TSMC Founder Morris Chang
en
January 27, 2025
TLDR: In a rare English interview, TSMC Founder Morris Chang shares untold stories about TSMC's relationship with Apple and NVIDIA, and offers lessons learned from these experiences.

In a rare English interview with Morris Chang, the founder of Taiwan Semiconductor Manufacturing Company (TSMC), the episode delves into the pivotal moments of TSMC's history and its evolution within the semiconductor industry. Here’s a comprehensive summary of the key points discussed in the podcast.
Introduction to TSMC
- The Origins: TSMC was established in 1987 as a dedicated pure-play foundry focusing on manufacturing chips for other companies, rather than competing by designing its own chips.
- Initial Challenges: Early business relied heavily on excess capacity from Integrated Device Manufacturers (IDMs) like Intel, offering a limited scope. However, this positioning laid the groundwork for future growth as the fabulous semiconductor model emerged.
Key Relationships and Partnerships
NVIDIA
- Formation of a Key Partnership: Chang recounts his relationship with Jensen Huang, the CEO of NVIDIA. In 1997, Huang reached out to explore a partnership, helping transform NVIDIA from a struggling brand into a major customer for TSMC, especially during pivotal product launches.
- Navigating Challenges: In 2009, Chang faced a crisis when manufacturing issues threatened to strain the partnership. His decisive actions, including direct communication with Huang, led to a settlement of over $100 million, reinforcing the collaborative relationship.
Apple
- Landing a Giant: The episode highlights how TSMC secured Apple as a major customer. Through a dinner meeting arranged by Chang's wife and Terry Gou, CEO of Foxconn, Chang was able to pitch to Apple's COO, Jeff Williams, leading to the development of chips for popular devices like the iPhone.
- Overcoming Technical Hurdles: Apple initially sought 20nm process technology, even though TSMC was fully invested in 28nm. Chang had to weigh the risks of diverting resources against the opportunity of becoming Apple's go-to supplier.
Adaptation to Market Dynamics
- Learning Curve Theory: TSMC's strategy has been influenced by the learning curve principle, focusing on driving down costs through volume production. This helped TSMC to offer competitive pricing while enhancing manufacturing capabilities over time.
- Technology and Capacity Investment: Morris Chang emphasizes the need for continuous R&D and capital expenditure to stay competitive. TSMC's investment into advancing nodes has positioned it as the leader in the foundry market as technologies evolve and become more complex.
Challenges and Resilience
- Intel Rivalry: The shifting dynamics in the semiconductor industry required TSMC to navigate issues of competition and partnerships with firms like Intel, which has historically dominated the x86 architecture. TSMC's focus on pure-play manufacturing allows it to serve its customers without competition.
- Economic Pressures: Chang faced numerous economic challenges, such as financial downturns and pressures from shareholders, leading to tough decisions about CapEx and R&D investments. His experiences highlight the resilience and adaptability required in the fast-paced technology sector.
The Future of TSMC and Semiconductors
- The Path Ahead: Looking forward, Chang discusses the potential for growth in technology demand, especially with the rise of AI and other emerging technologies. As the world increasingly relies on computing power, TSMC stands to benefit from its foundational role in enabling these advancements.
- Market Monopoly and Innovation: The podcast concludes with reflections on the structural advantages TSMC holds, being one of the few dedicated foundry companies capable of managing the extraordinary costs associated with semiconductor manufacturing.
Conclusion
The insights from Morris Chang provide a fascinating glimpse into the strategic decisions and visionary leadership that have made TSMC the powerhouse it is today. His narrative underscores the vital intersections of technology, partnership, and adaptability in the ever-evolving semiconductor industry. With the groundwork laid by TSMC, the future of technology seems poised for continued innovation and disruption.
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The podcast about great technology companies and the stories and play- Don't use the technology. Now we definitely have a cold opening. All right. I guess I really want us to be about technology companies again. Well, this is a technology company. It's a sign. All right, here we go. Who got the truth? Is it you? Is it you? Is it you? Who got the truth now?
Is it you is it you is it you?
Welcome to the spring 2025 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 TSMC 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 unacquired, 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.
It is kind of insane and super cool that Jensen made time to help us with this. 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 Hinchu Science Park, where many of TSMC's fabs are located. Super cool to see. Totally.
So conveniently, Dr. Chang just published Volume 2 of his autobiography a couple months ago after a 26-year hiatus from Volume 1. 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 Vidya and the birth of the fabulous industry.
Yes, and big thank you to Karina Bao, who we were lucky to connect with after we set this up, and who has been translating Morris's 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 then 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 announced past episode corrections plus a fun little game where we give hints at what the next episode will be. I always have fun writing those. You do. That's a clear David job.
This episode is presented by our partners at JP Morgan payments. Yes, just like how we say every company has a story. Every company story is powered by payments and JP Morgan payments is a part of so many of their journeys from seed to IPO and beyond. Yep. So with that, this show is not investment advice. David and I may have investments in the companies that we discuss and 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 TSMC's special relationship with NVIDIA? Yeah, it started my relationship with Jensen, started with a letter that he sent to me
I think it was 1997, and the letter was sent through the post office, and I received it in Xinjiang. And the letter said that they were NVIDIA, the company that Jensen was, the CEO of, was a small company, but they had developed some
really promising chips, but they were looking for a foundry and they had approached the TSMC's San Jose office, but they really got no answer from San Jose office.
would I please contact Jensen because NVIDIA really wanted to do business with PSMC. So I was going to the US in the next week anyway. So the letter frankly raised my curiosity and also
irritated me a little bit, because, you know, I had always told ourselves people that, that we should never be a, a negligent in talking to future customers, even if the customer seems to be a very small one.
And at this point, NVIDIA was four years old. They were facing bankruptcy, I think.
and they had maybe 50 or 60 employees. So TSMC, I think, at that time already had the, a few thousand employees. We had exceeded, I remember we had exceeded the 1 billion US dollars in revenue in 95, and this was 97. So we were relatively speaking, we were a pretty big company.
which is very impressive. You were yourself only a 10 year old company doing over a billion dollars in revenue. Yeah, right. So the following week I went to California and I called him back with our advanced notice. I called Jensen. I looked up. I think there was a telephone number on the stationery that he sent me the letter on.
Jensen himself picked up the phone, and there was a lot of background noise. He was arguing something with his people. But as soon as I introduced myself to the smartest term, he immediately shouted it to those people that were making noises. He said, quiet.
Mars Chinese calling me. So I then proceeded to make an appointment with him, to visit him, to visit NVIDIA the next day or something like that. And that was our first
visit our first meeting and he immediately impressed me with his articulantness and also impressed me with his optimism.
Well, he was also very frank. He told me that Nvidia was in financial difficulties, but the chip that he wants now to have found it was not only
save the company. It will also make NVIDIA a major customer of TSMC. I mean, that was actually quite a bold statement. We were over a billion dollars.
To be a major customer of ours, he would have to produce revenue for us of at least 50 million a year, okay? Was that chip the Revo 128?
