked to watch that.
Jenson, why don't we go to your name?
And I
A
The offer.
It was on the order of a hundred million.
Dollars, right?
Yes.
More than a hundred million, yeah.
And I also said
Our offer is effective.
Forty eight hours.
If
You do not there there is not gonna be
We're not going to
Okay. We're not gonna bargain.
Yeah.
You don't accept
Yeah,
Within forty eight hours.
We have to go to
Yeah, arbitrary true.
Which was what he had suggested to the previous CEO anyway.
That we w go to the arbitrator, you know.
But the previous CEO
They're not even give him a number, you know.
Oh, does it
GBM Zo.
You probably don't want to go to arbitration with your best customer. Oh, I didn't want to.
But uh you know, I had to say that.
Uh and uh because and because
I mean that number, the number we offered him.
uh was arrived at.
I have to
Yeah.
As I said.
Weeks of work.
Uh on my part.
And I thought it was fair.
To both sides. Yeah.
And did Jensen accept the offer?
Yeah.
He did.
Uh.
In two days, within two days.
I think it's an amazing example of
a situation where
You had strong partnership together for many years.
You built this close personal relationship such that you could have
An hour and a half family dinner.
And not talk business.
You were able to then
Come up with a large sum of money, over a hundred million dollars, settle.
And then since then there have been many, many, many billions of dollars of business done together.
It's a great success of working out your differences.
I know. I I like
I like that too.
Uh.
That's why.
I included uh
Sorry.
In my own.
Yeah.
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And just tell him that Ben and David sent you.
After
the forty nanometer node after you fix these problems.
As you said, the next node was twenty eight nanometers.
And
As we
understand your story and the company's story. Twenty eight nanometers is when T S M C
Really
started to take the leadership role.
at the leading edge in the industry.
How did you decide?

commit so hard to twenty eight nanometers after having had all the problems.
At forty nanometers.
Well
I had a lot of trouble at T I.
My
Peak.
Job.
At TI.
Also.
The head.
Oh.
Whoa semiconductors.
T T I of course had many businesses.
Defense business.
Materials and controls so
Oh.
And also
Their origin.
Which was

Uh.
But
T I
Semiconductor business.
was their biggest.
And I was the head of that.
Worldwide.
So my conductor.
Business.
I wanted the
At that time.
Well, I was the head of uh
Uh uh semiconductors.
Oh on the budget.
What's
Four point eight percent of revenue.
About
Revenue.
And I thought it was not enough.
I just wanted to raise it to five point five percent.
Of the revenue.
But
My request was denied all the
Every time.
I waste it.
No.
Coming back to
C S M C.
I wanted to set a
A number.
Yeah.
Number
Percentage of revenue number.
So we don't have to argue.
Every year.
How much on the
We should spend.
So
And uh at about that time.
About a time.
Oh
Eight or nine.
Uh.
Why came back?
I just
Almost.
Like yeah.
At that time we were running, I think.
Six or seven percent.
Uh yeah, but it was
Negotiates it every year.
Between the R and D director.
And
The C Yo.
So I want to stop that.
I want to.
Make him
Uh easy, no, I mean.
Then then I have to
Are you doesn't have to
U request uh
Yeah, yeah.
So I
Almost j just literally uh picked a number
Are ahead.
We've been running six or seven percent.
Already.
So I say oh
Let's pick eight percent. Okay.
Eight percent.
Regardless of uh
Whether there's a recession or not.
And that's just eight percent off revenue.
And that was uh
The best news if you ask uh
Uh oh the director.
Or
Back then, I think.
Uh
Yeah in the second place uh of on the uh

Okay.
He would tell you.
I mean, he has told me many times.
In the last ten to fifteen years.
Uh this was
Ready.
The best thing.
But we did.
Yeah.
And
So they were not
Concerned the R D director was not concerned all
About having his
Plan budget cut back.
Is
And
Oh.
Uh
Resource.
Uh people
Yeah.
Allocation cut back, uh
No.
Oh he has been working.
Eight percent, uh
So it has been like that. No.
And um
That is what
No.
Hopeled.
Oh.
Uh.
R
Yeah.
This period in two thousand and ten, it wasn't just ramping the R and D budget.
was also the capital expenditures. You you would had
almost a decade of two to two and a half billion spent, you know, building the fabs every year.
And in two thousand ten you
You ramp that to almost six billion.
What was it about the competitive environment, the
twenty eight nanometer node that caused you to push all your chips in.
On that.
Yeah, I think it was the kind of a mutual feeling thing, you know.
As I
As I uh settled.
The um
On the budget at
Eight percent of revenue.
I mean to the uh
Uh
Satisfaction of uh
The RD people.
They began to have
Big ideas, you know.
They began to to be telling me.
Oh.
Twenty eight.
It's gonna be
The term they
They use
And they have used it several times.
Oh.
Funding.
But the first
For the first time
I heard
Them using it.
Yes.
The twenty eight.
Only eight.
It's gonna be the
Sweet spot.
It's just like tennis racket, you know. You hit
You hit the ball.
With a sweet spot of your record. Yeah. Yeah.
You pretend.
I have played tennis, not well.
Good.
I was like you, you know.
Oh.
Forty years ago I was like you. I don't play anymore.
But uh yeah, I I so I know the feeling.
Up hitting a ball.
Uh in the sweet spot. No.
Trying that I mean it's a sweet spot.
And so I said I I said, Why?
You know, gave me a lot of technical reasons, uh
I know.
So
I
He said I w I will believe him.
And uh he now
Had the resources.
Uh to
Bullshit.
To do it though.
Uh as fast as he could, huh?
So you know.
Uh no.
The capital spending.
No, of course.
Back then we had to already build up uh
Pretty good, um.
infrastructure uh organizational infrastructure.
We had uh a a pretty good uh
Market forecasting.
What
And
I had.
Set up.
The buzz of the warmth.
Department.
Which was
Like uh
Marketing.
Department. Uh.
No, we always had the a pretty strong sales effort.
Uh.
But uh to me sales effort
Is just uh
Uh the tactical side.
Uh.
Oh.
With the
Customers.
Marketing is the strategic side.
Totally.
Oh, so I would. No.
No.
From all these simples.
The marketing, the business development department.
Which
as I said was our strategic marketing.
Yeah.
Um
And from the technical from the R and D side.
That
Uh.
twenty eight was gonna be s you spot.
I decided that.
And I I quoted uh
Shakespeare.
In my autobiography.
Okay.
Oh.
Is it tied?
in the affairs of man.
Which taken at its front.
lease on to Fortune, you know.
I decide uh.
This was
Twenty eight nanometer.
What shouldn't be out?
Oh tied. Yeah.
Oh.
Our next hide anyway.
There will be others.
Seven that don't we do.

Well see.
The next
Sweet spot.

Okay.
And again, you know.
Mm.
Reminded of myself.
Okay.
Shakespeare, you know.
Taking it the flood. Taking it the flood, yeah.
Uh.
Shaw.
I mean that talks that however you know.
I'm setting the R and D at eight percent of uh
Uh does not
invite uh any opposition from the board.
Falter.
Suddenly
Increasing
uh capital spending.
Threefold, I think.
Did invite a lot of
Questions.
From a board.

In the board meetings.
Yeah, because
Back then.
Well even now.
Mm.
Uh
Mostal directors.
Uh from uh overseas.

Uh.
U S

And uh England.
And we would uh
Oh.
Email.
The agenda.
To them.
Two weeks before the war meeting.
Then
The night.
Before
The board meeting.
I would.
Invite.
The independent directors.
To dinner.
And
Yeah.
That then uh the conversation and that then uh
What's not on record.
Oh.
So
So the independent directors.
Actually.
More uh
Three quarters of our directors.
Uh in we're independent are independent directors.
Anyway, uh so in the in the uh
Night before and the evening before the meeting.
They had the the opportunity to ask me questions if they had any.
But
On this matter.
Oh.
vastly increased capital spending.
They didn't even wait until uh till
Yeah.
Get to that. They got to that, uh
'Cause this was
effectively betting a huge amount of the company's cash on this node, this process, this generation.
Yeah.
And uh
So they uh they called uh
The uh
She've um
Uh general counsel.
Young counsellors also.
The secretary.
To the board.
Yeah.
Uh they called uh
Him.
That harm it was uh
America, the general counsel.
What's in America?
And so
We want to talk uh to the chairman.
We don't like
This uh
I didn't know.
Mm-hmm.
Anyway.
So I talked to them.
On the phone.
Uh about a week or so.
before the board meeting.
And uh
All right.
Uh you know, uh this is something that of course I told them.
Well I
I've now just told you.
Yeah.
Input from
Uh.
Market forecast.
input from uh the
inputs from our business department.
The new business development.
And of course you're not.
They didn't believe it.
You really can't convince anybody, uh, on something like this.
So at the end
I had to say
Well not.
I heard you
Five.
I am still
The guy that's responsible for the operation of the company.
Yeah.
So
You need to
Let me go ahead with this one.
So
They were satisfied with that.
And what was the result? Wha what happened around this era of twenty eight nanometer that
created so much demand.
I think.
No, there we go. That was good. And that was
The smartphone era.
Coincided with twenty eight Nanity. Yeah.
Yeah.
When the business development group
was looking at this and you were looking at this.
Did you see how big smartphones were gonna become and
The immense opportunity that that would unlock for you.
No, I I didn't. Maybe the business development
I mean that was another interesting story.
Yeah, maybe he knew. Maybe he
Why?
I I
I now hope.
Uh and I of course hoped at that time too.
That he had uh
uh a more
Detailed.
Oh.
Visibility.
Yeah.
Yeah.
I did.
Mm.
Uh but I
Uh
I mean of course.
It's not the only thing.
Uh it was not the only input, you know.
I had you.
Few other advisors too, yeah.
So
That takes us to Apple.
Could you share with us?
How
You end up
Meeting Apple.
Yeah.
But before we before we do that, let me uh offer
Uh how we
Uh
Made uh
C C, actually.
The business development.
Yeah.
Uh the current CEO.
The current CEO. The current
Chairman and CEO.
When uh Rick
Well
CO between
Two five and two.
Or nine.
He had uh
Spencer.
operations into
Two groups.
Advanced technology.
And uh
Main film.
Technology.
And uh
C C was uh
The head of the mainstream.
Actually.
Really?
I should say.
The lesser one. Okay. Yeah.
Um.
Lose the
And of the
It was.
And each coop.
Had a small
Is the Sivan.
Section.
Maybe.
Thirty or forty people.
Yeah.
All right.
So I came back to be
The CO.
And I
I never thought
Sprit up.
Oh.
Two hoops.
Was a good idea anyway.
In fact, uh
Back in nineteen ninety six.
Uh
Yeah.
Present.
It was not a CEO.
But
It was the present.
Uh
We didn't have the CEO.
Tito
Back in.
Nineteen ninety six.
But the the president who was that.
I marked them.
Don Brooks. Yeah, right.
He wanted her to
But
He got
I think he got a little tired.
Of running
This company.
Uh, he was gonna be here for only a year at first.
But uh he wind it up.
Yeah and uh
Stay spending.
Six
Seven years.
In Taiwan.
Toward the end he was getting a little tired.
Of running this thing. Yeah.
And he thought that he would do it like uh
PI, for instance.
What yeah I had.

