Transcript of TSMC Founder Morris Chang

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Who got the truth? 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. As we were thinking, what's next in the world of chips unacquired? We threw the fail Mary. We asked friend of the show, Jensen Wong, 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 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. 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, 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 of 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 We managed to get our hands on an unpublished translation of the book to prepare, and what you are about to hear focuses on a few crucial stories from TSMC's history that Dr.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, NVIDIA, and the birth of the fabulous industry.

Yes, and big thank you to Karina Bow, who we were lucky to connect with after we set this up, and who has been translating Morris' memoirs with funding from Tyler Cowen and Emergent Ventures. Right now, the Our customers are not published in English, and we will let you know if then when that happens. Yes.

All right, listeners, you can join our email list at acquired. Fm/email. You'll get an email every time a new episode drops once a month. 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.

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You do. That's a clear David job. This episode is presented by our partners at J. P. Morgan Payments.

Yes, just like how we say, every company has a story, Every company's story is powered by payments, and J. P. Morgan Payments is a part of so many of their journeys from seed to IPO and beyond.

With that, this show is not investment advice. David and I may have investments in the companies that we discuss, and this 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 to the post office, and I received it in since And the letter said that they were a NVIDIA, the company that Jensen was the CEO of, was a small company many, but they had developed some really promising chips. But they were looking for a foundry, and they had approached TSMC's San Jose office, but they really got no answer from the San Jose office. Would I please contact Jensen because NVIDIA really wanted to do business with TSMC. 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 I had always told our salespeople that we should never be negligent in talking to future customers, even if the customer seems to be a very small one.

At this point, NVIDIA was four years old.

They were facing bankruptcy, I I think, and they had maybe 50 or 60 employees. Tsmc, I think at that time, already had a few thousand employees. We had exceeded, I remember we had exceeded the $1 billion 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 him back without 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, said, This is Maurice Cheyne. He immediately shouted to those people that were making noises. He said, Quiet. Maurice Cheyne is 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 articulateness and also impressed me with his optimism. Well, he was also very frank. He told me that Nvedia was in financial difficulties, but the chip that he wanted now to have foundried would not only save the company, it will also make NVIDIA a major customer of TSMC. 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.

Was that chip the Reva 128?

I forgot the number, but it was a very successful chip. I don't think it was Reva 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, it prevented from being bankrupt. Not only did it do that, it also started to make them a major customer of TSMG. Within two or three years, they did become one of the biggest five customers of TSMG. Wow. Yeah, very successful chip.

There was a great partnership forged there. Tsmc 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 want to go to this moment in 2009 on the 40 nanometer node where development was slower than TSMC 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 would 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 a director of quality insisted that we were not, TSMC was not at fault. And so on that basis, on the basis of our quality manager his arguments. He had not offered NVIDIA anything. Now, as far as the manufacturing problem was concerned, it was a yield 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. Even though I was not the CEO, I was getting a little impatient. And then, of was some other problems popped up other problems than this 40 nanometer and video problem. So I decided to take the CEO position back. So in 2009, I did that. And there were several priority problems that I had to deal with when I took the CEO 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, I believe, another At Qualcomm was also.

And Qualcomm, the top customers, didn't change very much since then, except for maybe one. Apple. Apple, yeah. Apple came later. And in my call with Jensen, he was still very friendly with me, but he also It 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 will get back with you. And as I said, I did have We had 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 was dropping faster than the cost. You don't want to see that. Your gross 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 the immediate one that triggered me to retake the CEO-ship because as the previous CEO had laid off, except he didn't use the term laid off. He used the bad performance review, the worst performance view people, and there were about 600 or 700 of them. And he laid them off on the basis of their poor performance review. Well, we never did that. The worst we would do was to put them on, place them on probation for six months. And quite often, at the end of the six months, everybody will go back to his or her old job. And some of them would get transferred because they were in the wrong jobs. 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 layoff.

That's right. Yeah. And I I actually have told the manager that. In 2008, of course, there was a financial crisis. And the semiconductor business, in fact, got affected. 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 a situation like that. It's a knee-jerk reaction. Oh, he says, Oh, This is my test. I got to save all the money possible, and I got to lay off people.