I forgot the number, but it was a very successful chip. I don't think it was Reeva anything. It was a games chip, of course. It was successful. In fact, his prediction came true. Not only did it solve NVIDIA's financial problems,
prevented from being bankrupt. Not only did they do that, it also started to make them a major customer of TSMC. Within 12 or three years, they did become
one over the biggest five customers. Very successful, a chip. So there was a great partnership forged there. TSMC would fab the chips, would manufacture them, and video 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 want to go to this moment in 2009 on the 40 nanometer node where development was slower than TSMC 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 decided to
give the CEO job to a potential successor of mine while I will still retain the chairmanship. In Taiwan, usually the chairman is the top man anyway, even though CEO is another person.
So the problem you just mentioned happened during the period when someone else was the CEO. Apparently, it was a manufacturing problem. It was also a quality problem. And it was the quality problem that the CEO first reported to me. But the CEO insisted that our people
we had the director of quality insisted that we were not TSMC, it was not a thought. And so on that basis, on the basis of our party managers arguments,
He had not offered Nvidia anything. Now, as far as the manufacturing problem was concerned, it was a new problem, and everybody was suffering from it. And of course, Nvidia at that time was perhaps the biggest customer of that node, the 40 nanometer node.
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 problem, apparently, just continued. And I was, even though I was not a CEO,
I was getting a little impatient. And then, of course, some other problems, popped up, other problems, then this 40 nanometer, and with their problem, other. So I decided to take the CO position back. So in 2009, I did that. And there were several
priority problems that I had to deal with when I took the CO job back. And one of them was this continuing problem, continuing argument controversy with NVIDIA.
Anyway, I remember in the first few days after I took back the CEO ship, I called all the major customers, including Jensen.
And Qualcomm was a, I believe in that. Oh, yeah. Qualcomm was also, yeah. And Qualcomm, the top customers didn't change very much since, except for maybe one, yeah. Apple. Apple, yeah. Apple came later, yeah.
And in my car with Jensen, he was still very friendly with me, but he also reminded me in a very serious tone that we had the quality delivery manufacturing problem on the 40 nanometer.
All right, so I said I knew that and it's one of my priority problems. Give me a couple of weeks and I'll get back with you. And as I said, I did have several problems, aside from the 40 nanometer
manufacturing problem and the problem with the argument that we were having with NVIDIA. Aside from that, we also had the problem of the pricing
I was dropping faster than a cost. I mean, you don't want to see that. Of course, margin percentage kept dropping. Because 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 rate.
All right, so that was one problem. Another problem was, was the immediate one that triggered me to retake the CO ship, because the previous CO had laid off, except he didn't use the term laid off, you know.
He used that performance review, the worst performance review people, and there were about 600 or 700 of them. And he laid him off on the basis of their poor performance review. Well, we never did that.
I mean, the worst we would do was to put them on, please them on probation for six months. And quite often, you know, at the end of the six months, everybody would go back to his, or his or her old job. And some of them would get
transferred because they were in the wrong jobs, you know. So some of them will get transferred, but 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 who to lay off. That's right. Yeah. And I actually, you know, I have told the managers that, you know, and while in 2008,
Of course, there was a financial crisis. And the semiconductor business, in fact, got affected. And our revenue dropped, our business dropped pretty seriously. I was not a CEO, I was a chairman. But I just knew that anyone
Any general manager, any CEO, general manager, without very much experience. What he or she would do in his situation like that. It's kind of a knee jerk, kind of reaction. Oh, he says, oh, this is my test. I got to save all the money possible,
And I got to, you know, lay off 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, I know. Well, it's a much better thing. But it's a much better range of people actually think the same way as I described, you know what I mean? They are lay off. They are people too. I had a lot of experience at Texas Instruments.
But at Texas Instruments, I was not a CEO. I was just one of the top managers under the CEO level. And when the company decided to have a layoff, the CEO conferred with the top managers who included me. And their first reaction was exactly the same. And I'm talking about the
early 70s, early 70s, their first reaction or whole trade-off was exactly the same as what Howard TSMCCO did in late 2009, which was, you know, go by performance. I mean, well, now I was the only one at Texas Instruments
in the early 70s that said, no, that would not be a credible way of doing it. People would not respect us if we lay off by performance ratings. And why is that? Because it's very subjective. Performance reviews
The performance ratings are done by everyone's own supervisor. So 700 was performing people in the company. And who gave the 700 people the bad ratings? 700 supervisors, you know, very subjective. It's not something that people will respect. If in a year you have to hire people back,
you have to hire the laid off people back, then you shouldn't lay off, because the lay off the separation expense is usually half a year, about half a year. And it takes at least half a year to train a person. So, if you need the people back,
Well, then a year you shouldn't have, you shouldn't lay off. So what did you do when you came back as CEO, both about the employment issue and about the customer issue? You mean customer issue being a video? Yeah. Well, to finish the employment issue, the laid off employees, as I said, there were 700 of them, six or 700 of them.
came to my home to demonstrate and protest. Now the company, TSMC, was pre-worn that hundreds of people would appear in front of my home. So they notified the police department in my district. So the police department sent
50, 60 police officers to try to maintain the order. Now, more than 100 protesters appeared. And the neighbors, my neighbors in the trouble getting in and out, that was only the first time. A month or so later, the problem was still not
solved. I was still not the CEO. So, they appeared again. Some were protesters. About 25,000 decided to spend the night sleepover in the little park. That's about a block away from my home.
My wife literally didn't sleep that night, you know. She would wake up and went over to that window to take a look to see what was going on. But then, very early, the next morning, my wife, six o'clock, the next morning, my wife, you know, got up and she took one of the
bodyguards and went to a neighborhood market and got the Chinese style breakfast or Chinese bread, fried bread. I don't know whether you ever had it or probably not.
It's been buns, buns, you know. Yeah, so I've been milking. And take enough of the breakfast, enough for 25-30 people. And back to the park, to the park, and distribute them to the protesters. And they were thankful, you know.
And they actually decided to not go to the president's palace, president's mansion. And they told my wife that they would not do that that day. And all this kind of precipitated my taking back the CEO job.
Well, there's another thing, you know, I told the previous CEO before he laid off the 600, 700 people. I said, if you, because I knew, as I said, I knew that it would be his knee-jerk reaction to confront a crisis, such as the crisis we had.
It was his knee-jerk reaction to lay off. So I said to him, if you want to lay off, bring it to the ball. I'll call a special ball meeting. And I knew what I would ask the ball to do, which was not to grant the permission. But he decided to circumvent that, the CEO, because
Well, he did not consider it to be lay off. It was just punishment for the poor performers. Well, as far as CO is considered, I didn't keep him.
more than one nice talk with him. I intended to, and I told him that he was still a potential successor to me. So I kept him at the same job weight, we have job weights, and the same salary and bonus.
But he was now the president of new businesses. And back then, we had the high hopes for the so-called new businesses, which was
Solar cells and LED. It's the great irony that your core business of manufacturing integrated circuits ended up becoming the largest market opportunity of all. You don't need any new businesses. End up with the biggest marketing, biggest, much opportunity. Why is it so ironic?
Well, it's always interesting to me when companies think, oh, we should look at other new businesses. When in reality, semiconductors became a $600 billion a year market and solar is a small fraction of that. LEDs are a small fraction of that. You were already in the best market. I know.
And I knew that. I did not really mean, I did not really think that Sola or LED would really replace our integrated circuits business. But I knew the integrated circuits business was going to be great, you know.