Transitional department.
So I can change the diploma.
In the way of circus.
Bipolar in the world, I guess.
M O S individual, you know.
It's the divisional org structure instead of a functional org structure.
But
I
Ready?
Did not think that the foundry business T SMC's business.
Yeah.
was suitable for
Okay.
There is no uh
Sure.
Because you know.
We have
Almost the same Google customers.
Yeah. How how do you how do you
Divide up like
Divide up the company if you wanna want the
So called uh
A divisional structure.
Yeah.
Yeah.
Yeah.
No.
Damn school.
Divided by fab, you know.
My goodness, you know.
But customers.

The same customers, you know.
Not to mention T SMC has twenty one, twenty two fabs now. And so what, are you gonna have twenty two divisions? You only have three or four fabs, you know.
Back there, yeah.
But he
He was not convinced.
He kept arguing.
And I said.
Look, why do we get um
A consultant, so
McKinsey. McKinsey. Oh yeah, McKinsey. Okay.
So we got McKinsey in.
Um
And McKinsey
After a month or two, two months actually. Yeah.
And uh a couple of million dollars, I guess. Well told us the same answer, you know.
That
Functional is best is best.
And then Don Burke said.
Well
Tell me.
One company.
One big company.
That's
Function nice.
And uh McKinsey immediately answered.
Bo Boeing.
Which which is a good answer, you know. Yeah.
Yeah.
Except it's not true. Boeing has commercial and
And government.
Uh well they they probably have have commercial government.
But they don't have.
Uh seven oh seven, seven forty seven, yeah, seven fifty seven. You know, they don't have
Det är underbara.
Yeah.
And if we divide up
Uh by Vab.
It would be like dividing up.
Seven over seven.
Um seven.
Fifty seven, seven, thirty seven, you know, yeah.
Well anyway.
Dumb balls.
Attempt.
Was in
Nineteen ninety six.
And well.
I uh
To
Five.
Right high, you know.
decided to chat the same ground.
Well and he did.
Uh the so I mean no, I didn't I didn't stop him.
Uh
My.
idea, my principle
I was uh
The chairman and not the CEO.
Um
What's
Well, sometimes.
You have to let you have to let
The CO
Make
His own mistakes.
And learn from them, you know.
Yeah.
Uh.
Of course not.
Not if the whole company is going down the Jane. Jane, so you
We have to interfere then.
But only there.
Well anyway.
Um
So that was uh the background.
Uh.
Two groups.
When I came back.
To be the COVID.
Mm-hmm.
The advanced group.
And uh

And each group had a small
This is the Bahman.
Section.
Thirty or forty people.
I think evidence has
Had the
more a bigger group than uh
Manef.
Uh all right.
So I wanted a
Who combined.
Uh
The two operation.
Oops.
And also
Want to
A real
Marketing.
And I didn't call it marketing because
But it's not to use.
business development in English. Because
That's a good translation. Yeah.
In Chinese.
Uh.
All right.
No, I've decided to combine the two.
Mm.
Oh.
Operation groups.
Uh.
No
Back uh in two oh nine.
When I decided to combine the two groups.
Uh I think the
Uh well school.
Uh
Something like
Ten thousand.
Employees.
And uh
The main film group.
Yeah.
Or less.
But also seven or eight thousand them.
Oi.
And the mainstream group
Just'cause we haven't explained this concept yet.
Is
Taking those older fabs.
that have the higher nanometer nodes and they're finding customers that don't necessarily need the leading edge.
automotive parts or it's CMOS sensors for cameras.
And and finding customers to keep the utilization high on those older fabs from previous generations. Yeah.
Uh right. But also uh
You're
Quite often the same customers.
Use
Both.
Mainstream.
And seconds now.
Take Walcom, I'm quite sure that
They use uh you know.
The most advanced uh
And uh
Or you and Apple, I think they use.
Yeah, if you think about all the chips in an iPhone, you know, the A sixteen Pro is built on the leading edge, but there are many, many other chips in there. Yeah, right.
So you combine to one business development organization.
eighty-ish people. Yeah.
We had the
Mark
Lou in charge of the events.
And uh CC way in charge of the uh
The question is, you know, who's going to be
In charge of the world, you know.
They combined. Well, you need only one.
For the combined operations.
And the only one, but
The truth.
Is that
We had a lot of operational talents, you know.
Operation meaning manufacturing, yeah.
Taking
It develops technology from R and D, you know.
And uh
Converting it into
Mass production.
Where are they law talents there?
But um
Business development.
Or marketing.
Yeah.
And uh
Neither
Uh
Mark.
No
Yeah.
C
Had any
Real.
Previous experience.
Yeah.
Mostly.
There's a two up.
So that was my uh
My main worry.
No, we need we need uh we combine the two groups.
We need uh
Mm.
Combined uh

Operations manager.
Uh
But even more importantly in my mind.
We needed uh
A
Combined.
Market.
Uh, pensay warm.
Mandar.
So
I uh
First, all third.
The marketing.
Uh bills of the woman job.
Truly.
The guy who was
In the
Bigger job.
Event second.
More.
And I explained to him.
Yeah.
I
Did not think.
Yeah.
Yeah.
Any
Significant.
Marketing experience.
In the past.
And this would.
This new job.
If he takes it.
What.
Give him
The o opportunity of
Of being uh
Whole fashioned.
In the area.
Well.
Yeah.
Be kind it.
He said.
My goodness.
I am.
Ten thousand.
People.
Reporting to me now.
You want me to take a job?
Yeah.
Sixty or seventy people in it?
That was the end of that conversation.
And your goal was for him to become a well rounded executive
Yeah. In hopes of leading the company after he sort of did that tour of duty. And I explained to me on that. Yeah.
Not to mention it's a very important sixty or seventy people.
I know. I know.
Actually back in my mind I was thinking of uh
The time.
Well
Kissinger was uh Nixon's
National security advisor.
And somebody else.
Whose name I have even forgotten.
was the secretary of state.
And uh
Kissing you, yeah.
Probably had a couple of hundred people reporting to him.
Whereas the secretary of state, you know.
And thousands of people.
All over the world.
Reporting to him.
Yeah.
And who had more power, you know.
Yes, yeah.
Certainly not the name who you've forgotten. Yeah.
Yeah.
You were doing it.
the business development and marketing for the company, right?
You were the one finding
The NVIDIA's the Jensen's the Broadcoms the next
Great customers and great markets for you.
That's right. You were always on a plane meeting with the current top fifteen customers.
And trying to find the next top fifteen.
Yeah, except for those four years when I was not the CEO, yeah.
Hm.
Yeah.
Well you were right.
Oh sorry.
On the play.
Most of the time.
Welling castle.
Uh.
No.
That was
My pleasure. Yeah.
Uh-huh.
I really like it, yeah.
Mm.
Oh.
Well, anyway.
Uh so
And then of course.
Of it.
Over the
business development job too.
C
And he accepted the
Oh.
I I thought he accepted it, uh
Yeah.
Even delightfully, you know.
Yeah.
And he's now.
The chairman and CEO of
T S M C
So this had just happened.
And
You came home from a board meeting, we understand, one evening. That's right.
The board meeting had ended.
And it was uh
Six o'clock or later.
And uh
Uh I went home.
Uh
Uh this was uh
I pay.
Uh we had the
our board meetings.
Back at that time.
Uh
Yeah.
In fact yeah.
India, in the yeah.
Well you have you ever seen huh?
Yes, right. Yeah. Across the hall. Yeah, yeah, right.
Yeah, we we had all meetings uh in Taipei in that
Comprints one.
Uh anyway, it was uh six thirty also.
When I got home and I I think
My wife knew
That uh
I would not be home until
Oh six ready.
Because as soon as I
Uh she actually she met me at the door.
Which one often, you know.

But this time she has something to tell me. That's why she w met me at the door.
Mm.
She's that uh
There we go.
Calling the afternoon.
And said he was coming to dinner.
And who is Terry Gow for listeners?
There we go.
is a relative.
Yes, actually.
A
Mm.
Second.
Cousins.
Oh.
Sophie's. Sophie's my wife.
Uh
And uh
They share the same
Grandparents.
That's what makes them second cousins, I think. Yeah.
And for our Western listeners who this won't be obvious to Terry Gow is
The founder and CO of Foxconn.
Right, there we go.
is uh a second cousin of Sophie's
And he's also
Uh.
Yeah.
He is also. He was also.
At that time.
The chairman of uh
Han High, which is Foxconn to America.
Slip my mind for w for for a second, yeah.
Oh.
Which
Which is a a very important supplier to Apple.
No.
And uh a pretty big company and in fact uh Terrao.
Oh.
It's reputed, uh.
To be one of the richest uh
Man in
Taiwan.
Hm.
And uh she said.
Sophie.
Oh
It's lovely.
Yeah.
Yeah.
Done.
Uh
No
Too much of my business.
I don't think she understood.
The uh significance of uh
Uh
S
Chao.
I mean to then uh
Bringing.
A vice president
From Apple.
Oh.
I don't think she quite understood.
Right.
Right.
She didn't really.
She wasn't ready.
Interest either.
In the significance of it.
Okay.
And you had been trying for months strategizing
with the business development team, how do we go win Apple's business? The smart the the iPhone seems to be working.
Uh yeah, I mean strategizing well, strategizing.
It's probably two
Uh strongly would.
I mean.
I mean just
Thank you.
Thinking also knowing that uh
We we just
Can't do anything.

We can't do anything about it.
Yeah, but it's the boy.
Call small company.
If you try to talk to them.

I mean they were just

They will come to see you when they are ready.
That's
Well I
New about
Apple.
Even there.
And
I knew I know the same thing now.
Yeah.
Alright.
All right, so uh
It will call.
No, Sophie did.
No that uh
I wouldn't
Not be home until
After six o'clock.
So
He had told she had told uh
Terry that.
And Terry had uh
Set.
The time of ri of arrival.
Of their arrival.
Uh.
It'll cause.
So A O C was a
A bit late uh for my dinner, but uh
I said, uh what the heck? Wait.
Yeah.
Oh yeah.
So they
Showed up.
Uh I didn't ask her. Sophie just said
A vice president.
And uh
I just thought to myself.
It wouldn't be just
Yeah, ordinary by spell.
Yeah.
So
Uh.
Because you know there was no reason.
Yeah.
Oh.
Terry.
Two
Just bring any.
Uh
Apple Vice President.
to by home. What didn't I know?
It must be.
Something.
Special.
Yeah, must be.
Someone.
Special
Oh.
F
T S M C, you know.
Oh, so Jeff Williams came. He was uh
Not just uh a vice president, he was the chief.
Opening off of stuff.
Oh,
And uh
Jeff was a
Pretty uh straightforward person.
Yeah.