But this is the semiconductor industry, and Mohr's law means no matter what happens, you will always need people.

Well, I know. Well, semiconducting is... But semiconducting is where people actually think the same way as I described. You know what I mean? They They are layoff. They are layoff 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 Their first reaction was exactly the same. And I'm talking about the '70s, early '70s. Their first reaction on who to lay off was exactly the same as what our TSM CCO did in late '08, 2009, which was, go by performance. Well, now, I was the only one at Texas Instruments in the early '70s that said, No, that would not be 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 The performance reviews, the performance ratings are done by everyone's own supervisor. So 700 worst performing people in the company. And who gave the 700 people the bad ratings? 700 supervisors. Very subjective. It's not something that people will respect. If in a year, you have to hire people back, I 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 within a year, you shouldn't lay out.

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 NVIDIA? Yeah. Well, to finish the employment issue, they laid off employees. As I said, there were several of them, six or seven hundred of them, came to my home to demonstrate and protest. Now, the company, TSMC, was pre-warned 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, they had 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 protested. About 25 of them decided to spend the night to sleep over in the little park that's about a block away from my My wife literally didn't sleep that night. She woke 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, 6: 00, 6: 00, the next morning, my wife got up and she took one of the bodyguards and went to a neighborhood market and got the Chinese-style breakfast.

Chinese bread, fried bread. I don't know whether you ever had it or not. Probably not. Bunt, the Bunt's. So it would be milk. And take enough of that breakfast, enough for 25 5, 30 people, and back to the park, to the park, and distribute them to the protesters. And They were thankful. And they actually decided to not go to the President's Palace, President's mansion. And they told my wife that they will not do that that day. And all this precipitated my taking back the CEO job. There's another thing. 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 major 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 her to the board. I'll call a special board meeting. And I knew what I would ask the board to do, which was not to grant the permission. But he decided to circumvent that, the CEO, because what he did, he did not consider it to be layoff.

It was just punishment for the poor performers. Well, As far as CEO is concerned, I did keep him. I had more than one night's 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 rate, we have job rates, and the same salary and bonus. But he was now the President of new businesses. And back then, we had high hopes for the so-called new businesses, which was solar cells and the LED.

It's the great irony that your core business of manufacturing integrated circuits ended up becoming the largest market opportunity of all. You didn't need any new businesses.

Ended up the biggest marketing, biggest market opportunity. Why is it so Irlandic.

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 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 solar or LED would really replace our integrated circuits business. But I knew the integrated circuits business was going to be great. But at that time, which was to 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. They subsidized the hell of it. And they now control that business, solar cells. The prices were extremely low. Still low, still low. So it didn't take off. Tsmc service didn't take off. And LED did not take off either because the market is not as big as solar. However, it's controlled. The patents are controlled by just a few companies. And they wouldn't let the few companies that control the patterns of ALED were not let 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 he quit.

And he's now running MediaTech, is that correct?

He is now a vice chairman and the CEO of MediaTech.

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 vision and strategy as CEO, or in many ways returning to the old one. How did you resolve the NVIDIA dispute?

In the first four or five weeks after I retook the CEO job, I probably spent almost half of the time on how to resolve the problem with NVIDIA. As far as you were concerned, we were doing our best because we had to do it anyway. Nvidia was just one of the customers.

Yeah, not just NVIDIA, but Qualcomm and Intel.

It was a very important note, 40 nanometer was very important note in the progression of more so. Only after 40, if we do the 40 well, can we do the 28? 28 was the next one. I called the salespeople that were in direct, that had been 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. 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 wasn't just for NVIDIA. It's for TSMC. But NVIDIA, because they had borne the brunt of the problem, the damage. It's a matter of money. I worked on a number. I familiarized myself with all aspects of the problem, and then I worked on a And I also knew that NVIDIA's customers were after them. They had demands on NVIDIA, too. So I used 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 job, I sent an email to Jensen. I said, I'm coming to Silicon Valley next week on this date.