But at that time, which was 2009, at that time, we also thought that solar and LED was going to be very promising. But it didn't work out, of course. The solar business could have been pretty good. However,
China ruined it, subsidized the hell. And they now control their business, solar cells.
the prices were extremely low, still low, still low. So it didn't take off. TSMC servers didn't take off. And LED did not take off either because LED is not, the market is not as big as solar. However, it's controlled the patterns
are controlled by just a few companies. And they wouldn't let the few companies that control the patterns of LED or not that up at all. So a few years later, the CEO that was put on the new businesses decided that his new assignment wasn't working out either. So, equal.
And he's now running MediaTek, is that correct? He is now the Vice Chairman and the CEO of MediaTek, yeah.
So coming back to this moment in 2009, 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 retoxed the CEO job, I probably spent
almost half of the time on how to resolve the problem with the NVIDIA.
as our youths were concerned, but we were doing our best because, you know, we had to do it anyway, you know. I mean, every day was just one of the customers. Yeah, not just in video, but yeah, Qualcomm and Intel. Yeah, right. Yeah. And it was a very important note for the nanometer was very important note in the progression of Moore's law, you know.
Only after 40, can we, if we do the 40, well, can we, can we do the 28? 28 was the next one. And I called the salespeople that were in direct, that happened in direct contact with NVIDIA. And of course, I called everybody that was somehow involved, somewhat involved in the problem.
So, it was a matter of money, you know. As far as the progress on the manufacturing lines, we were already doing what we could. I mean, it was, as I just said, it was just for NVIDIA. It's for TSMC, you know. But NVIDIA, because they had borne the brunt of the
the problem, the damage. So, as a matter of money, I worked out a number. I familiarized myself with all aspects of the problem, and then I worked out a number. And I also knew that embedded customers were, were after them, you know. They had demands on, and they did too.
So, I use all the intelligence I could get, and I think it turned out that it was good. So, about a month after I retook the CEO's job, I sent an email to Jensen, I said, I'm coming to Silicon Valley,
next week on the state, I will be at your home at 6 o'clock. Let's have just salah and pizza, which was something that we had had many times in the past.
Now, immediately sent back an email. He said, when do we discuss business then? Did he ask who was going to pay for the pizza and salad? He has that. So I anticipated that. So I said, 630 will start having
Pizza and the salad. Eight o'clock shop will go to your office at your home, and we'll discuss business. So on the point of the day, I showed up, and we followed the schedule, exactly, you know, six or a day I showed up. We're the very present Pizza and the salad, you know. Thing is that, you know, his wife,
Lori would make the piece out of the salad, and the piece I was delivered from outside. Maybe they made their own piece up too, I forgot. Would not surprise me. Yeah. Anyway, I had had it many times at his home. All right. So it will cost up. It was I who looked at the watch and said, Jensen, why don't we go to your study?
And I gave him 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 for the eight hours. If you do not, there is not going to be, we're not going to argue. We're not going to bargain.
If you don't accept the offer within 48 hours, we'll have to go to an arbitrator.
which was what he had suggested to the previous CEO anyway, that we will go to the arbitrator. But the previous CEO did not even give him a number. The previous CEO gave him zero. You probably don't want to go to arbitration with your best customer. No, I didn't want to. But I had to say that
And because, I mean, that number, the number we offered him was arrived at after, as I said, weeks of work on my part. And I thought it was fair to both sides, you know. And did Jensen accept the offer? Yeah. He did. Into the willing 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 $100 million, settle. And then since then, there have been many, many billions of dollars of business done together. It's a great success of working out your differences.
I know, I liked it too. That's why I included the story in my all the while.
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After the 40 nanometer node, after you fix these problems, as you said, the next node was 28 nanometers. And as we understand your story and the company's story, 28 nanometers is when TSMC really started to take the leadership role at the leading edge in the industry. How did you decide to go commit so hard to 28 nanometers after having had all the problems at 40 nanometers?
Well, I had a lot of trouble at TI. My peak job at TI was the head of worldwide semiconductors. TI, of course, had many businesses, defense business, materials and controls.
and also their origin, which was geophysical and so on. But TI's semiconductor business was the biggest, and I was the head of that, worldwide semiconductor business. I wanted, at that time, when I was the head of worldwide semiconductor business, our R&D budget,
was 4.8% of revenue, of our revenue. And I thought there was not enough. I just wanted to raise it to 5.5% of the revenue. But my request was denied all the every time I raised it. Now, coming back to TSMC, I wanted to set a number
a number, a percentage of revenue number. So, we don't have to argue every year how much on the which is spent. So, at about that time, about the time, 2008, 2009, when I came back, I just
almost like at that time we were running I think six or seven percent a year but it was the goal sheet every year between the R&D director and the CEO you know so I want to stop that I want to make him at ease and I mean doesn't have to argue doesn't have to
to request every year. So I almost just literally picked a number out of the head. We've been running six or seven percent already. So I said, oh, let's pick eight percent, okay? Eight percent regardless of whether there's a recession or not. And that's eight percent of revenue.
And that was the best news if you ask our Aundi director. Back then, I think, in the second place of Aundi.
He would tell you, I mean, he has told me many times in the last 10, 15 years, that this was really the best thing that we did for Andi. So, they were not concerned. The Andi director was not concerned at all about having his plan budget cut back.
his planned resource, people, allocation, cutback, none of that. So he's been working 8% and so has been like that. And that is what, you know, propelled on the effort.
This period in 2010, it wasn't just ramping the R&D budget, it was also the capital expenditures. You had almost a decade of two to two and a half billion spent building the fabs every year. In 2010, you ramped that to almost six billion. What was it about the competitive environment, the 28 nanometer node that caused you to push all your chips in on that?
Yeah, I think it was the kind of mutual feeding thing, you know. As I settled the R&D budget at 8% of revenue, I mean to the satisfaction of the R&D people, they began to have big ideas, you know.
They began to be telling me how 28 is going to be the term they use, and they have used it several times. But the first term, the first time I heard them using it is the 28.
It's gonna be the sweet spot. It's just like tennis racket, you know? You hit the ball with a sweet spot of your racket. Yeah. Yeah. Do you play tennis? I have played tennis, not well. Good. I was like you, you know. Like 40 years ago, I was like you. I don't play anymore.
But, you know, so I know the feeling of hitting a ball in the sweet spot, you know. Twenty-eight down here, it's in the sweet spot. And so I said, I said, why? You know, he, you know, gave me a lot of technical reasons, uh, uh, primary. So I decided I would, I would believe him.
And he now had the resources to push it, to do it as fast as he could. So, you know, now the capital spending now. Now, of course, back then we had already built up pretty good infrastructure organization, we had a pretty good market forecasting
group, and I had set up the business department department, which was like a marketing department. We always had a pretty strong sales effort, but to me sales effort is just the tactical side with the customers.
Marketing is the strategic side to the outside world. Now, for more of these simple, the marketing, the business development department, which, as I said, was our strategic marketing group. And from the technical, from the R&D side, that 28 was going to be spot.
I decided that, and I quoted Shakespeare in my autobiography, that there is a tide in the affairs of man, which taken at its flood, leads on to fortune. I decided,
this was 28 nanometer was gonna be of our tide. Our next tide anyway, there will be others, seven nanometer. It was another was the next sweet spot, the Andi people told me. And again, you know, reminded myself of
Shakespeare, you know. Taking it the flood. Taking it the flood, yeah. So, I mean, that, however, you know, I'm setting the R&D at 8% of did not invite any opposition from the board.