Spare much time in that.
In uh ordinary uh
Mm.
Shit so.
There wasn't the same pizza and salad uh period before.
Uh my my wife, Sophie just added.
We we ha we have a cook in Norway.
We have it called.
Uh
And uh pretty good quote.
Uh
Uh
So
Uh
Sophie just
Total cook.
To add if you were this just
Yeah.
Yeah.
She's a Chinese cookie.
We don't do any
Well.
Food. Yeah.
And you know, uh
Terry obviously.
She grew up on Chinese food.
And uh I would imagine that
But the Apple.
Guy that he bought.
Uh also.
Like uh
Chinese food.
Yeah.
Anyway.
So
She's the S of the cocktail.
Okay. A few more this is.
But uh you know, it wasn't important. The fool was not important.
Either the quandary or the

Because of
Uh almost uh
Chef.
Almost.
Uh immediately.
Start of the
His pitch, you know.
Mm.
Almost as soon as uh
He sat down to the number.
And what is the pitch from someone like Jeff Williams like?
We
We'd like you to
Foundry Oh.
Wait.
Something like that.
Pretty straightforward.
I mean, so I was I will I I listened.
That night, I think.
Jeff.
Oh.
Maybe yeah.
Eighty percent.
And I
Hold.
Twenty percent.
Uh.
Oh yeah.
I if you don't count the uh.
The relative to relative talk between.
Sophie and the Terry, you know. Yeah.
Which was my
Which was not very much either.
Yeah.
And Jeff had proposed economic terms.
At this first dinner, right?
No.
Uh no.
Nothing.
So concrete. Okay.
He did say that.
We will let you
Have
Forty percent. Margin.
And I I think
Well, I didn't say anything. I didn't answer him.
I didn't respond to that.
But
Our margin.
At that time was already forty five percent. And I was trying to put it up to fifty percent.
Yeah.
A
And now
Effort.
In the company.
To
Pull

Oh.
And uh I had that though.
Uh
Effort.
Yeah.
Many years.
Yeah.
After I came back.
To be the CEO.
And I really
Um
Even
To succeed.
At my retirement.
No, of course.
Oh.
What happened later was that there was Covid.
So on.
And also
We began to have leadership.
Technology leadership.
Uh.
Uh so
Oh.
Marging, you know.
Uh jumped up to
Over fifty percent.
But when I retired, I was
Still short of fifty percent.
Slightly short of fifty percent. I was almost there.
Well retired.
In in technology leadership, you're saying that around this time, the twenty eight
Nanometer node.
You were talking about uh
Two two ten. Yes.
You were still
a among a select few at the leading edge, but there was fierce competition.
Whereas once you got to seven nanometers or so, that's when you really you are you are neglecting.
I think
Well you said that.
You were neglecting.
Intel.
Okay. Yeah.
At twenty age.
No me just.
We were
Very definitely.
The leader.
Aman
Boundaries.
Yeah.
And maybe um
A few other companies such as Texas Insurance and so on.
But not Intel, okay.
And Apple was
Considering Intel.
No Apple
Uh
Was not.
Actively considering it too.
Mm that came.
Later. Later.
But uh
Um
Oh.
Mm.
It's all.
I'm I'm quite sure we will uh
We'll have time to cover that, yeah.
Well take us there now. So after November of twenty ten, you had the initial conversation with Jeff Williams. Yeah.
He said that he will let us
Forty percent.
And my thought was, My goodness, you know.
Well yeah.
At forty five percent, yeah.
Oh.
But I also
Thought.
That he was trying.
To
Be generous when you said
That you will let us have forty percent.
And I also thought to myself.
Wow.
Uh.
No, it's not this.
No.
It's not the time.
To
Oh yeah.
A pricing discussion. We we have a lot of other things to discuss.
Yeah.
Anyway.
So I said um
No, we will.
About to go into
Production almost in production.
With twenty eight nanometer at that time.
Yeah.
The initial stage, anyway.
Twenty eight.
So
I said.
I thought it was gonna be twenty eight. Twenty eight.
Nope.

What
What node.
Uh.
Do you want?
Yeah.
Funny, he said.
No.
That was a surprise to me.
And uh frankly it was.
Also a
Disappointment.
Because
The more slow progression.
After twenty eight.
What's going to be sixteen?
Hm.
No.
Apple.
Jeff Williams.
Wanted the
Honey.
A half step.
Half that.
But
Half step.
They have
As a detour, you know.
Oh.
Yeah.
You we had to we would have to
My thought.
At the dinner there.
We have to
Spend effort.
On the twenty.
Yeah.
Which of course it would help us.
On the natural
Next note.
Which was
Sixteen, no.
But
Still.
It was a detour.
Um
Twenty eight, you know.
I'm trying to eight.
If we had if we could go directly to
If on D well
There if I go to
Uh
Sophine.
It will be less time than
No first.
Do probably there.
No.
The point is that
Back then.
On D
They're not.
Enough resources.
To do two notes.
At the same time.
Or later we did.
Later we did.
So you have this conundrum.
Where
This is right after you had just spent six billion dollars in CapEx the previous year.
Going all in on twenty eight nanometers.
You're asking Apple, which could be your biggest customer ever.
This is for twenty eight, right?
And you hear back.
No, we want you to go do something that you're not planning on spending any money on and have this huge distraction. And you're of course left with this question, is it worth it to land Apple as a customer? It wasn't that serious. It wasn't that serious.
Uh
Because
When we figure it
Oh.
A big market.
Four twenty eight.
Uh and therefore
Oh we
And to
Inquis
Vastly our capital spending.
We didn't have Apple in mind.
Mm. We didn't include Apple.
Apple.
Same thing as the
Mm-hmm.
Yeah.
Anyway, for the company in total, but not for twenty eight, you know.
I twenty eight, twenty eight, yeah.
We didn't have.
We didn't include
Appleing out on the A planning.
But it's still the question of are you
Are you willing to go do this huge distraction and spend on the order of ten billion dollars over the next few years?
doing twenty nanometer for Apple when you weren't planning on doing twenty nanometer at all.
That's right.
That is where
Oh
connection with uh
Oh one sex.
Came in. Yeah.
Yeah, remember I I planted a lot of seeds.
And
Well.
Went T S M C, yeah.
Oh.
I knew that uh one of these days it will probably
Need.
uh top level investment bank uh advice.
So
We sta we establish a good relationship.
With uh Goldman Sachs.
Oh very early.
In our existence.
I was in fact a
Or the writer of common sex. Did you know that? Yeah. Yeah.
Yeah.
Uh we did uh the uh
uh ADR with uh
Common sex, yeah.
Oh.
Which uh
Uh
open up uh a a good relationship with all the side.
I was
You're New York.
New York public listing of

Yeah, it yeah is.
American
Deposit right.
Receives, yeah.
It's New York, yeah.
It's it's it's a separate market, you know.
In fact, why don't you
T S M C
Pause.
uh ADR price.
Uh.
is uh has the uh
twenty percent premium over
Really? Wow.
How?
Yeah.
You need
T S M C board.
Permission.
to some uh
Your shares.
Two eight yellows yeah.
Otherwise you'd be able to arbitrage.
Yeah.
We don't want that.
So
As I said, as I I was saying.
The board has to approve
Any conversion.
Of
Uh
Ordinary.
I want
T S M is Star.
Two.
Eight yards.
And the border.
Does not give such permission.

Mm.
Easily, anyway. Okay. Yeah. So you had
Planted this seed with Goldman Sachs when you knew you would need them.
Why are they helpful?
No.
Uh we we need
Oh.
Fun.
I mean.

Apple thing came.
After we had already
decide to increase.
Oh.
Capital spending.
Yeah.
Yeah.
No, you know.
Apple.
Mm.
Requires.
You have more capital spending.
And
We have to
Figure out.
Well
The cash is gonna come up.
So
No, there were several possibilities, of course.
We're paying

A big dividend.
Back then.
But uh
Uh
A modest dividend man.
We could cut the uh there were then.
And uh there we could we uh also could
Self stock, you know, new
Stock offering.
You th
Yeah.
Oh in
The US, uh
We have the ADRs and though.
Oh.
Or we can borrow money.
No.

Cobra bonds, no.
Or you could only fill
Part of Apple's order.
Right.
And uh
We in fact we we did we did that.
I you know.
Uh well we first
We first did
Oh.
Financial planning.
And uh
We decide uh
Not who cut everything.
We desire not to sell new stock.
We decided to just borrow.
And uh
I mean this was also
With consultation with the common sex.
We chose.
All right.
How much?
I looked at the numbers.
And
Just as you said.
I decided to take half of
Well Apple said.
Well Apple said.
They need it.
Is this common, by the way?
Ca it seems like it would be in a customer's interest to come to you and say
I need to buy zillions of chips from you. I need all your wafers, cause they have no skin in the game.
of you spending all the money.
I know.
I know.
Well
Back uh in the nineties, in the first
Uh let's say fifteen, the first ten.
Twelve, fifteen, yes.
Of our existence.
We were
Short of capacity.
Almost all the time.
Uh and
What you just said.
Happened.
All the time, you know.
And so we figure out uh
that will require
A deposit.
Well
The customer.
And uh we'll even
Confiscate the deposit.
If the time comes to him.
Comes for him to
to take it away first.
And he doesn't, you know.
Mm.
And uh
Everybody delight in the world.
Gaan we skate.
So uh it was first used by me, okay.
I told the salespeople in
San Jose.
I said.
Power the comes from money.
They need we need a deposit from them because you know
Just as you said, uh
It's
Oh money and it's only their words, you know. Uh
They mean not.
Won't be uh wafers when the time comes.
And uh I told the salesman, tell the customer the walk
Confiscate the deposit.
And
The salesman never
Heard anything like that before, you know?
And uh so they were they were
They were.
Oh.
Yeah. Uproar.
In happiness, you know. I mean.
No, you know they they
They could actually stand up and tell the customer.
Uh the the
We might even

Confiscate your money.
But of course.
Uh it really.
We never
Confiscate any money.
No, it it it did happen.
Quite often.
Uh particularly in the
Two thousand, uh.
Two thousand
We had uh
I think it was called Internet uh.
Recession, I think, yeah.
Because in in in into there was
Yeah, you know, people will
uh starting companies, uh
A call.
Pets.

Yeah.
It was anyway. So we had the recession.
Which trickled all the way back to semiconductors.
T SMC's revenues
It was four years.
after the dot com bubble before they were back at the at those rates. Yeah.
Yeah.
Uh well is it
Five yeah almost four yes, yeah.
Uh two or I remember uh recovered only in two or three, yeah.
You started in
Two thousand.
No.
Start in two thousand and one.
The first quarter of two thousand and one.
and recovered in the third quarter of two thousand three.
So it was three. Yes. Wow.
Oh yeah.
Mm.
Or one.
Oh two.
Uh.
Yeah.
So four scroll or what was we?
Three years.
Um
Anyway.

It quite a few customers have
Pays deposits.
Yeah.
To anticipate.
Normal, good times.
Doing those, yes.
And we did
Build the plant.
Uh impact we
What?
Oh wait.
Wait.
Purchase.
Oh I should say, yeah.
Uh.
Yeah, we bought.
Uh
Uh a couple of other companies.
And uh
So their plants, their fabs became
Oh.
And then gasom then need the
Wafers.
Anymore.
Uploads.
Absolutely no more.
And uh we didn't
Mm.
Confiscate there.
Deposit.
But we let them
Delay, you know.
Yeah.
Right.
Eventually every one of them.
They all
Use there.
You stop their deposits.
But
You know, th that would come, you know.
And so then back to
At this point, early twenty eleven.
With Apple.
You go to them and say
Uh
We are prepared to serve
Half.
Yeah. The number that you told us. Well, first, uh of course, uh
The new
All right.
business development director.
C
Yeah.
Mm-hmm.
Had the uh
I was.
Oh
First telling the
Lower level.