I will be at your home at 6: 00. Let's have just salad and pizza, which was something that we had many times in the past. Now, immediately, he 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 didn't ask that. So I anticipated that. So I said, 6: 30, we'll start having pizza and salad. 8: 00 shop will go to your office at your home and we'll discuss business. On the appointment of the date, they showed up and we followed the schedule. Exactly. 6: 30, they showed up. We had a very present pizza and salad. The thing is that his wife, Laurie, would make the pizza, the salad. And the pizza was delivered from outside. Maybe they made their own pizza, too. I forgot.

Would not surprise me.

Yeah. Anyway, I had had it many times at his home. All right. So at Elkard Shop, it was I who looked to 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 $100 million, right?

Yes. More than $100 million. And I also said, Our offer is effective 48 hours. We are not going to argue, we're not going to argue. We're not going to bargain. If you don't accept the offer within 48 hours, we will have to go to an arbitrator, which was what he had suggested to the previous CEO anyway, that we 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 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.

And did Jensen accept the offer?

Yeah. He did 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 $100 million, 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 like it, too. That's why I included a story in my Ottawa interview.

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After the 40 nanometer node, after you fixed these problems, as you said, the next node was 28 nanometers. 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 nanometres 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 semiconductor business. Ti, of course, had many businesses, defense business, materials and controls, and also their origin, which was zero-physical ECHO and so on. But TI's semiconductor business was their 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 it 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 percentage of revenue number So we don't have to argue every year how much on the which is spent. So at that time, about the time, 2008, 2009, when I came back, I just almost like... At that time, we were running, I think, 6 or seven % a year. But it was negotiated every year between the the lead director and the CEO. So I wanted to stop that. I wanted to make him at ease.

He doesn't have to argue, he doesn't have to request every year. So I almost just literally picked a number out of my head. We've been running six or seven % already. So I said, Oh, let's pick eight %. Eight % regardless of whether there's a recession or not. And that's just eight % of revenue. And that was the best news, if you ask Our R&D director was, back then, I think, in the second place of R&D. He would tell you, he has told me many times in the last 10, 15 years. This was really the best thing that we did for R&D. So they were not concerned. The R&D director was not concerned at all about having his planned budget cut back, his planned resource people, allocation, cut back, none of that. So he has been working 8 %. So it has been like that. And that is what propelled our on the effort.

In this period in 2010, it wasn't just ramping the R&D budget, it was also the capital expenditures. You had had almost a decade of two to two and a half billion spent building the Fabs every year. And 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?

I think it was a mutual It was a little feeding thing. As I settled the R&D budget at eight % of revenue, I mean, to the satisfaction of the R&D people. They began to have big ideas. They began to be telling me, Our 28 is going to be the term they use, and they have used it several times. But the first time I heard them using it is the 28. 28 is going to be the sweet spot. It's just like tennis racket. You hit the ball with a sweet spot of your racket. Do you play tennis?

I have played tennis. Not well.

Good. I was like you. Like 40 years ago, I was like you. I don't not say it anymore. But I know the feeling of hitting a ball in the sweet spot. 28 down here is in the sweet spot. And so I said, why? He gave me a lot of technical reasons, trying to name it. So I decided I would believe him. And he now had the resources to push it, to do it as fast as he could. So now, the capital spending. Now, of course, back then, we had already built up a pretty good infrastructure, organizational infrastructure. We had a pretty good market forecasting group. And I had set up the business development 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, from all these inputs, the marketing, the business development department, which, as I said, was our strategic marketing, who And from the technical, from the R&D side, that 28 was going to be spot. I decided that, and I quote to the Shakespeare in my autobiography that there's a tide in the affairs of man, which taken at its flood leads on to fortune.

I I thought this was 28 nanometer was going to be our tide, our next tide anyway. There will be others, seven nanometer. It was another, was the next sweet spot the R&D people told me. And I again, reminded myself of Shakespeare.

Taking it the flood.