But suddenly, increasing capital spending, threefold, I think, did invite a lot of questions from the board. Our practice in the board meetings, because back then, even now, most of the directors are from overseas.
U.S. and England, and we would e-mail the agenda to them two weeks before the board meeting. Then, the night before the board meeting, I would invite
the independent directors to dinner. And that dinner, the conversation at the dinner was not on record. So the independent directors actually, three quarters law directors were independent, are independent directors.
Anyway, so in the, in the night before and the evening before the meeting, they had the opportunity to ask me questions if they had any. But on this matter of vastly increased capital spending, they didn't even wait until, until they get to that, they got to that,
Didn't I? Because this was effectively betting a huge amount of the company's cash on this node, this process, this generation. Yeah. And so they called the chief general counsel. General counsel is also the secretary to the board.
They called him, at that time it was an American, General Counsel, was an American. And said, we want to talk to the Chairman. We don't like this idea at all. Anyway, so I talked to them on the phone.
about a week or so before the board meeting. And all right, you know, this is something that of course I told them what I have now just told you inputs from
market forecast, inputs from R&D, inputs from our business development, the new business development department. And of course, you know, they didn't believe it. You really can't convince anybody on something else, yes. So at the end, I had to say, well, look, I heard you, but I am still the guy that's responsible for the operation of the company.
So you need to let me go ahead with this one. So they would satisfy with that. And what was the result? What happened around this era of 28 nanometer that created so much demand? I think that was good. And that was the smartphone era coincided with 28 nanometers.
When the business development group was looking at this, and you were looking at this, did you see how big smartphones were going to become and the immense opportunity that that would unlock for you? No, I didn't. Maybe the business environment that was another interesting story.
Yeah, maybe he knew, maybe he, or at least, I now hope, and I, of course, hoped at that time, too, that he had a more detailed visibility than I did.
But I mean, of course, this was not the only input. I had a 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 do that, let me offer how we made the CC, actually, the business development director. The current CEO. The current CEO, the current chairman and CEO. When Rick was the CEO between
2005 and 2009. He had split operations into two groups. Advanced technology and mainstream technology. And CC was the head of the mainstream.
Actually, really, I should say, the lesser one, okay? Mark Lewis, the head of the advanced state. And each group had a small business development section, maybe 30 or 40 people each.
All right, so I came back to be the CEO, and I never thought the script of two groups was a good idea anyway. In fact, back in 1996,
uh the president he was not a CEO but he was a president uh we didn't have the CEO title back in at 1996 but the president who was that american don brooks yeah right he wanted a tool
I think he got a little tired of running this company. He was going to be here for only a year at first, but he ended up, he ended up spending six, seven years in Taiwan.
Towards the end, he was getting a little tired of running this thing. And he thought that he would do it like TI, for instance. I mean, TI had a Germanian transition department, silicon transition department, individual circuit, bipolar individual circuit, MOS individual circuit, you know. It's the divisional org structure instead of a functional org structure. Right, right, yeah.
But I really did not think that the Foundry business, TSMC students, was suitable for the divisional structure. Because, you know, we have almost the same Google customers.
How do you divide up the company if you want the so-called divisional structure?
You know, you know, Don Brooks was going to divide it by fab, you know, my goodness, you know, the customers moved from one fab to another, the same customers, you know. Not to mention TSMC has 21, 22 fabs now. And so what are you going to have? Of course, you only have three or four fabs, you know, back then. Yeah. But he, he was not convinced. He kept arguing.
And I said, look, why do we get a consultant? McKinsey. McKinsey. What do I get? McKinsey, okay. So we got McKinsey in, and McKinsey after a month or two months, actually, and a couple million dollars, I guess, were told us the same answer, you know, that functional is best. And then Don Brooks said,
Well, tell me one company, one big company that's functionalized. And McKinsey immediately answered Boeing, which is a good answer, you know. Yeah. Yeah. Except it's not true. Boeing has commercial and government.
Well, they probably have have a commercial in government, but they don't have 707, 747, yeah, 757, you know, they don't have, they don't divide it. And if we divide up by fab, it would be like dividing up 707 from 757, 737, you know, yeah. By the way,
Don Brooks' attempt was in 1996. And well, by 2005, Rick Tsai decided to chat the same ground. And he did. This time, I didn't stop him. My idea, my principle, when I was
The chairman and not the CEO was, well, sometimes you have to let the CEO make his own mistakes and learn from them, you know. Of course, not if the whole company is going down to Jane. Jane, so you have to interfere then, but only then. Well, anyway,
So that was the background. Now, two groups, when I came back to be the CEO, the Advanced Group, and the Mainstream Group. And each group had a small business development section, 30 or 40 people. I think Advanced has had more, like a bigger group than Mainstream.
All right, so I wanted to combine the two operation groups and I also wanted a real marketing and I didn't call marketing because I decided to use business development in English because it's a good translation in Chinese. All right, now I've decided to combine the two
groups, operation groups. Now, back in 2009, when I decided to combine the two groups, I think the advanced group had something like 10,000 employees.
And the mainstream group had a little less, but also 7 or 8,000 employees.
And the mainstream group, just because 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 to automotive parts or its CMOS sensors for cameras and finding customers to keep the utilization high on those older fabs from previous generations. Yeah, right. But also,
Quite often, the same customers use both mainstream and advanced technologies now. Take Qualcomm, I'm quite sure that they use the most advanced, or even Apple, I think they use.
Yeah, if you think about all the chips in an iPhone, you know, the A16 Pro was built on the leading edge, but there are many, many other chips in there. Yeah, right. So you combine to one business development organization, 80-ish people. Yeah. We had the...
Mark knew in charge of the events and the CC way in charge of the questions, you know, who's going to be in charge of what, you know, the combiner, or the you need only one for the combiner operations, you need only one person. The truth is that we had a lot of operational talents, you know,
operation, meaning manufacturing, and taking the developed technology from R&D, you know, and converting it into mass production, where the law tells them. But business development or marketing there, and neither Mark
nor CC had any real previous experience in marketing business development. So that was my main worry. We need, we combine the two groups, we need to combine the
operations manager, but even more importantly, in my mind, we needed a combined market business development manager. So, I first offered the marketing business development job to the guy who was in the
a bigger job, advanced signal mark. And I explained to him that I did not think he had had any significant marketing experience in the past. And this would, this new job, if he takes it, would give him the opportunity of
of being professing in that area. But he declared it, he said, my goodness, I have 10,000 people reporting to me now. You want me to take a job that has only 60, 70 people in it?
as long as the end of that conversation. And your goal was for him to become a well-rounded executive in hopes of leading the company after he sort of did that tour of duty. And I explained to him that, yeah. Not to mention it's a very important 60 or 70 people. They're responsible for finding all the next business. Actually, back in my mind, I was thinking of
The time when Kissinger was Nixon's National Security Advisor and somebody else whose name I have even forgotten was the Secretary of State. And Kissinger probably had a couple hundred people reporting to him.
Whereas the secular state had thousands of people all over the world reporting to him and who had more power, Kissinger. Certainly not the name who you've forgotten. Before this period,
You were doing 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. That's right. I was. You were always on a plane meeting with the current top 15 customers and trying to find the next top 15. Yeah, except for those four years when I was not to see you. Yeah.