Purchasing people.
Yeah.
At that point.
And uh uh he got he got
He got the response back.
You must be crazy, you know.
Uh so CC did not comment on that.
Uh at least he said he didn't come here that he brought it back to me.
And then I went to
Uh
Apple myself.
And talked to.
Jeff Williams.
So I said to him.
Well you have to
Yeah, sure.
Cobra bonds.
I think I use the word prudent.
After all the
Who don't?
Financial planning.
We've decided that.
Oh take.
Hopeful
What you asked for.
Uh he he was uh very uh
Uh
Very quiet about it.
You only make one suggestion, sir.
What?
I think you can.
Eliminate your dividends.
Yeah.
Your shareholders will understand that.
I said, Well no, I don't think uh
Well the fact is I ha I had looked into that. I mean that's that's also
uh reason for you know having uh
high level.
And solding uh
Uh, that wise.
Um
About one third.
Oh.
Investors.
Shareholders.
Uh
Very
Seriously.
Interest.
Yeah.
The dividends.
So if
If we do what uh
Yeah Wim said.
Oh stock is going to look like no.
Trigger a sell off.
Right.
Anyway, but
But uh
Uh
When I talk to
Who Jeff Williams, so
And I I I went to see him in uh
Mm.
What's the price of Cupertino. Yeah, Cupertino.
Uh I mean he was uh

Fairly willingly, you know. No.
No no but no big problem at all. The only
Suggestion.
That he made.
Was uh
The elimination of dividend, you know and I said. No.
And uh uh he he then let it
Just uh
Oh.
Uh.
Oh.
Okay.
Uh
But so then.
Uh
That is ordered.
I mean, how much demand do we
It would take.
And how we will get we still had to borrow
Billions of dollars.
You won't we'll see.
What?
Hey papa.
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That Ben and David sent you.
So this really was, especially after the tw the investment in twenty eight nanometers that depleted your reserves, this is a bet the company move.
You're you're you're taking out a bunch of debt to go build
Yeah. The fabs to make this happen. But yeah, I don't know. Better company, but I I didn't
I didn't think I would lose, you know. You sound like Jensen. We sound that's exactly what Jensen said.
Yeah.
Uh
So um
All right, but I think that uh
The financial
Discussion.
with Apple had already happened.
When
Apple.
But Jeff
Williams.
Call me.
In February.
Oh.
To all
We're talking about who eleven, yeah.
I saw.
Uh.
Oh, we'll see why.
Short.
Conversation.
Well.
Um
So
Uh we need to
Oh
H
Oh discussions.
For
Two months.
Because
Yeah.
highest level
Oh.
Intel.
Has
Approached.
Ton coke.
And
Has.
Yes.

to cancel the intel.
And at this time Intel was the major supplier for all Macs.
Apple's Mac line was all Intel. Yeah.
Yeah.
Yeah, that wasn't the issue, of course.
I mean.
Uh in February.
Uh of two eleven.
Jeff Williams was talking about.
Mm.
I found. Yeah.
But they had a
A close existing relationship.
Yeah.
I don't know.
What relationship?
They really have, I know.
Well.
It must be close, no.
So
That was all he said, and

I wasn't
All that worried.
Because in two eleven.
Um
Intel was
No longer.
A name.
That
You would
When you're here.
It will.
Stand up and bow, you know.
Yeah.
Interesting.
Heck, you know, in in the nineties, in the
Late.
In the late uh
Uh probably it's
Century.
Ah oui.
They were a name in semiconductors.
Yeah.
Well she is.
Of course I'm exaggerated.

Moore's Law. I mean it's the their intel.
Yeah, interrupt.
If you hear the name, if you hear that they are in competition with you, you know.
My goodness.
It'll be.
Trembling with fear, you know.
I mean, this is why you started T SM C as a pure play foundry business.
because you didn't want to compete head to head. You you said we should not be an integrated design manufacturer of
the design of the chips and the manufacturing, we have to compete on a different vector because we'll never catch Intel.
Well I I didn't say that we never catch it. Look where we are in twenty twenty five.
Yeah.

Okay. Yeah.
Uh
Uh anyway.
So
So uh I I I

I of course had to accept uh
Jeff Williams uh request.
All right.
Um but again, you know.
Uh.
As I just told you, I wasn't all that worried.
Because uh.
Oh.
Why reviewed in my mind.
Or the
Characteristics.
Uh that uh
Uh Apple.
Is uh
Looking for.
Mm-hmm.
Supplier.
Uh technology.
At that time.
We thought we were.
Almost a paw.
With Intel.
Almost.
Oh in fact I thought we were.
I think I thought we were at part with Intel.
Manufacturing.
I thought we would.
That's in too.
And
Customer trust.
We thought.
Oh customers.
Just more.
Yeah.
Intel.
Toss the mess.
Just for the intel.
So
I will do word.
But uh then indeed
And I also thought that
When when Jeff Williams
Told me.
The highest level of intel.
I thought he was talking about uh
Somebody like
And he goes, of course.
But yeah.
But it turned out that he was only talking about uh
DCO or we didn't tell him that.


Yeah.
Well I knew that only later.
Would that have been uh Bob Swan or Paul Adelini?
No, it was uh
Oh the Italian guy.
Paul Autalini.
Yeah.
So today Intel doesn't make
That
Chips in the iPhone. What happened?
And in fact T SMC makes
All of Apple's chips. Yeah.
Oh.
I wasn't too worried, but uh you know I
If still was uh
In my mind.
So a month passed.
Uh
I think it was uh about the middle of February
When Jeff
Call to tell me to
Oh.
For two months.
Uh so
Almost exactly.
A month later.
Much.
Middle of March sometime.
I decided I would uh
Pay them a visit.
And uh awesome.
What's going on, you know?
And the progress.
So I emailed Jeff and uh asked for an appointment.
Uh
Coming to
Peace.
Silicon Valley anyway.
Oh.
Which was pretty normal.
Uh
And uh
Stop in.
It's your price.
On such and such a day.
Is that okay?
And uh Jeff uh
Replied.
By saying that uh
Yeah, come here, but I won't be here.
I have asked
I'm good to see you.
Oh yeah.
Yeah.
Freedom.
You have freedom of

His space.
Two CA business or
It was.
Imperium is
Uh uh.
I seldom had uh
In my career, you know. Yeah, normally someone says someone on my team will see you, not my boss will see you. I know, I know. It was usually that way. It was usually the other way. Yeah. But uh
But in this case there was
Just.
Well anyway, so I showed up and uh
Uh Tim was uh very nice to me and
Took me to lunch.
Twee can't fit here, I guess.
Well, there was a lot of food.
Well you picked oh.
Food.
And Carrie.
I'll try back to his office, you know.
And uh anyway, he told me uh nothing to worry about.
Because uh Intel.
Uh just
Does not know.
How to be a foundry.
Hm.
That's
A very short
But they are
Satisfactory answer to me. Yeah.
What is your interpretation of the meaning behind that statement?
I was explaining to you and then we had uh
uh on technology, on manufacturing.
Subconsciously, I think.
I interpreted it.
Jeff's uh
Explanation to me to be.
The third one.
Customer trust, you know.
I mean they were always
Well superior, you know, Intel.
Before this Apple thing.
Apple and we
Before
Apple

Oh
Asuma.
I knew
A lot of
Intel's customers in Taiwan.
Yeah, all the
PC makers.
Uh
Oh Intel'cause.

I'm done.
None of them.
Like
Intel.
I don't know.
Yeah.
Internal and always extract they would do.
The only guy. I mean they were the only guy, you know.
The for the uh
Uh Michael Parsons, yeah.
And that's for their microprocessor business, but
Here we're talking about the foundry business.
Where T SM C at their extreme
Core does not compete with customers.
And even if
Intel is trying to do business in good faith.
They do have the conflict where they also design ships.
Which is competing with
Apple's chip designers or NVIDIA's chip designers or
Any other things.
But I really don't think Tim meant that.
Hm.
I think he meant that though.
The customer asks a lot of things.
We have learned
To
Respond to every
Requests.
Some of them.
Well crazy. Some wrong well.

So what irrational.
We are to respond to each request.
Courteously, which we do, you know.
Into
Has never done that.
Mm.
Yeah.
Intel
I mean I I I said that I knew a lot of uh
Customers.
Oh but
Intels.
Here in Taiwan.
And uh
None of them they they all wished
that there were another supplier.
Hm.
Yeah, none of them.
Either trust the intel or lied intel.
So the
To finish the Apple story.
The short answer is it worked.
On twenty nanometer.
Were there any trade offs where
Uh, that did did pursuing twenty nanometer and spending the billions of dollars cost T SMC in any way?
Well, uh mine of course, but uh yeah, the the story
Certainly does not end.
Yeah.
Alright, so
I mean there was pricing, you know every
Everything.
Well, it's not easy.
Posing
And Jeff.
Came himself.
And um
We talked about rising
And it will of course.
We had done oh.
I'm homework also.
On the cost.
And
Oh.
What
What what what kind of price will we accept?
But uh Jeff came and uh
He told us.
Just a number, you know.
Well he uh he gave us just reason.
Yeah, too.
Make sure.
Yes.
component costs uh beat a certain goal.
Also, yeah.
But anyway, um
That was that old.
And that's Jeff said.
Mm.
And yeah.
Well when the pricing was settled.
I said, Let's go out to dinner.
Got way.
I pay.
P Star.
Uh restaurant.
But then.
And Jeff jokingly said.
Mm.
If you didn't like the pricing.
We will be
We're probably gonna be going to a
McDonald's.
Oh.
Which was never in my mind, but
Say that.
Could you tell us a little more about
What goes into
Considerations around pricing.
I imagine things like the yields you think you'll be able to get.
Hugely impacts that.
Sure.
The cross, yeah.
Well
The the main the main thing that goes into pricing
Of course is the cost.
And then the second thing is uh of course um
Where the uh
Your desire the price.
Will be
Except to by the customer, you know.
One thing that has occurred to me is
Uh T SM C now gets
mid fifty percent gross margins, call it fifty five, fifty seven.
uh higher than your time. But many of your customers have 70, 80% gross margins.
Yeah.
TSMC is creating a lot of value, the designer is creating a lot of value. How do you sort of sort out
Who gets to capture?
the value.
the privilege of sorting it out now, you know. She's she she's she way, I think.
That's the pressure.
Mm.
And the duty of sorting that out.
Yeah.
Well, I mean
as a general principle, you know, uh
You try to find uh
A kind of a middle ground.
Which is different.
For every CEO.
Uh.
Even though
Ever you see your
Uh who wants
To protect his reputation.
Every CEO says, Ah, I worry about the long range.
But in choose.
Uh.
Not everyone does.
So
It's a very personal.
How to sort these things out.
I think it's a very personal issue.
Yeah.
For a lot of COs
There's really no choice.
You have to
I
You
You have to as a supplier
You have to accept
A certain price.
If it's a commodity particularly, you know.
We have not finished with Apple yet.
Please let's finish Apple. Yeah.
Now uh I think you were asking
Oh
Whether there was any uh
Uh trade offs.
Trade offs.
Well
The trade off uh
There was
A fully
Significant.
Serious trade off.
And that was the detour that I said, you know.
We talked.
Oh we at that time.
Back in D.
Uh