Taking it the flood, yeah. So I mean, that took... That, however you know. I'm setting the R&D at 8% 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 meeting because back then, or even now, most of the directors are from overseas US and England, and we would email 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 that dinner was not on record. So the independent directors, actually, three quarters of our directors were independent, are independent, the dependent directors. Anyway, so in the night before and the evening before the meeting, they had the opportunity to ask me questions if they had any. But But on this matter of vastly increased capital spending, they didn't even wait until they got to that dinner.

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, he was an American. The 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. All right. This is something that, of course, I told them what I have now just told you, inputs from our market forecast, inputs from our R&D, inputs from our business development, the new business development department. And of course, they didn't believe it. You really can't convince anybody on something like this. 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 were satisfied with that.

And what was the result? What happened around this era of 28 nanometer that created so much demand?

I think you know the result. That was good.

And that was the smartphone era coincided with 28 nanometer. 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 development guy, 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, his was not the only input. I had a few other advisors, too.

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 C. C, actually, the business development.

Directory. The current CEO.

The current CEO, the current chairman and CEO. When Rick was CEO between 2005 and 2009, he had split operations into two groups: advanced technology and mainstream technology. And Cee Cee was the head of the mainstream. Actually, really, I should say, the That's the one, okay. And Mark Lou was the head of the advanced. 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 split up of two groups was a good idea anyway. In fact, back in 1996, the President He was not a CEO, but he was the President. We didn't have the CEO title back in 1996. But the President, who was an American, Don Brooks? Yeah, right. He wanted it to spread. 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 spending six, seven years in Taiwan. Towards the end, he was getting tired of running this thing. And he thought that he would do it like TI, for instance, when TI had a germanium transistive department, silicon transition Department, an integrated circuit, bi solar integrated circuit, MOS integrated circuits.

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, TSM Seespins was suitable for the divisional structure. Because we have almost the same group of customers How do you divide up the company if you want the so-called divisional structure? Well, you know, downbrookes was going to be divided by a FAB. My goodness. The customers move from one FAB to another. The same customers.

Not to mention TSMC has 21, 22 Fabs now. And so what are you going to have 22 divisions?

Back then, he only, of course, He only had three or four perhaps. Back then, yeah. But he was not convinced. He kept arguing. And I said, look, why don't we get a consultant?

Mckinsey.

Mckinsey. Mckinsey. We're going to get McKinsey? Okay. So we got McKinsey in. And McKinsey, after a month or two, two months, actually, and a couple of million dollars, I guess, for a He told us the same answer, that functional is best. And then, Donbrooke said, Well, tell me one company, one big company that's functionized. And McKinsey immediately answered, Boeing, which is a good answer.

Except it's not true. Boeing has commercial and government?

Well, they probably have commercial and government, but they don't have 707, 747, 757. They don't have They don't divide. And if we divide up by FAB, it would be like dividing up 707 from 757, 737. Anyway, Tom Brooks attempt was in 1996. And by 2005, Rick Tsai decided to check 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. Of course, not if the whole company is going down the drain. So you have to interfere then, but only then. Well, anyway. So that was the background. Two groups, when I came back to be the CEO, the advanced group and mainstream group. And each group had a small business development section, 30 or 40 people. I think Advanced has had more, a bigger group than mainstream. All right. So I wanted to combine the two operations groups, and I also wanted a real marketing. And I didn't call it marketing because I decided to use business development in English because it has 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, 1,000 employees. And the mainstream group had a little less, but also seven or 8,000 employees.

And the mainstream group, just 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 it's C-MOS 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 Both mainstream and advanced technologies. Take Qualcomm, I'm quite sure that they use the most advanced. Even Apple, I think they use Yeah, if you think about all the chips in an iPhone, the A16 Pro is built on the leading edge, but there are many, many other chips in there. Yeah, right.

You combined to one business development organization, 80-ish people, We had Mark Lou in charge of the advance and CC Way in charge of the...

The question is, who is going to be in charge of what? They combined. Or you need only one for the combined operations. You need the only one person. The truth is that we had a lot of operational talents. Operations meaning manufacturing, taking the developed technology from R&D and converting it into mass production. We had a lot of talents there. But business development or market there. And neither Mark nor Cee Cee had any real previous experience in marketing business development. So that was my main worry. We combine the two groups. We need a combined 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 bigger job, advanced technology market. 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 being professioned in that area. But he declined 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?