Yeah, but you were right. I was on the plane most of the time building customers. That was my pleasure. Yeah, I really liked it. Well, anyway, so
I then, of course, offered the business development job to CC. And he accepted the rule. I mean, I thought he accepted it.
even delightfully, you know. And he's now a chairman and CEO of TSMC. 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 6 o'clock or later and
I went home. And this was Taipei. We had our board meetings back at that time. In fact, here, in the, or you have you ever seen, you've seen my conference from across the whole. Yeah, yeah, yeah, right. Yeah, we had all our board meetings in Taipei in that conference.
Anyway, it was 6-30 or so when I got home and I think...
My wife knew that I would not be home until around 6.30, because as soon as I, she actually, she met me at the door, which wasn't very often, you know. But this time she had something to tell me, that's why she met me at the door. She said, uh, Terri Gao calling the afternoon.
and said he was coming to dinner. And who is Terry Gao for listeners? Terry Gao is a relative, is actually a second cousin of Sophie's, Sophie's my wife. And they share the same grandparents. That's what makes them second cousins, I think.
And for our Western listeners who this won't be obvious to, Terry Gao is the founder and CEO of Foxconn. Right, Terry Gao is a second cousin of Sophie's and he's also, he was also at that time a chairman of
Han Hai, which is Foxconn to America. The name slipped my mind for a second, yeah. Han Hai, which is a very important supplier to Apple. And a pretty big company, and in fact, Terry Gao is reputed to be one of the richest men in Taiwan.
And she said, Sophie is lovely, but she doesn't know too much of my business.
I don't think she understood the significance of Terry Gao coming to dinner, bringing a vice president from Apple.
I don't think she quite understood quite really. She wasn't interested either in the significance of that. You had been trying for months strategizing with the business development team, how do we go when Apple's business, the iPhone seems to be working? Yeah, I mean, strategizing is probably too
strongly word. I mean, just thinking. Thinking also, also knowing that we just can't do anything. We can't do anything about it. Apple is a very close mouse company. If you try to talk with, if you offer your service, they will just tell you to go away. They will come to see you when they are ready.
That's what I knew about Apple, even then. And I knew I know the same thing now, you know. Yeah. All right. So it will cost. Now, Sophie didn't know that I would not be home until after 6 o'clock.
So, she had told Terry that, and Terry had set the time of arrival, of their arrival, at intercultural. So, 8 o'clock was a bit late for my dinner, but I said, what the heck? Wait a minute.
So they showed up. I didn't ask her. Sophie just said, a vice president. And I just thought to myself, it wouldn't be just an ordinary vice president. Yeah. So because, you know, there was no reason for
Terry to just bring any Apple Vice President to my home. It must be something special. It must be someone special for TSMC. All right, so Jeff Williams came. He was not just a vice president. He was chief operating officer of Apple.
And, you know, Jeff was a pretty straightforward person. He didn't spend much time in ordinary chit chats.
there wasn't the same pizza and salad period before. It wasn't, but it wasn't formal either. You know, my wife Sophie just added, we have a cook, you know, we had a cook and pretty good cook. So Sophie just told the cook to add a few dishes.
She's a Chinese cook. She doesn't do any Western food. And you know, Terry obviously, she grew up on Chinese food. And I would imagine that the apple guy that he brought would also like Chinese food. Anyway, so she just asked the cook to cook a few more dishes.
But, you know, it wasn't important. The food was not important. Either the quantity or the quality was not important because almost Jeff almost immediately started his pitch, you know, almost as soon as he sat down to dinner. And what is the pitch from someone like Jeff Williams like?
would like you to found your way for something like that, pretty straightforward. I mean, so I listened. That night, I think, Jeff talked
Maybe 80% and I talked 20%. If you don't count the relative to relative talk between Sophie and Terry, you know, which was very, which was not very much either. And Jeff had proposed economic terms at this first dinner, right?
No, not nothing so concrete. Okay. You just say that we will let you have 40% worth margin. And 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 45%. And I was trying to put it up to 50%.
was a announced effort in the company to push the world's model. And I had that effort for many years after I came back to meet the CEO.
I really didn't even succeed even at my retirement. Now, of course, what happened later was that there was COVID and also we began to have technology leadership. So our margin, you know,
jumped up to over 50%. But when I retired, I was still short of 50%. Slightly short of 50%. I was almost there. When I retired.
In technology leadership, you're saying that around this time, the 28 nanometer node, you were- You're talking about 2010? Yes. You were still 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- Well, you are detecting. I think when you said that, you were detecting Intel, okay? Yeah.
At 28 nanometers, we were very differently the leader among founders. And maybe among a few other companies such as Texas Instruments and so on, but not Intel. And what Apple was considering Intel? No, Apple
was not actively considering Intel. That came later. Later. But I'm quite sure we'll have time to cover that. We'll take us there now. So after November of 2010, you had the initial conversation with Jeff Williams. Yeah. He said that he would last 40%. And my thought was, my goodness, you know, well, already at 45%, you know,
But I also thought that he was trying to be generous when he said that he would let us have 40%.
And I also thought to myself, well, now it's not this dinner. It's not the time to go into a pricing discussion. We have a lot of other things to discuss. Anyway, so I said, no, we were about to go into production away. We were almost in production with 28 nanometers at that time. The initial stage anyway.
28. So I said, I thought it was going to be 28. No. What node do you want? 20, you said.
Now, that was a surprise to me, and frankly, it was also a disappointment, because the more slow progression after 28 was going to be 16. Now, Apple, Jeff Williams, wanted 20.
a half step, but a half step, a half step is a detour, you know. We would have to, my thought at the dinner there was that we would have to spend effort on the 20th.
Question, of course, will help us on the natural next node, which was 16. But still, it was a detour from 28, you know. From 28, if we could go directly to R and D, if we could go to 16, it would be less time than, you know, first do 20 and then.
Now, the point is that back then, R and D did not have enough resources to do two notes at the same time. Later we did. Later we did.
So you have this conundrum where this is right after you had just spent $6 billion in CapEx the previous year going all in on 28 nanometers. You're asking Apple, which could be your biggest customer ever. This is for 28, 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.
because when we figured a very big market for 28 and therefore when we planned to increase vastly our capital spending, we didn't have Apple in mind. We didn't include Apple.
Apple came strictly as the present surprise. Anyway, for the company in total, but not for 2018. We didn't include Apple in our 2018 planning. But it's still the question of, are you willing to go do this huge distraction and spend on the order of $10 billion over the next few years doing 20 nanometer for Apple when you weren't planning on doing 20 nanometer at all?
That's right. That is where our connection with Goldman Sachs came in. Remember, I printed a lot of seats when I ran TSMC. I knew that one of these days we'll probably need top-level investment bank advice.
So, we established a good relationship with our common sex very early in our existence. I was in fact a board director of common sex, did you know that?
We did the ADR with Goldman Sachs, which opened up a good relationship with Goldman Sachs.
It was your New York public listing of the stock. Yeah, ADI is American deposit receipts. It's New York. It's a separate market. In fact, well, now the TSMC price, ADI price.
is has a 20% premium over real. However, you need TSMC board permission to convert your shares to ADR. Otherwise, you'd be able to arbitrage. Yeah, we don't want that. So as I said, as I was saying, the board has to approve any conversion of
Ordinary Taiwan, TSMB starts to 80 hours. And the border does not give such permission easily anyway, okay?