Eleven twenty.
Twelve.
Time.
We
our RD was was not strong enough
To do
Two notes at the same time.
No we are.
But back then we weren't.
So
The trade off of accepting
The
Fly no technology.
Was that?
We
Delayed out.
Sixteen node.
Development.
Hm.
And then
Samsung.
Came up with the six years.
They had lost the trending business, you know.
So they
There's
They
Well ahead of us in the sixteen
Nanometer Department.
Because they got to skip twenty.
Yeah, they got they didn't get it from me, okay. They they they they they didn't need to.
Yeah, trying.
So I got a shock.
I mean it was a real shock.
Well I heard.
That
Ebb placed.
Yeah, first orders of
Six seed.
What
Samsung.
No, that was the real shock.
We invest so much.
Even though we took only
half of their original.
You mad.
It was still
Tens of billions of dollars, I think.
And
We were cutting on it.
Being at least
Eighty, ninety percent of the equipment.
Being
Converted her to
Sixteen.
And now.
If Apple
Went to Samsung for the six year.
Well
Did that leave us?
You understand what I'm Oh yes, yeah. Sounds horrible.
Yeah.
So I would feel like I got tricked.
Well.
Uh
I wouldn't say that, okay, but I I would
I was
I was
I was uh I was really short.
Uh that was uh
So
I emailed the
Jeff Williams, uh right away.
Oh.
Uh in uh said, you know.
Oh.
We we invest in all these equipment.
Oh
Counting on you to
Take the
Uh.
Six.
Se fine formas.
Uh but now you know we
We found out you were buying sixteen.
The first six years anyway from
Sure.
So uh
Jeff.
Replied.
Immediately.
Don't worry.
I'll be here, I'll be there. I'll be in
See you next week.
And explain to you.
So that um
Maybe yeah.
That relieved me.
Little.
Uh.
Uh
But uh
Not completely, yeah.
But uh next week
Uh he did show up.
And uh he explained to us, he said, Well
No.
As soon as you're As soon as you're ready.
Or do you have succeed?
Bart from you.
By all.
The knees probably go.
Well, you already.
No.
Of course.
That completely.
Relieves me, yeah.
Because
That's what we're supposed to do anyway, you know.
So uh indeed what you said was true.
No.
We we developed
We had our own sixteen.
About uh
Half a year later.
And uh
Most of
Apples.
Si nanometro.
Requirements.
So
Be longed.
To us.
Mm.
Yeah.
Most. Yeah.
I I can imagine.
Uh the shock that you must have had.
At the same time this also again just illustrates the
brilliance of of T SMC and the
the Pure Play Foundry business model.
Uh-huh.
Samsung
is Apple's cheap competitor. Yeah.
Ah no.
I know it was
Uh
Uh I said in the autobiography, you know.
Me.
So then
In Sin Jo
being in the foundry business
Uh
I actually uh see a lot of things.
before
They actually happen.
Uh.
Uh
So let me tell you.
The IBM call com.
Sorry.
Please.
Uh
No.
Allcome.
Oh
We consider the call count to be
Yeah.
Him.
Uh
Yeah.
Candidate.

To be our customer.
Oh we we really wanted to call them because we knew they were
A technology house, uh
What year was this?
This was uh way back.
You know.
Well you started it.
Uh in the nineties anyway.
Yeah.
And they were part of that initial wave of fabulous companies. Yes.
They started um
Oh, when Jacobs started a quadcom.
Oh
Actually before
Uh I start with the
Uh T S M C.
Yeah, so we're just starting the in
Eighty seven.
Walkham, I think was uh a few years before that.
Yeah.
So we um in the nineties.
Early nineties.
All the way up to
N
Seven maybe.
Ninety six, ninety seven, all the way up to
Yeah.
Later part of the nineties.
We want uh
Walk.
To be
A
Customer.
And um
No.
I saw there.
Operations V P
That's what they call that.
What about customers call.
They're purchasing people operations.
B.
Operations. Yeah.
And I I saw I saw him
Often.
And it was always
Pretty polite.
But you
It was very little business.
And I also knew that his
Foundry, his main foundry was IBM.
Uh no.
Sometime in the
Later nineties. I forgot where there was uh
Ninety seven or ninety eight.
Oh Suddenly.
Uh he
Start.
Yeah.
First you start uh
Who tell me that.
You w use us now.
He didn't
Even tell me
Mm.
Oh, competitor wars.
Our compared to happy.
But I
I kind of knew that it was five EM.
From other sources.
Of intelligence.
And uh
Our
Business with program.
The business the quality.
Gave us.
pretty rapidly increased.
After that.
Absolutely.
Ninety seven, ninety eight period.
So
I
Immediately new.
No.
IBM.
Semiconductor.
Was in trouble.
Mm.
You go.
I mean.
They have their own fabs and so on.
But their main
Business.
was really
Spain.
So uh
Mm.
Workham.
And a few other
There are small companies.
Small fabulous number.
So
I immediately knew.
Uh IBM well seeing.
Trouble because
They were losing.
Well.
Uh all right.
So the next step
Not IBM talk.
What's not a surprise to me.
The next step they took.
was to ask us T SMC.
Two
Co develop.
The next generation.
Of technology.
Which is
Point one three.
Mike one.
Hundred thirty nanometer.
Yeah.
Night to you.
Ninety nine.
And since I anticipated that
It was no problem at all for us to refuse the
Mm.
And in fact, even
Even if I didn't anticipate that.
We were never, never
Have accepted that kind of an opportunity.
Cold debt.
I mean IBM was still, you know.
Yeah.
They
Still consider themselves to be.
The senior.
Yeah.
H
Uh in any partnership.
They established.
The senior part.
So we were
They they the company that co developed something with them.
Well send
It's engineers.
To IBM, you know.
Mm-hmm.
And
When we do that we
lose our ability to
To develop our own
Awesome.
Who have to depend on the
Cold Armand.
Thing.
And
The code development thing
It's gonna have a lot of difficulties, you know.
Oh I can know.
Our people know.
We'll be in a different
Culture.
So we declined
Without having to think about it at all.
We declined to the
Yeah, IBM all.
And IBM in fact was the
Right, uh
Angry, you know.
Okay.
If not.
Oh we're still.
I
Small
Taiwan.
Yeah.
Backward place, you know.
Taiwan company.
And they are big IBM.


So they
Uh immediately
When to uh
Uh.
U M C.
U M C accepted.
Only to regret.
Seriously.
Yeah.
Exceptance uh a few years later.
And UM C at that point in time was uh
Was it fair to call it a peer of T SMC here in Taiwan in terms of volume and size?
Not by nineteen ninety nine.
They were already smaller.
Smaller.
They were smaller already. Yeah.
That uh what's what I may why I said that uh
So he uh found very
I
I I can see some things that uh
Oh like this IBM thing. Yeah.
This might be a a good time to go back to the learning curve.
Speaking about the importance of owning
your own technology and process at the leading edge and controlling your own destiny.
You develop
The learning curve.
I really did not define.
Certainly did not initiate it.
I'm I I think I had a role at T I.
Yeah.
Refining it.
To the point.
Where
A semiconductor company.
Can use it effectively.
That's my role. Yeah.
So uh how would you explain it to a novice?
Well
Explaining the learning curve theory is simple.
Uh but
One would be foolish.
Yeah.
One just takes the symbol.
Explanation.
No.
And think so. That's all it is.
The simple explanation of learning curve is that
Uh.
As you
Make
Mo
Uh
One
Thing.
Anything.
Oh.
Actually started with refrigerators.
And the cost of no.
Mm.
If a company makes more costs.
Yeah.
Is of course.
Yeah.
A car.
Unicross.
Come stop.
That's why it's also called
Experience club.
You gain more experience.
You become
More efficient. Yeah.
That's a simple explanation.
But uh
If one uh
Just
Takes that simple explanation.
And things that's all it is it is about.
Yeah.
Yeah no.
I think you're ready.
Heaven.
Learn anything at all.
All right.
Anyway, um
Uh the learning curve. Well
Who's Handelson?
Yeah, who is now
Oh.
And so the
Oh
The
Father.
Oh bo.
uh strategies.
Founded Boston Consulting Group.
Yeah, he w he he was the founder of uh Boston.
Consulting group.
And uh
Uh no.
I mean there's a branch in uh
Um
And uh
Business economics.
Uh
Uh that's uh
That's called though.
Uh competitive strategy or something.
Competitive strategy, I guess.
Um
Uh and Michael Porter was at one time
Uh
Uh
A big
Think uh in
This competitive strategy.
Well he wrote.
Three or four books, you know. Big books, you know.
Seven hundred page each, you know.
I I have all of them.
His original competitive strategy memo, I think it's like twenty pages, is still some of the bus best business writing ever.
Just? Michael Porter. Oh.
Well, good. Who was a director of TSC at one point, right? Why?
Yeah.
Yeah, I had a story about uh him, uh
In my auto biography, too.
Which uh because of time we probably won't go into.
No, not Michael Porter.
But Bruce Anderson.
Uh we will talk about him.
Oh.
He was uh
He is now considered to be
Father of uh the
Competitive strategy.
He came to Texas Instruments.
One day in
I think around
Nineteen seventy.
Um
I should say your first cord.
Yeah.
See all
Mark.
Shepherd.
And uh
Told him.
Yeah.
Uh
Also in consulting group.
He had founded a Boston Cont Consulting Group.
And we we have
It kind of.
Yeah.
C G
has uh
Hey.
experience curve theory.
Yeah.
Would
Benefit.
semiconductor industry.
And TI was uh the largest company in the semiconductor industry there.
Yeah.
What Mark Shepard.
Oh like
A presentation.
Uh
Theory.
The Marshall said yes.
So Bruce Henderson brought
Well being.
Uh you probably know that name.
Oh.
With him.
And came to war.
Double.
And made a presentation.
Mark S.
Invited uh
The C O is the C O O
And me.
So
Attend.
The presentation.
And it was uh
A very uh
Eloquent. Uh
Presentation.
Uh, because you know, Bruce Henderson was a very eloquent man.
And uh Bel Bain was
On the side. Yeah.
Well apparently Bruce Anderson's

Uh anyway.
Mark Shepherd was uh impressed.
And he decided that uh
Yeah it worked.
Uh with
Uh
B C G
Oh no.
And so
Learning curve theory.
And uh
Bush Henderson then
Uh.
Assigned.

Uh to
What
Most of the time.
At T I, you know.
Most of my
Like three days a week.
And uh
Makshebba side me.
as T I's uh
Guy.
So
Bill Bay
And I

And
I
That's fine.
Well being.
Small of us.
Uh close to my
Office.
Ah TI.
In the same building.
And uh.
Small office because
He needed a lot of things.
For me. You need the permission.
To get out costs.
Oh, prices.
We're we're the lot of family, so
In the Queen Circuit, so
And transform.
I mean she had
Low requests.
So it was uh easier, yeah, if he was nearby.
And uh
Every time.
Well he
arrived at some
Interesting, useful conclusions.
She will also discuss them with me.
So we had a
Very present association.
For
Oh thing.
Two years.
Maybe even more.
And uh he will, you know.
Uh five.