That was 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 did that tour of duty.

And I explained to him that.

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 of hundred people reporting to him, whereas the Secretary of State had thousands of people all over the world reporting to him. And who had more power? Kissinger.

Certainly not the name you've forgotten.

Before this period, you were doing the business development and marketing for the company, right? You were the one finding the Nvidias, the Jensons, the Broadcoms, the next great customers and great markets for you.

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 the CEO. Yeah. But you were right. I was on the plane most of the time visiting customers. That was my pleasure. I really like it. Well, anyway. So I I then, of course, offered the business development job to Cee Cee. And he accepted it. I thought he accepted it even delightfully. Yeah.

He's now the chairman and CEO of TSMC. Yeah. This had just happened. You came home from a board meeting, we understand, one evening.

That's right. The board meeting had ended, and it was 6: 00 or later, and I went home. This was Taipei. We had our board meetings back at that time, in fact, here. You have seen my conference room?

Yes, It's right across the hall.

Yeah, right. We had all our board meetings in Taipei in that conference room. 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... Actually, she met me at the door, which wasn't very often. But this time she had something to tell me. That's why she met me in the door. She said, Terry Gough called in the afternoon and said he was coming to dinner.

And who is Terry Gough for listeners?

Terry Gough is a relative. It's actually a second cousin of Sophie's. Sophie is my wife. They share the same grandparents. That's what makes them second cousins, I think.

For our Western listeners who this won't be obvious to, Thierry Gau is the founder and CEO of Foxconn.

Right. Thierry Gau is a second cousin of Sophie's, and he's also He was also, at that time, the chairman of...

Honhai, which... Honghai, yeah. Foxconn, to American listeners.

The name slipped my mind for a second. Yeah. Honghai. Which is a very important supplier to Apple. And a pretty big company. And in fact, Terry Gough 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 Gough coming to dinner bringing a vice president from Apple. I don't think she quite understood, quite really. She wasn't very interested either in the significance of that.

And you had been trying for months strategizing with the business development team, how do we go win Apple's business? The iPhone seems to be working.

Yeah. I've been strategizing is probably too strong a word. I've been just thinking. Also knowing that we just can't do anything. We can't do anything about it. Apple is a very close-mouth company. If you try to talk with them, if you offer your service, they will just tell you to go away. They 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. All right. So 08: 00. Now, Sophie did know that I would not be home until after 06: 00. So he had told She had told Terry that, and Terry had set the time of their arrival at eight o'clock. So 08: 00 was It was a bit late for my dinner, but I said, What the heck? We'll wait. All right. So they showed up. I didn't ask. Sophie just said, A vice president. And I just thought to myself, it wouldn't be just an ordinary vice president. Because there was no reason for Terry to just bring any Apple vice president to my home. But then it must be something special. It must be someone special for TSM All right, so Jeff Williams came.

He was not just a vice president, he was the Chief Operating Officer of Apple. Jeff was a pretty straightforward person. He didn't spend much time in ordinary chit-chat.

There wasn't the same pizza and salad period before?

It wasn't formal either. My wife Sophie just added, We have a cook. We had a cook, and pretty good cook. Sophie just told the cook to add a few dishes. She's a Chinese cook. She doesn't do any Western food. And Terry, obviously, she grew up on Chinese food. And I would imagine that the apple guy that he bought would also like Chinese food. Anyway, so she just asked the cook to cook a few more dishes. But it wasn't important. The food was not important. Either the quantity or the quality was not important because almost Jeff immediately started his pitch, almost as soon as he sat down to dinner.

And what is the pitch from someone like Jeff Williams like?

We would like you to Foundry Our Wavers, something like that, pretty straightforward. I listened. That night, I think Jeff talked maybe 80 %, and I talked 20 %. If you don't count the relative to relative between Sophie and the Terry, which was not very much either.

And Jeff had proposed economic terms at this first dinner, right?