So you had planted this seed with Goldman Sachs when you knew you would need them. Right. This was very early in our history. Now, we need funds. I mean, this apple thing came after we had already decided to increase capital spending.
And now, you know, Apple requires even more capital spending. And we have to figure out where the cash is going to come from. So, you know, there were several possibilities, of course. We're paying a dividend, not a big dividend,
back then, but a modest dividend, we could cut that dividend. And then we also could sell stocks, you know, new stock offering, either in Taiwan or in the US, we have the ADRs, you know. All we can borrow money.
corporate bonds, you know. Or you could only fill part of Apple's order. Right. And in fact, we did that. I, you know, we first did our financial planning. And we decided not to cut ever then. We decided not to sell new stocks. We decided to just borrow.
And this was also with consultation with Goldman Sachs. We chose borrowing. How much? I looked at the numbers. And just as you said, I decided to take half of what Apple said. Well, Apple said they needed
Is this common, by the way? 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, because they have no skin in the game of you spending all the money. I know, I know. Well, back in the 90s, in the first, let's say 15 years, 10, 12, 15 years,
of our existence, we were short of capacity, almost all the time. And what you just said happened all the time, you know. And so we figured out that we will require a deposit from the customer. And we'll even
confiscate the deposit. If the time comes for him to take the way first and he doesn't, you know, and everybody delights in the world confiscate. It was first used by me, okay? I told the salespeople in Saint Jose, I said, tell the customer that we needed a deposit from them because, you know, just as you said,
It's our money and it's only their words, you know. They may not want the wafers when the time comes. And I told the salesman, tell the customer they will confiscate the deposit. And the salesman never heard anything like that before, you know. And so they were, they were, you know, uproar.
in happiness, you know. I mean, now, you know, they could actually stand up and tell the customer that we might even kind of confiscate your money. But of course, it really, we never confiscated any money. Now, it did happen quite often.
Particularly in the 2000s, we had, I think it was called Internet Recession, I think. Because in Internet, people were starting companies called Pets.com or something, you know.
Yeah. Anyway, so we had the recession. Which trickled all the way back to semiconductors, TSMC's revenues, it was four years after the dot-com bubble before they were back at those rates. It was almost four years, yeah.
I remember recovered only in 2003. He started in 2001, the first quarter of 2001, and the recovered in the third quarter of 2003. So it was three years. Oh, wow. Three years. Oh, one, oh two, the third, fourth quarter of all three. Three years.
Anyway, the customer, quite a few customers had placed deposits to anticipate normal good times during those years. And we did build the plant. In fact, we bought.
we purchased or I should say, yeah, we bought a couple of other companies. And so their plants, their fabs became ours. And the customer didn't need the wafers anymore. They didn't need the outputs of those fabs anymore. And we didn't
confiscate their deposits, but we let them delay demand. And eventually, every one of them, they all use their use up their deposits. But that would come enough.
And so then back to, at this point, early 2011 with Apple, you go to them and say, we are prepared to serve half the number that you told us. Well, first, of course, the new, all right, the new business development director, CC. He had the privilege of first telling the lower level
purchasing people at Apple. And he got, he got, he got a response back. You must be crazy, you know. So C.C. did not comment on that. At least he said he didn't comment that he brought it back to me. And then I went to
Apple, myself, and talked to Jeff Williams. So I said to him, we have to issue corporate bonds. I think I used to work prudent. After all, the prudent financial planning, we decided that we would take half of what you asked for.
He was very quiet about it. He only made one suggestion. He said, well, I think you can eliminate your dividend. Your shareholders will understand that. I said, well, no, I don't think... Well, the fact is, I looked into that. I mean, that's also a reason for, you know, having high-level consulting
advice. About one third of our investors shareholders are very seriously interested in the dividends. So if we do what the
Jeff Williams said, our stock is going to drop like hell, you know. Trigger a sell-off. Right. Anyway, but when I talked to Jeff Williams, I went to see him in
What's the place? Cupertino. Yeah, Cupertino. He was, he took it fairly willingly, you know. No big problem, George. The only suggestion that he made was the elimination of dividend, you know. And I said, no. And he didn't let it just lie there, you know.
Okay, but then the issue was settled. I mean, how much demand do we take and how we will get? We still had to borrow billions of dollars, even with half of demand.
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So this really was, especially after the investment in 28 nanometers that depleted your reserves, this is a bet the company move. You're taking on a bunch of debt to go build the fabs to make this happen.
You sound like Jensen. We sound that's exactly what Jensen said. All right, but I think that the financial discussion with Apple had already happened when Apple
when Jeff Williams called me in February of 2010, he said, it was a very short conversation. He said, we need to
Pause our discussions for two months because the highest level of Intel has approached Tim Cook and has asked Tim Cook to consider Intel.
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 an issue, of course. I mean, in February of 2011, Jeff Williams was talking about the iPhone. Yeah. But they had a close existing relationship. Yeah. Yeah. I don't know what relationship
really have, you know, well, it must be close. So that was all he said. I wasn't all that worried because in 2011 Intel was no longer a name
that you would, when you're here, you would stand up and bow, you know. Interesting.
In the 90s, in the late, in the late 20th century, I mean, they were a name in semiconductors. When you hear it, of course, I'm exaggerating the situation. Moore's Law, I mean, they're Intel. Yeah, Intel, I mean, if you hear the name, if you hear that they're in competition with you, you know, my goodness, you'll be
I mean, this is why you started TSMC as a pure play foundry business because you didn't want to compete head to head. 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.
I didn't say that we never catch it. Because, uh, we're enough. Look where we are in 2025. Okay. Yeah. Uh, anyway, so, so, uh, I, I, I, I, I, I, of course had to accept, uh, Jeff Williams request.
All right, but again, you know, as I just told you, I wasn't all that worried because, you know, when I reviewed in my mind all the characteristics that Apple is looking for being a supplier,
Technology, at that time, we thought we were almost apart with Intel, almost. In fact, I thought we were, I think I thought we were apart with Intel at that time. Manufacturing, I thought we were better than Intel. And customer trust, we thought that our customers trust us more.
Then, Intel's customers, just Intel. So, I will do it. But then, indeed, and I also thought that when Jeff Williams told me the highest level of Intel, I thought he was talking about somebody like Andy Grove, who was retired, of course.
But, you know, but it turned out that he was only talking about the CEO of Intel. Yeah. But I knew that only later. Would that have been Bob Swan or Paul Adelini? No, it was the Italian guy. Otelini. Otelini. Paul Adelini. Otelini. Got it. Yeah.
So today Intel doesn't make the chips in the iPhone. What happened? And in fact, TSMC makes all of Apple's chips. Yeah. All right. I wasn't too worried, but, you know, I still was in my mind. So a month passed, I think was about the middle of February when Jeff called to tell me to pause for two months.
So, almost exactly a month later, March, middle of March, sometime. I decided that I would pay them a visit.
and ask them what's going on in the progress. So I emailed Jeff and asked for an appointment as I was coming to the Silicon Valley anyway, which was pretty normal.
And I will stop in at your place on such and such a day. Is that okay? And Jeff replied by saying that, yeah, come here, but I won't be here. I have asked Tim Cook to see you.
I mean, this freedom, Jeff's freedom of delegating his boss to see a visitor, it was a privilege that I seldom had 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. But in this case, it was Jeff S.