To uh Dallas.
Every Monday.
And uh
Go back to Bosnick a Wednesday night.
Oh firstly not.
And uh of course every time.
Yeah.
Went back to
Paws and it will be
Hotel.
Uh Bruce Henderson.
Well.
What he had done that week.
Oh just
Happened. This went awful.
I think two years.
And then finally
Uh Bill Bain came to see me one day.
Oh.
And it was in those two years that
I absorbed.
Uh.
A lot of uh
Learning curve stop.
Which
Uh.
I used.
Up to
No, no.
Yeah.
Oh
Uh
Highly, um
High foo four.
Yeah.
Just a
As a thinking tool, you know. Yeah, yeah.
It seems so fundamental to the industry, but
that you want to get through the low volume period as fast as you can. I ideally you spend no time
In the low volume period.
And it seems like over time
all the returns in the industry, all the the winner is the one with all the volume because they'll just have the lowest prices.
And there's a flywheel.
Or once you have the lowest prices, you get all the business, then you can reinvest that in the next node. It's almost yeah, yeah, right.
I couldn't have told you that TSM C was gonna be the winner, but once you internalize the learning curve and globalization, you can sort of
into it, then in the future there will be one winner.
Yeah.
In semiconductor manufacturing.
But one day.
After a couple of years.
Uh
Well Bank to to be in Dallas.
Set.
You are the first one
I tell those two
Outside.
The Boston Consulting Group.
I am
Leaving
Also concerning group.
who start
My own
Consulting company.
So I said, Why? I said, you know.
Obviously Bruce Henderson.
Thanks very highly of you.
And uh Bill Bains, yes.
Uh but
There is
B.
Walls.
Imperative.
Mm-hmm.
That's the first time I heard that term in the
Waard imperative.
He meant for him personally. Yeah.
Well him personally.
Oh anyway.
That was that.
All right listeners.
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As our time.
Comes toward a close.
One question David and I wanted to ask you is
T SMC is essentially the only trillion dollar company in the world.
Not on the West Coast of the United States.
It is this incredibly important thing in the world.
Yeah.
It's this unlikely success of grand scale.
Unlike it in your opinion.
Yeah.
I mean you started it when you were fifty six. Yeah.
Yeah.
I'm not gonna argue with you, okay? I'm merely asked.
As a point of uh
A curiosity, you know. I didn't realize
I didn't think it was that unlikely, you know. Well it
It it did exceed
My expectations.
T S M Cs.
Size.
And importance.
Excuse the
Bye.
Expectation.
But not.
By an order of magnitude.
But wasn't the original plan to stop building after Fab Two?
Oh, that was never that.
Th that was only
Yeah.
Very initial plan. Okay. Yeah.
We're never going to stop there, you know.
Oh yeah.
Oh just talk about learning so
You know that, you know.
Yeah. How could we
Yeah.
So
If I didn't know anything about learning crib.
I would say, yeah, maybe we would stop after two two pants, you know.
But I w
I was a serious student of learning for
And I would never I would never stop
Uh
Uh just two maps.
Here's why I say uh unlikely success. There were so many reasons why the original incarnation of TSMC
was kind of a bad business.
Fabulous.
was not a thing yet.
And so all of your initial customers were the integrated device manufacturers.
the intels of the world. And you were taking
Their worst
you know, excess
you were their second source supplier for manufacturing on the stuff that they didn't want to make on their own.
Did you see Fablis coming?
Or was that
A very lucky thing.
No. I saw it coming.
Uh and uh
Yeah.
In fact I just said dinner.
Oh, two months ago.
I didn't know.
Or the first guy.
Gordon.
Kimball.
Cordy Hemble. Mm-hmm.
Do you have you heard his thing?
Anyway.
Cody Campbell.
came to see me in general instrument.
In my
Uh final months.
A general instrument.
He came to see me. He did not know that I was leaving.
Well, I did not know when I saw him.
That I was leaving.
Yeah.
But the reason he came to see me
Yeah, general instrument was that he wanted the
Funding.
You want the investment.
From general instrument.
Fifty million dollars, she said.
You want to
Start a new company.
Fifteen million dollars.

Do you have
A business plan?
No.
It's all in my head.
So I said, Well
I I need
At least the business plan.
I mean I have to go to the board of journeys.
So he said, All right.
I'll send it to you.
Well then three weeks.
Three weeks later.
It was no business, man.
And I was interested because I knew that he had the
Mm.
reputation of starting
Mm-hmm. Companies.
So I called him.
And he's Ah, Mars.
I'm sorry, I didn't send you.
Any thing.
Because
I don't need you anymore.
I share.
How come?
He said.
I don't need fifteen million dollars more.
Yeah.
Anymore.
I need only five million dollars.
And five million dollars.
I can't gather up.
All right.
I share.
Why do you need only five million dollars?
He said.
I'm not gonna build a VAP.
See?
That was
The start for me.
Yeah.
There will be
Fabulous companies.
Another guy.
Uh
Came to general instrument.
And said
Mm.
Had already started a company.
Which was called.
Mel A T M L.
And
They
Did not have any fabs.
Mm-hmm.
Yeah, this guy.
Wanted the general instrument.
To make the way first for them.
And back then General Instrument
You know.
And uh
MT Fabs.
Uh.
So
I said.
I told you.
Semiconductor manager of general instrument, that's it.
Well go ahead and
Work with him.
Don Valentine who I'm sure you y you knew. Uh uh yeah, I knew him. Yeah. He had a great
Great quote.
When asked about starting Sequoia.
And he said
Well, I had an advantage.
I knew the future. And it sounds like you knew the future too.
Well, at least I.
Uh they
Hims of it, you know.
Yeah.
Oh.
So
Mel, you know, uh
And
They were still
Fighting. I mean um
He wanted the Fab to be run
His way.
No, of course.
The John Insome and Semiconduction Manager.
Wanted to
Wonderful Fab.
Just why you know, I mean.
I'm saying it's on the fab, anyway, for heaven's sake, you know.
So that was
Just
A very early
Such a origin.
In which
The
Difficulty.
And the advantage
Oh
Running a
Foundry businesses.
Already appeared, you know.
The difficulty was you know you
Uh just
Saddleby a lot of
Customers, you know.
And everyone, you know, wanted a
If I've to rerun
His way, you know.
Oh.
But you can only run for one way, you know.
Which will satisfy.
More or less, all the customers.
And uh of course.
Yes, you have a lot of customers, you know.
Yeah.
We can't thank you enough, Doctor Chang.
Doctor Chang, thank you.
All right, very good. It's my pleasure.
Even though uh it's the first time in a long, long time
I have talked so long. We appreciate it. Thank you for doing it with us.
All right, listeners. Well, David and I are coming at you now from our home studios.
back in Seattle and San Francisco.
And uh
We wanted to do a little postgame on that interview.
A little bit of uh uh
analysis, kind of our conclusions, the things that are still sitting with us a few days later after we've crossed the ocean.
And uh
Uh David I
This felt essential to me because
it felt like we were just recording history there with Morris. I didn't want to interrupt him to try to like make a business model point or it just kinda felt like uh we should let him talk and then we could do our part after.
Yeah, totally. And uh fortunately we have a model for
Doing analysis at the end of story, uh playbook.
Our playbook. So let's do it.
Okay, so the first thing that
I
Can't shake that just keep sitting with me.
Is
This idea that
Is genius in hindsight.
Of not competing with your customers being the dedicated Pure Play foundry, which we actually saw in the TSMC.
Museum of innovation. They have
Yeah.
Morris's original