No, not Nothing so concrete. Okay. He just said that we will let you have 40 % gross margin. And I think, 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 %. It was a announced effort in the company to push the gross margin. And I had that effort for many years after I came back to be the CEO, and I really didn't even succeed, even at my retirement. Now, of course, What happened later was that there was COVID and so on. And also we began to have leadership, technology leadership. So our margin jumped up to over 50 %. But when I retired, it 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- We'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 nanometres or so, that's when you really- You are negating.

I think when you said that, you were negating Intel. At 28 nanometer, we were very definitely the leader among foundries. And maybe among a few other companies such as Texas University, and so on, but not Intel.

And Apple was considering Intel?

No, Apple was not actively considering Intel. That came later. Later. Yeah. 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 let us 40 %. And my thought was, my goodness, we're already at 45 %. But I also thought that he was trying to be generous when he said that he would let us 40 %. And I also thought to myself, well, now this dinner is not the time to go into a pricing discussion. We have a lot of other to discuss. Anyway, so I said, no, we were about to go into production. We were almost in production with 28 nanometer at that time. The initial stage, anyway, 28. So I said, I thought it was going to be 28. I said, 28? No. What node do you want? 20, he said. Now, that was a surprise to me. Frankly, it was also a disappointment because the most slow progression after 28 was going to be 16. Now, Apple, Jeff Williams wanted the A half-step. A half-step. But a half-step is a detour. We would have to, my thought, at the dinner there was that we would have to spend effort on the 20, which, of course, would help us on the natural next note, which was 16. But still, it was a detour from 28.

From 28, if we could go directly to... If R&D would go to 16, it It will be less time than first do 20 and then... No. The point is that back then, R&D did not have enough resources to do two nodes at the same time. 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 28 nanometres. 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, We're 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. Now, Apple came strictly as a present surprise. Anyway, for the company in total, but not for '28. We didn't include Apple in our '28 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 planted a lot of seeds in 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 Goldman Sachs very early in our existence. I was, in fact, a board director of Goldman Sachs. Did you know that? Yes. I did. We did the ADR with Goldman Sachs, which opened up a good relationship for the stock.

It was your New York public listing of the stock.

Yeah, ADR is American deposit receipts. It's New York. It's a separate market. In fact, right now, the TSMC price, ADR price, has a 20 % premium over. Really? Oh, wow. 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 TSMC stock to to ADRs. The board does not give such permission. Easily, anyway, okay.

You had planted this seed with Goldman Sachs, or when you knew you would need them. Right.

This was very early in our history. Now, we need funds. This Apple thing came after we had We already decided to increase capital spending. Now, Apple requires even more capital spending. And we have to figure out where the cash is going to come from. There were several possibilities, of course. We're paying a dividend, not a very big dividend back then, but a modest dividend. We could cut that dividend. And then We also could sell stock, new stock offering, either in Taiwan or in the US. We have the ADRs. Or we can borrow money, corporate bonds.

Or you could only fill part of Apple's order.

Right. And in fact, we did that. We first did our financial planning, and we decided not to cut dividend. We decided not to sell new stock. We decided to just borrow. 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, what Apple said they need it.

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. Well, back in the '90s, in the first, let's say, 15 years, first 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. And so we figured out that we were required a deposit from the customer, and will even confiscate the deposit if the time comes for him to take the wavers, and he doesn't. And everybody delights in the word confiscate. It was first used by me. I told the salespeople in San Jose, I said, Tell the customer that we need a deposit from them because, just as you said, it's our money, and it's only their words. They may not want the wafer 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. And so they were in uproar in happiness. Now, they could actually stand up and tell the customer that we might even confiscate your money. But of course, really, we never confiscated any money. No, it did happen quite often, particularly in the 2000. 2000, we had, I think it was called an Internet Recession, I think.

Because Internet was... People were starting companies called pets. Com or something. 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 the-Dot-com, yeah.