Well, anyway, so I showed up and Tim was very nice to me and took me to lunch to the cafeteria, I guess, where there was a lot of food. We each picked our food and carried our tray back to his office.
And anyway, he told me there's nothing to worry about because Intel just does not know how to be a foundry. That's very short, but a very satisfactory answer to me. What is your interpretation of the meaning behind that statement?
I was explaining to you, and we had on technology, on manufacturing. Subconsciously, I think, I interpreted Jeff's explanation to me to be the third one, customer trust, you know. I mean, they were always very superior, you know, Intel.
Before this Apple thing, Apple and we, before Apple became our customer, I knew a lot of Intel's customers in Taiwan. You know, all the PC makers are Intel's customers.
None of them liked Intel. No, no, no. Intel always acted like they were the only guy. They were the only guy, you know, for the Michael processes, you know.
And that's for their microprocessor business, but here we're talking about the Foundry business where TSMC 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. Yeah, but I really don't think Tim meant that. I think Tim meant that the customer asks a lot of things. We have learned to respond to every request.
Some of them were crazy. Some of them were irrational. We had to respond to each request courteously, which we do, you know. Intel has never done that. Intel, I mean, I said I knew a lot of customers of Intel's here in Taiwan.
And none of them, they all wished that there were another supplier. None of them either trusted Intel or liked Intel. So to finish the Apple story, the short answer is it worked on 20 nanometer. Were there any trade-offs where did pursuing 20 nanometer and spending the billions of dollars cost TSMC in any way?
Well, it might have caused, but yeah, the story certainly does not end here. All right, so I mean, there was pricing, you know, everything was not easy.
pricing and Jeff came himself and we talked about pricing and we, of course, we had done our homework also on the cost and what kind of price we were
But Jeff came and he told us just a number, you know. Well, he gave us his reasoning. He had to make his component costs, meet the certain goal also, yeah. But anyway, that was settled and Jeff said, ah, and when the pricing was settled, I said, let's go out to dinner.
go to a Taipei three-star restaurant for dinner. And Jeff jokingly said, ah, if he didn't like the pricing, we will probably be going to McDonald's. Which was never in my mind, but he said 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 cost. The main thing that goes into pricing, of course, is the cost. And then the second thing is, of course,
whether your desired price will be accepted by the customer. One thing that has occurred to me is TSMC now gets mid 50% gross margins, call it 55, 57, 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? Well, I don't get the privilege of sorting it out now, you know. See, she way, I think, has the pressure and the duty of sorting that out. Yeah. Well, I mean, as a general principle, you know,
you try to find a kind of a middle ground, which is different for every CEO. Even though every CEO who wants to protect his reputation, every CEO says, ah, I worry about the long range. But in truth, not everyone does.
So, it's a very personal, how to sort these things out. I think it's a very personal issue. For a lot of CEOs, there's really no choice. You have to, as a supplier, you have to accept a certain price. If it's a commodity particularly, we have not finished with Apple yet. Please, let's finish Apple.
Now, I think you were asking whether there was any trade-offs. Trade-offs. Well, the trade-off, there was a pretty significant serious trade-off. And that was the detour that I said. We talked at that time back in the
2011, 2012 time. We, our R&D was, was not strong enough to do two notes at the same time. Now we are. But back then we went. So, the trade-off of accepting the 20 node technology was that we delayed our 16 node
development. And then Samsung came up with the 16. They had lost the 20 business, you know, so they, they were ahead of us in the 16 nanometer development. Because they got to skip 20. Yeah, because they didn't get the 20. Okay, they need to develop 20. So I got a shock. I mean, it was a real shock.
when I heard that Apple had placed their first orders of 16 with Samsung. Now, that was the real shock. We invested so much, even though we took only half of their original demand, it was still tens of billions of dollars, I think.
And we were counting on it being at least 80, 90% of the equipment being converted to 16. And now, if Apple went to Samsung for the 16, where did that leave us? Do you understand what happens? Oh, yes. It sounds horrible. So I would feel like I got tricked.
Well, I wouldn't say that, okay, but I was, I was, I was, I was, I was really shocked. That was, so I emailed Jeff Williams right away. And in, I said, you know, we invested in all these equipment and we were counting on you to take
16 from us, but now you know we, we found out you were buying 16, the first 16th anyway from Central. So, Jeff replied immediately, don't worry, I'll be here, I'll be there, I'll be in St. Jude next week.
and explained to you. So that made me, that relieved me a little, but certainly not completely. But next week, he did show up, and he explained to us, he said, well, you know, as soon as you're, as soon as you're ready with US 16, who buy from you, who buy all of us,
the needs from you, when you are ready. Now, of course, that competes me, because that's what we're supposed to do anyway, you know.
So, indeed, for this, that was true. Now, we developed, we had our own 16, about half a year later, and most of Apple's 16 nanometer requirements still belong to us. Yeah. Most, yeah.
I can imagine the shock that you must have had. At the same time, this also, again, just illustrates the brilliance of TSMC and the pure play foundry business model. Samsung is Apple's cheap competitor. Yeah. I know. I know it was. I said in the all about, you know, I mean, sitting in central
Being in the Foundry business, I actually see a lot of things before they actually happen. So let me tell you the IBM Qualcomm story. Now Qualcomm, we consider the Qualcomm to be a prime
candidate to be our customer.
We really wanted Qualcomm because we knew a technology house. What year was this? This was way back, you know, when we started in the 90s anyway. Yeah. And they were part of that initial wave of fabulous companies. Yes. They started the Erwin Jacobs, started the Qualcomm. Actually, before I started the
our TSMC, our TSMC started in 87. Qualcomm I think was a few years before that. So we are in the 90s, early 90s all the way up to 97 maybe
96, 97, all the way up to the latter part of the 90s. We wanted a
Qualcomm to be a customer. And, you know, I saw their operations VP, that's what they call, that's what our customers call their purchasing people, operations VP operations, senior VP. And I saw him often.
And he was always pretty polite, but he gave us very little business. And I also knew that his family, his main family was IBM. Now, sometime in the later 90s, I forgot whether it was 97 or 98. Suddenly,
He started, he first, he started to tell me that he would use us now. He didn't even tell me who our competitor was, who our competitor had been, but I, I kind of knew that it was IBM, from other sources of intelligence.
And our business with Qualcomm, the business that Qualcomm gave us pretty rapidly increased after that, after 97, 98 period. So, I immediately knew that IBM semiconductor was in trouble. Because, I mean, they had their own fabs and so on.
But their main business was really supplying to Qualcomm and a few other very small companies, very small families. So, I immediately knew IBM was in trouble because they were losing Qualcomm.
All right, so the next step that IBM took was not a surprise to me. The next step they took was to ask us TSMC to co-develop the next generation of technology, which is 0.13 micron, 130 nanometers.
in 1999. And since I anticipated that, it was no problem at all for us to refuse to. And in fact, even if I didn't anticipate that, we would never, never have accepted that kind of code development. I mean, IBM was still, you know,
they still consider themselves to be the senior partner in any partnership they established, the senior partner. So we were, the company that co-developed something with them was send its engineers to IBM, you know? And when we do that, we lose our ability to develop our own process.
we'll have to depend on this co-development thing. And the co-development thing is going to have a lot of difficulties, you know. Our people, you know, we're being a different culture. So we're kind without having to think about it at all. We're kind to the IBM.