Taiwanese government.
The government and then to investors. There's like two different versions of this extremely simple pitch deck. And one of the bullet points, it's right in there of BA Dedicated Pure Play Foundry.
At the time.
I get the sense it was actually much more about
What can we win at?
versus what will be the most
important and valuable semiconductor company.
in the world in the future.
Right. At the time they didn't have the capabilities, certainly not TSM C and and it didn't exist in Taiwan.
To be able to design
Chips and products. So
Like.
It was impossible for them to compete with customers. This was all they could do. Right. It crossed Morris' mind for sure, hey, we could compete with Intel, but then it he scrapped that.
I get the sense.
Because
the thing that they were good at was this manufacturing angle. And it's almost like an accident of history.
the the Pure Play foundry ended up being
the best way to do this.
I guess best as
evaluated on market cap versus other foundries and integrated device manufacturers such as Intel.
Well, and best that like this is the path that has led them to
being essentially alone operating at the leading edge. Like they have surpassed technology wise.
All of the other integrated
you know, integrated and quasi integrated
uh chip foundries out there.
Yeah, I guess that's my first thing is the this uh
Connec you can connect the dots looking backwards, as as Steve Jobs said in that famous quote.
But uh forwards is difficult.
This
Primarily I think was the main reason why T SMC has worked so well.
Mm. That they don't compete with customers. They are truly the only foundry
At the leading edge.
that does not in any way compete with their customers. They don't have their own end product division. They don't design their own ships. It is truly they only serve their customers and they do not compete.
at any other part of the value chain with them.
Right.
Okay, so if you're asking yourself, how did the world arrange itself in this way such that you could have a trillion dollar company that doesn't do any design?
That doesn't do any
architecture that doesn't do any uh EDA tools like cadence or synopsis.
Um
So they're you know, they're not NVIDIA.
They're
Not arm.
They're not cadence synopsis.
They're not ASML, like they're not their own equipment vendor.
So what w what enabled this?
One of the things that I think is under
appreciated. And I I we didn't talk that much about with with Morris, but
The rise of arm.
If if you try to play forward a world where
Intel and the X eighty six architecture had maintained its dominance.
You wouldn't have had this
window this opportunity for the value chain to sort of rearrange itself.
But the fact that
There was an architecture
As we talked about on our A C Q two episode with Renee.
Uh from ARM.
this architecture that became dominant in phones and then computers and then servers and you know now is coupled on with all these AI chips.
You open the door to have a
Dedicated foundry for ARM chips in a way where if it had stayed X86, it's not like you could start a new foundry for all the fabulous X86 companies.
For the longest time, Intel was the only X eighty six company. And then AMD, of course, is the the second source and AMD is a
TSMC customers. That's sort of the one edge case is like, well, there is AMD that designs X86 chips that TSM C manufactures, but that's not.
like the common case of the way it would have gone for an in an x eighty six dominated world. It would have been
Fully
Integrated Intel.
Yeah, but I mean one
Super straightforward and
enormous example of this just is Apple. Like
If ARM hadn't become such a viable CPU
Architecture platform.
And Apple hadn't standardized, you know, their Apple silicon on ARM.
Probably Intel would be making all of the
Chip that go into your iPhone, all the leading edge chips that go into your iPhone.
Like they already had the Intel relationship. Macs were running on X eighty six Intel chips. Yeah, you have to keep peeling the onion because this, of course, pre supposes that
the that Intel actually
could have gotten their act together and made a
Chip.
for mobile phones that was performant. But maybe
Uh all the baggage from x86 actually prevented them from structurally doing that. It wasn't like a competency thing. It was like a that it never could have happened that x86 could.
Run on phones.
Yeah.
I I think all this is true.
But if ARM hadn't existed, like there would have been nowhere else for
Yeah, this vector of innovation to go. Right. The point that we're driving at here is this world where there's a standalone architecture company, there's a standalone big manufacturing company, there are standalone EDA companies, there are standalone.
Um
uh designers, you know, Apple, NVIDIA.
In a large part that's due to arm.
Yes, and ARM and TSM C are sort of like coupled at the hip of history.
uh of when this m how this came to be. In fact, didn't you find that a bunch of these were started within twelve months of each other?
Yes, totally. The mid to late eighties were like
And
Absolute golden period for all these companies getting started. Not only TSMC, ARM, synopsis, cadence.
And ASML.
All founded.
right within a couple years of each other.
Which brings us to
Hinshu Science Park.
Going there in person
We talked about this on our original T S M C episode that you know
Even if you wanted to, you couldn't airlift TSM C and this
capability out of Taiwan and recreate it somewhere else.
Yeah, we talked about that as if we knew it.
in sort of an abstract way. This was very different driving around the science park feeling it in a physical way.
the entire ecosystem. It's like if Silicon Valley were all in one, you know.
kind of government sponsored, you know, industrial park. Uh which
It's sort of.
Was it was Silicon Valley, you know, as we talked about in our
Lockheed Martin episode. Oh, the early Lockheed, yeah. Yeah, the early Lockheed years.
But
That's what it's like today. It's all right there. It's not just TSM C that's there. It's all of their partners. It's all of their customers, you know.
We're driving.
This is a cadence building there, and that's a synopsis building there, and that's an arm building there. There's Qualcomm.
There's media tech right there, headquartered right there.
Right across the street.
The craziest thing to me
We saw there are two
Universities
That are just like there.
In the science park.
Yes, like that are cranking out PhDs.
every year that are just getting absorbed right there in the ecosystem. I mean this would be like
If there were two universities on the NVIDIA campus.
The thing that really
jumped out to me is uh you always hear people talk about how
Integrated.
This
ecosystem is with each other.
That
You know
Synopsis has to be
Closely.
Uh
Yeah.
tied with TSMC to understand what the next node will look like so that they can make it easy for people who are using Synopsises.
uh tools to design ships
To
Okay.
you know, actually manufacture using TSMC's process.
uh you kinda get the sense of, oh, I see, because they all are walking across the street to each other and having this extremely close communication.
uh not to mention, David, both of our flight experiences kind of felt like, oh, there's a this are a bunch of chip design uh fabless companies that are making the pilgrimage over to
uh Taiwan to meet with people in this ecosystem.
My plane felt like the semiconductor version of
the tech buses that go from, you know, San Francisco down to Silicon Valley every day. I mean
The backpacks that I saw on the plane, like there's a Google backpack, there's an Amazon backpack, there's an ARM backpack, there's a Marvell backpack. Yeah.
Which does raise the point of this uh Arizona fab and the sort of outside of Taiwan fabs.
You know.
Why is it
TSMC doing it because it's not their leading edge. It's not big volumes.
It's not leveraging this really close
Geographic
ecosystem that they have in I believe there's three science parks in
Taiwan. We saw the original, but there's one that's even bigger. I I think it's the Tainan
One in the south.
But
It just kinda becomes clear that
It's

Customers and government reasons.
Two
build fabs in other countries.
But you're not gonna be able to recreate.
The magic of that ecosystem like physicated right there.
Yeah.
It would take decades.
To recreate.
the ecosystem that they have in the science parks.
Which is, you know, funny on that front.
Uh you and I were saying as we were driving around there
This has got to be the single
Most successful
government funded industry initiative of all time, like anywhere in the world.
At least to spur innovation.
With this
particular of a mandate.
Totally. The land grant universities here in America, but like this was like a
uh like a a rifle shot like you know we are going to spur semiconductor industry innovation in this
s industrial park in this
Location.
And it worked.
And there you have
one of the ten most valuable companies in the world and the only
Uh I guess one of two
Uh
trillion dollar companies that are not on the West Coast of the United States.
I would say it worked.
Yeah.
It worked. It worked.
And the scale too, we drove by a construction site.
where it looked like a quarter of the building was done. This is the where they're making the two nanometer process, which presumably will be in the the next iPhone.
Um, it's not like anyone said anything about that, but it jeez, I wonder after five nanometer and then three uh N three E and N three P when they have this two nanometer process, I wonder what they're gonna make on that.
Lots of NVIDIA GPUs and lots of iPhone chips.
Massive building.
phase one was open, which I think is a quarter of the building, but then there's three other phases uh for this uh two nanometer facility that are not even, you know, ready for prime time yet. But I think they're actually doing the small production runs.
getting ready to ramp in the second half of this year on the two nanometer process.
Like you said, the scale
Of the physical
Buildings of these cabs.
Smacked me in the face. I felt like I was looking at
a Sphinx in in Egypt. I mean like it's huge. It's like f many football fields.
Of size like you know.
just per phase of the fab. These are enormous buildings.
Yeah.
Okay, so
Back to things I've been noodling on since the uh
conversation with Doctor Chang.
I felt a little bit bad.
For saying
Hey, your original business plan was kind of
A bad one that
basically taking the excess capacity from Intel and other IDMs and giving them a place to manufacture their least critical
least leading edge, least interesting chips.
Uh
But
That is
True. I mean he he
believed that fabulous was gonna be a thing, but for the first
I don't know, a at least five years.
The only real business that they had was IDMs who were willing to say, how how cheap can you give me?
some of your manufacturing capacity and it's
Not strategic at all, but here you go, here's some revenue.
This is a major difference in Intel's Fab strategy.
Versus T S M C Intel
Uh is constantly taking their existing
Fab footprint.
and repurposing it and upgrading it for the leading edge.
Which, you know, on the one hand is
Great, it's utilizing their assets, you know, for the most valuable, highest valuable.
Products.
On the other hand, though, they then lose the manufacturing capabilities for
older process node generations
And it's not like demand goes away for those chips and those products.
It does. It just does slowly. It does slowly, yeah. And I mean like replacement parts is a great example. Like, you know, there are
technology systems and products, you know, manufacturing things, even automobiles.
built ten, twenty, thirty years ago that have
specific chips that were made with old process technology that when they break and they need replacing, like you need those exact same chips.
So this is the business that
T S M C started in.
Right. So that is the fundamental philosophical difference is I I think fab
So Fab one belonged to Itri.
the the government
uh where Morris was president of that organization before
taking the the helmet T SMC.
Uh
Fabs.
Two and three
were the first T SMC specific fabs that they built, and they're still running.
From the late eighties.
And
In addition to the old replacement parts, there are still applications for older nodes. If you're in this this world of
You know, forty nanometers and up and you know, one micron and I I don't know all the
names of the previous generations, but the
the less high resolution etching on silicon.
Uh
CMOS sensors are great examples of that. The the cameras that we're talking into right now that have these great Sony sensors.
Uh those don't require a two nanometer process, but they do require
Etching the same way that you would etch a chip. And so
That's a specialty use case of TSMC's older fabs.
Which by the way on an accounting basis are fully depreciated.
So
They're almost like free to run.
Right, right.
All the capital expenditure. Now there's maintenance capex that needs to go into it, of course, but like
The initial capex, yes.
fully depreciated. You're just getting like
Essentially very, very high margin dollars out of those old fabs. Right.
And it's not that it's a better or worse decision than what Intel has historically decided to do, but it is a different one. Intel is going to keep closing the old stuff so they can
own a smaller footprint and keep all the equipment and everything focused on making the latest and greatest.
Just not what T SMC does.
Totally.
Totally.
But that point of I'm obsessed with this idea that
Uh.
It was funny.
that Morris went on the record and said, No, I knew, I knew Fablis was coming and he had a couple of great anecdotes about that, which is funny because in older interviews sometimes he goes, Oh the the timing was a little lucky.
on when Fabless Happened.
But uh I think he even said to Jensen uh in the first few years of TSMC, growth wasn't very high because we were waiting for the customers to emerge.
But it it really is this idea that
He saw the future.
He made a bet.
And he did kind of a crappy business.
To build up competency
Capability.
Volume. Capacity. Yeah, exactly.
to build up literal fabs. Right. To be there when the fabless revolution happened.
And I don't know, you know, I I I think he'd
Yeah, I think he was within twelve months of when he thought it would happen, but it is crazy that when especially in his memoir, you're reading the story about the early customers.
Year five, year six, year seven, the majority of the business is still not fabulous. It's
Someone else's
You know.
Worst orders.
Which that actually gets
to the heart of learning curve pricing that we
Spoke about with Morris.
We brought it up sort of like tangentially with him, but it's probably worth dwelling on what is the learning curve.
Yeah.
I mean the core insight
of the learning curve from
B. C and Bill Bain and Bain and and Morris that they all developed together.
Yeah.
By the way, how crazy is it the f the founders of BCG and Bain are the ones who sort of co-develop this, or at least
n named it and formalized it with Morris when he was at TI.
Totally.
The insight is that like
The goal that you are playing for is to be the largest volume player.
Kinda.
At the end of the game.
So if you take that as a given of like
If we get to be the largest volume player, this is a fixed cost business, this is a scale economies business.
We can spread that fixed cost over the maximum number of customers.
How do we get
to the maximum number of customers in the early stages of the game where it's more competitive.
We accelerate
The pricing
to where we think it will get to at the end of the game. So that's why doing these price cuts and and also
starting low with your prices. Like you can even start
unprofitable.
with your prices in the early days in a given node generation.
Because the goal is crowd out the competition.
become the industry dominant number one player, get all the customers, once you aggregate that demand, then you get the scale and then you can get the economies of scale pricing.
But just like
Get to that as fast as possible is the name of the game.
Yeah, it works backwards from it actually involves a lot of market sizing.
Yeah.
maturity on this node.
What do we think demand will be?
For
You know, call it forty nanometer or
How many orders of
individual.
chips will there be in forty nanometer.
Okay.
Well,
To have the cheapest
Price for customers we need to
do the biggest ordering. And so then it's it's just a matter of like, how fast can we get into volume production?
Yeah.
Everyone sort of intuitively grasps this. Oh, economies of scale.
But the implications across your whole business, your pricing strategy.
The way like strategic finance, how do you when do you decide to take on debt? When do you not? When do you decide to take on more shareholders?
It's this incredible orchestration to make it happen. You know, it's almost Costco like in the ballet that has to go into this.
Right. I mean the example from Apple.
We are about to go get the absolute whale customer and we have to balance
Taking on
All of their order.
Which the learning curve would tell you you you want to get the deepest down the learning curve possible. We should go take all their order.
But you all that kinda exposes you to existential risk in your business.
When you're not
you know, within spitting distance of doing that volume on your own. So is it really worth betting the entire company
You gotta be so precise and accurate.
in your forecasting of the ultimate market demand, which means the ultimate demand for your customers' products.
Which in the Apple case means ultimately forecasting.
Accurately.
How many customers are gonna buy the next generation iPhone in order to run your business?
Right, or in NVIDIA's case.
How big is AI going to be? You know, I uh these are this this is kind of a crazy thing for a manufacturer to have to do to have that.
uh crystal ball into the end market.
Um
markets, you know, the end their customers' markets, but they really do need to
make bets on how big those markets are gonna be.
Yep.
'Cause if you're off by five, ten percent, that's gonna tank your entire profitability for that node generation, which is gonna tank your free cash flow, which is gonna mean you can't play the game in the next turn.
To this point though, if you actually
Are good.
at all of this and you you are good at forecasting and the execution is flawless.
What's you
Internalize the learning curve.
The story of TSM C goes from one where
It's surprising and unlikely and
It becomes an inevitability.
Of course.

company that is taking on
All the orders.
To have the lowest prices.
Right.
Of course this will be the end state of this industry.
is to have a dominant player.
Like right now it costs I don't know, tw on the order of twenty billion dollars to build a new fab. Eventually it will cost forty billion, eighty billion, a hundred billion. H uh how many players are really gonna be left standing with the ability to
deploy a hundred billion dollars to build a building.
With some machines in it.
This market has natural
Monopoly characteristics.
Yeah.
Yeah.
And that's just the capex side of the equation.
as we talked about with Doctor Chang, like
There's also the R D side of the equation that needs to go into creating the next process node.
That can, you know.
Be built on that CapEx.
Yeah, it is crazy that if you
Just
look at every year the capex versus the net income.
Of this company.
They basically spend
all the money, not all the money, but their their capex grows in a very similar way, if you look at the bar graph.
to their net income from the year.
And so
That is even before R D, David, to your point, if they were looking around at competitors at other foundries.
And saying.
Uh
Okay, how much
can we invest? They and they they can invest more than anyone else because they have the most volume.
And then on top of that, they are also spending in a separate bucket of R and D.
on the technology for their manufacturing processes. And that's how you get COAS, which is the technology that they use for packaging for AI chips.
That's their, you know, proprietary thing.
uh which by the way, once you have proprietary packaging, then it's even harder for customers to go and
you know, double source, double manufacture elsewhere. They have a similar technology for um
uh packaging of mobile chips that that doesn't use coas.
But
It seems like this is a market where
Those in the lead are only going to
get further in the lead over time.
Absent some big strategic mishaps or some big execution mistakes.
Yeah.
Totally.
And then I think the last
Playbook theme.
here for me and for us is just that uh
Moore's Law is
Undefeated.
I mean
At the end of the day,
back from starting all the way back Morris' career at TI
And being a contemporary of Jack Kilby and Bob Noyce.
The invention of the integrated circuit.

The compounding growth
Of that industry is all that mattered.
Everything else.
is just downstream of the fact that the world is gonna demand
More computing.
At this.
monotonic
exponentially increasing pace.
Every eighteen to twenty four months.
Yeah, and of course like
Yeah.
technical definition of Moore's Law expired a long time ago, but like spiritually
The world demands.
Roughly two X.
the computing power that it had.
Two years ago, every two years.
And that has continued for
fifty, sixty years at this point and shows no signs of slowing down and as a result
Well
No signs of slowing down except that they keep hitting theoretical physics limits.
Well I said the demand side of the equation shows no s shows no signs of slowing down.
Well, sure, but the demand side is far more than two X.
Moore's Law has always been about how much
can happen on the innovation side of getting better at design and manufacturing.
And that is getting harder than ever'cause we're having to like
call more things more's law. You know, packaging was never a part of the original Moore's Law.
and uh software improvements and uh proprietary interconnects.
My point is that it's a self reinforcing system. As long as the demand is there that the world wants twice as much compute as it had yesterday.
There are gonna be you know.
market incentives to drive the supply side. And that is why people work so hard to make it happen.
All right, here's the stat. Since TSMC was founded in nineteen eighty seven, the world's semiconductor market has grown from 26 billion.
to five hundred and twenty seven billion last year.
So
They wrote a ridiculous tailwind. Ridiculous tailwind. Yep.
A ridiculous tailwind where
as the industry reorganized away from the vertical integration of the Intel world.
you could build a trillion dollar value foundry.
Yeah.
the scale of the numbers are so staggering. I keep thinking about
The fact that
They can go spend twenty billion dollars to build a building.
And the stuff that they spit out is so valuable that that twenty billion
was a profitable investment.
in a matter of I don't know how many years if it's three, five, seven, whatever the payback period is, like
They know for sure
that it's a worthwhile investment to do that.
Yeah.
The whole thing comes down to
Oh my god.
Silicon has become really valuable. Like integrated circuits.
are the fabric of our world today.
Ha well
Ten.
What an amazing experience.
So glad we did this.
Went to Taiwan, got to see this in person.
Got to spend this special time with Doctor Chang.
What a great way to start the year.
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Should do carve outs.
Carmouts.
Alright, I have two.
One is a uh
Okay.
Kind of a hilarious. I can't believe it's 2025 and this is my recommendation. For anyone who's not a triple A member.
I highly recommend it.
Oh, I had a
spectacular triple A experience where I went to fill up the air in my tires before a road trip.
And uh
Uh
I went to the gas station and there was something wrong at my local gas station with their pump.
And I ended up draining the air in my tires to an unsafe level.
And so the car was actually not drivable.
away from this gas station. I was like, crap, I can I can't even go get the other car to and I had my baby in the backseat and my wife and I were trying to figure out what to do. And
Right, do we have to call a tow truck to like
To us to
And so I um
Signed up for Triple A while I'm just sitting there in the gas station parking lot and within
I think an hour, hour and a half. They had a mobile
Tire inflator.
On a long weekend.
Like a holiday weekend when other people aren't working, drive out.
And uh
Fill up my
the the air in my tire so we could be quickly on our way, not ruin the weekend.
Amazing.
And it was like a hundred bucks or something. It's really not a bad price and you get
I this was see a hundred bucks to become a member or whatever is hundred and fifty. And then the
service is actually free for something as trivial as this. And you get three of them a year. Wow. So I'll I'll take it. It was a it was a phenomenal experience.
All right.
Triple A. There we go.
My second one is a YouTube channel.
Called defunct land.
Uh, you and I were talking about this
Oh yes, this is so good. You turned me onto this.
Yeah, it is an entire YouTube channel that I actually haven't watched in a while, but I only remembered it from our conversation and now I need to go back and watch older ones.
That talks about defunct theme parks.
So if you like acquired and you wish you had something, you know, acquired like that's kind of visual, that's about
uh history and intellectual property and people trying crazy stuff.
Some of the most crazy entrepreneurs and executives within companies
decided to build theme parks.
And it is very fun to see
the weird old Nickelodeon hotels or action park in I think it's New Jersey, the like wildly unsafe
Park from the sixties, seventies, and eighties.
Oh.
Man, those were the days. Yes.
You could get lost for hours and hours and hours watching Defunct Land. So I highly recommend the YouTube channel.
I'm really glad that uh
You and I uh grew up as kids in the era where uh
We could still take unreasonable amounts of risk and nobody thought that that was there was anything wrong with that. Yes.
Yeah.
Um
Mike Carval, uh
Speaking of you know.
It being twenty twenty five, how are we talking about this?
On the plane on the way over.
to Taipei.
Um
I finally watched
Everything everywhere all at once for the first time. So I can't believe I hadn't seen it before, but
You know.
Two kids under three and a half. Not a lot of time for movies.
It's so good. It's so good. I think this was your carve out when it came out a couple years ago.
Um
Just so so so good.
Truly enjoyed it. Lived up to the hype.
W deserves every award that it won.
All right, well, we've got some thank yous to folks who helped us prepare for this episode. So first to Art DeGius, the co-founder and executive chair of Synopsis.
Had a great conversation with us.
Uh well, first publicly with um Sassine Ghazi, the current CEO of Synopsis on an ACQ two episode a little while back.
Uh, and then uh we chatted to prep for this episode and
Basically ask the question, what should we be asking Dr. Chang about?
We uh got some similar notes from Renee Haas, who is the CEO of ARM.
Great conversation with Sir Peter Bonfield, a current TSM C board member.
and former CEO of British Telecom.
David, I know you've got a few also.
Also to Wally Rines, the former CEO of Mentor Graphics. Wally is a
legend in the semiconductor industry. Uh
Almost on par with uh with Dr. Chang. They were contemporaries at T I.
Back in the day.
Uh, and to John Bathgate and Britton Johns from NZS Capital are go to
folks on anything semiconductors. They were I think they were more excited, even more excited than we were that we were doing this. So that we got to talk to them about it. Yes. Also past acquired guests. I think that episode has holds up really well where we did uh, you know, semiconductor and complexity theory with them.
Totally. And actually John is the one originally who explained to me
How
EUV lasers work, which is still one of the most impressive accomplishments in human history.
Uh, to John from the Asianometry YouTube channel. This is just an incredible channel.
All about semiconductors and about
how all of this stuff works. I mean, I I learned so much about CMOS sensors, about how they make the
Actual um
Silicon
wafers themselves. That's a sophisticated process before the etching even starts.
Uh he's just got some
Awesome, awesome videos on the Asianometry YouTube channel.
And uh very kindly bought David and I dinner and hung out with us the night before the interview, which was very fun to do in Taipei.
Very fun.
Also to Tim Culpin, a former Bloomberg journalist who now has a sub stack called Culpium, also gave us some great
Topics to chat about.
And lastly, as always, to Arvind Navarotanam at Worldly Partners.
He did a great, great write up on T SM C that he'll be posting publicly
Um
Right before we post this episode, so you all can see it. It was
great last minute prep for me after reading the memoir to get someone else's take on what makes this company so special and actually some of the stats that we threw out in
our um playbook came straight out of his write up. So if you want a more and kind of a more analytical view of
How did TSM C become T SM C
Uh he's got a great study on that that we'll link to in the show notes.
So
If you like this episode, go check out other semiconductor episodes. NVIDIA, we've got four of them at this point.
Uh one of them is an interview with Jensen and then we've got the whole history of the company across three different episodes.
We did a great live episode several years ago on Qualcomm.
Which I think is a sleeper pick. That's right. That's right.
Total sleeper pick.
Amazing story. Erwin Jacobs.
One of the greatest entrepreneurs in American history.
Yes. And our diving into how CDMA works was one of the most fun technical explanations I've ever done.
on an acquired episode. So if you want to understand how all of our cell phones work.
Go check out the Qualcomm episode.
Or of course, if you did not last week listen to the T S M C remastered episode.
Uh I don't know how you got this far without listening to that, but
Y you should go listen to that.
After this episode, check out ACQ two. We've been talking about this episode with Synopsis. There's one with Renee Haas from Arm Holdings that we did. It's our most recent episode, so it's spectacular. And if you're interested in semis, go check that out.
Come talk about this episode with us in the Slack, acquire.fm slash Slack, and if you want to know when a future episode drops.
You can uh find out, sign up at acquire.fm slash email.
And you'll also get episode corrections and hints at what the next episode will be.
So without listeners.
We'll see you next time.
We'll see you next time.
Who got the truth?
Is it you, is it you, is it you Who got the truth now