IBM, in fact, was quite angry, you know. I mean, they thought we were still a small Taiwan backward place, you know, Taiwan company, and they picked IBM. So they immediately went to UMC, and UMC accepted.
only to regret seriously their acceptance a few years later. At that point in time, was it fair to call it a peer of TSMC here in Taiwan in terms of volume and size? Not by 1999. They were already smaller. They were smaller already.
That's what I meant when I said that sitting here is found very, I can see some things like this IBM thing. This might be 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 develop. I certainly did not initiate it. I think I had a role at TI. I had a role in refining it to the point where a semiconductor company can use it effectively. That's my role. How would you explain it to a novice?
Well, explaining the learning curve theory is simple, but one would be foolish if one just takes the simple explanation, you know, and thinks that's all it is. The simple explanation of learning curve is that as you make more of one thing, anything,
Actually, it started with refrigerators and the cost. If a company makes more costs, then it's cost.
per car, unit cost goes down. That's why it's also called experience curve. You gain more experience, you become more efficient. That's a simple explanation. But if one just takes that simple explanation and thinks that's all it is about, you know, then you're really having
Learn anything at home. All right. Anyway, the learning curve. Well, Bruce Henderson, who is now considered the father of strategies founded Boston Consulting Group.
Yeah, he was the founder of Boston Consulting Group. And now, I mean, there's a branch in business economics that's called competitive strategy or something, competitive strategy, I guess.
And Michael Porter was at one time considered a big figure in this competitive strategy. I mean, he wrote three or four books, you know, big books, you know, 700 pages, you know, I have all of them. His original competitive strategy memo, I think it's like 20 pages is still some of the best business writing ever. Just who's Michael Porter? Oh.
who was a director of TSC at one point, right? Yeah, I had a story about him in my autobiography too, which because of time, we probably won't go into, not my reporter. But Bruce Henderson, we will talk about him. He is now considered to be the father of the competitive strategy. He came to Texas Instruments
One day in, I think around 1970, I should say he first called the T.I. CEO Mark Shepard and told him that Boston Consulting Group, he had founded the Boston Consulting Group and we have
a transistor, B, C, G, has a experience curve theory that would benefit semiconductor industry. And TI was the largest company in the semiconductor industry then, and would mark Shepard like a presentation of this theory.
Mark Shepherd said yes. So, Bruce Henderson brought Bill Bain. You probably know that name. With him and came to Dallas and made a presentation. Mark Shepherd invited the COO and me to attend the presentation.
And it was a very eloquent presentation because, you know, Bruce Henderson was a very eloquent man. And Bill Bain was on the side, apparently, Bruce Henderson's potency.
Anyway, Mark Shepard was impressed and he decided that TI would work with BCG on this learning curve theory. And Bruce Henderson then assigned Bill Bing to work most of the time
at TI, you know, most of my, like three days a week, and Mark ever assigned me as TI's guy. So, Bill Bain and I became partners. And I, as I, Bill Bain, small office, very close to my
office at TI in the same building and small office because it needed a lot of things for me. He needed permission to get our costs, our prices, where there were a lot of families of integrated circuits and transistors. I mean, he had a lot of requests. So it was easier if he was nearby.
And every time when he arrived at some interesting, useful conclusions, he would also discuss them with me. So we had a very present association for, I would think, two years, maybe even more. And he would, you know,
fly to Dallas every Monday and go back to Boston either Wednesday night or Thursday night. And of course, every time he went back to Boston, it would be to tell Bruce Henderson what he had done that week. So this happened, this went on for
I think two years. And then finally, Bill Bain came to see me one day. And it was in those two years that I absorbed a lot of learning curve stuff, which I used up to now.
highly fruitful, just as a thinking tool. It seems so fundamental to the industry that you want to get through the low volume period as fast as you can. Ideally, you spend no time in the low volume period, and it seems like over time,
All the returns in the industry, the winner is the one with all the volume because they'll just have the lowest prices and there's a flywheel where once you have the lowest prices, you get all the business, then you can reinvest that in the next node. I couldn't have told you that TSMC was going to 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 in semiconductor manufacturing.
But one day after a couple of years, the bank came to me in Dallas and said, you are the first one I tell this to outside the Boston Consulting Group. I am leaving Boston Consulting Group to start my own consulting company.
So I said, why? I said, you know, obviously, Bruce Henderson thinks very highly of you. And Bill Baines said, yes. But there is the most imperative. That's the first time I heard that term, you know, most imperative. He meant for him personally. Yeah. For him personally. Well, anyway, that was that.
All right listeners, now is a great time to thank friend of the show Fundrise. We've gotten to know Fundrise's CEO Ben Miller and the folks there quite well over the last several years and their huge acquired listeners just like all of you. And since we first worked together three years ago, Fundrise itself has gone through quite a transformation. Long time listeners may remember that they have a growth stage venture that they actually first launched here via an acquired sponsorship back in 2022.
At the time, Fundrise was primarily known as the US's largest real estate investment platform for retail investors. And it wasn't necessarily obvious that Ben, Fundrise, Ben, that is, that his kind of crazy idea to bring their model to venture capital would work.
Well, fast forward to today, and incredibly, they have demonstrated they can break into the venture industry in a big way. Ben Miller and Fundrise have invested in Databricks, Anthropic, Canva, Andoril, Ramp, and fellow friends of the show, Vanta, and also Service Titan, which just went public in December in a successful IPO.
It's genuinely awesome what Fundrise has done here, which is something that many have tried over the years, but no one else has actually been able to accomplish in venture. They've taken a retail platform that any American can invest in and gotten pre IPO access to some of the best private companies in the world. It's democratized access to all the value creation that otherwise has been locked in these private companies over the last decade plus as these growth companies are delaying IPOs and staying private longer.
Yep. So when the service Titan IPO happened, thanks to Fundrise, tens of thousands of regular investors got to celebrate alongside the VCs, LPs, and employees. Yep. We'll be talking about Fundrise all season long, and you can go check out the full portfolio that Ben and the Fundrise team are building at Fundrise.com slash venture. And if you're a growth stage founder looking for a great series C or later investor, just get in touch and tell them that Ben and David sent you.
As our time comes toward a close, one question David and I wanted to ask you is TSMC 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. It's this unlikely success of grand scale. Unlike in your opinion. I mean, you started it when you were 56. Yeah. Yeah.
There are many things. I'm not going to argue with you. I merely ask them as a point of curiosity. I didn't realize. I didn't think it was that unlikely. It did exceed my expectations. TSMC's size and importance exceed my expectations, but not by an order of magnitude.
Wasn't the original plan to stop building after Fab 2? That was only the very initial plan. We were never going to stop there. We were just talking about learning. You know that. How could we plan to
If I didn't know anything about learning curve, I would say, yeah, maybe we'll stop after two perhaps, you know, but I was a serious student of learning curve. And I would never, I would never stop at just two perhaps. Here's why I say 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 Intel's 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 fabulous coming or was that a very lucky thing? No, I saw it coming. And the, in fact, I just said dinner or two months ago at dinner with the first guy, Gordon Campbell, Gordon Campbell. Hmm. Do you have you heard this thing?
Anyway, Cody Campbell came to see me in general instrument in my final months as 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 yet. But the reason he came to see me as general instrument was that he wanted