At those rates. Yeah. Yeah. It was almost four years. I remember it recovered only in 2003. It started in 2000. No? Started in 2001, the first quarter of 2001, and it recovered in the third quarter of 2003. So it was three years. Yeah, wow. Three years. '01, '02, the third, fourth quarter of '03. 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, we bought a couple of other companies. And so their plants, their fabs became ours. And the customer didn't need the way no papers anymore. They need the outputs of those fabs anymore. And we didn't confiscate their deposit, but we let them delay the man. Eventually, every one of them, they all use up their deposits. But that will come.

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.

First, of course, the new, or relatively to business development director, C. C. He had the privilege of first telling the lower-level purchasing people at Apple. And he got a response back, You must be crazy. So Ceeci did not comment on that. But at least he said he didn't come in, that he brought it back to me. Then I went to Apple myself and talked to Jeff Williams. I said to him, We have to issue corporate bonds. I think I used the word prudent. After all the prudent financial planning, we decided that we would take half of what you asked for. Now, 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 so. The fact is, I had looked into that. That's also a reason for having high-level consulting advice. About one-third of our investors, shareholders, are very seriously interested in the dividends. So if we do what Jeff Williams said, our stock is going to go up like hell.

Trigger a sell off.

Right. Anyway, but when I talked to Jeff Williams, and I went to see him in... What's the Cooper Tino. Cooper Tino. Yeah, Cooper Tino. He took it fairly willingly. No big problem at all. The only suggestion that he made was the elimination of dividend. And I said, no. And he then let it just lie there. Okay. But then that issue was settled. I mean, how much demand we would take and how we will get. We still had to borrow billions of dollars, even with half of the demand.

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You're taking on a bunch of debt to go build the fabs to make this happen.

But yeah, I know. Bet the company, but I didn't think I would lose.

You sound like Jensen.

We said 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, we're talking about 2011. He said, It was a very short conversation. I 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.

That wasn't an issue, of course. I mean, in February of 2011, Jeff Williams was talking about the iPhone.

But they had a A close existing relationship.

Yeah. I don't know what relationship they really have. 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 when you hear it, you would stand up and bow.

Interesting.

I mean, heck, in the '90s, in the late 20th century, they were a name in semiconductors. When you hear it, of course, I'm exaggerating. More's law.

It's their Intel.

Yeah, Intel. If you hear their name, if you hear that they are in competition with you, my goodness, you'll be crambling with fear.

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 you.

Because fair enough.

Look where we are in 2025.

Okay. Anyway, so I, of course, had to accept Jeff Williams' request. All right. But again, as I just told you, I wasn't all that worried because my reviewed in my mind all the characteristics that Apple is looking for in a supplier technology. At that time, we thought we were almost at par with Intel. Almost. In fact, I thought we were. I think I thought we were at par with Intel at that time. Manufacturing, I thought we were better than Intel. And customer trust, we thought that our customers trusted us more. Their Intel customers are more than Intel's customers, customers Intel. So I wasn't too worried. 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 it turned out that he was only talking about the CEO of Intel at that time. Yeah, but I knew that only later.

Would that have been Bob Swann or Paul Atalini?

No, it was the Italian guy. Otalini.

Paul Otalini.

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 it still was in my mind. So a month passed, I think was about About the middle of February when Jeff called to tell me to pause for two months. So almost exactly a month later, March, middle March sometime. I decided that I would pay them a visit and ask them what's going on, any progress. So I emailed Jeff and asked for an appointment. I said 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 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.

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 I got up and Tim was very nice to me and took me to lunch or to the cafeteria, I guess, where there was a lot of food. We each picked our food and carry our tray back to his office. Anyway, he told me, there's nothing to worry about because Intel just does not know how to be Foundry. That's a very short but a very satisfactory answer to me.

What is your interpretation of the meaning behind that statement?

I was explaining to you that we had on technology, on manufacturing. Subconsciously, I think I interpreted Jeff's explanation to me to be the third one, customer trust. I mean, they were always very superior, Intel. Before this Apple thing, Apple and we, before Apple became our customer. I knew a lot of Intel's customers in Taiwan. All the PC makers are Intel's customers. None of them liked Intel. None of them. Intel always acted like they were the only guy. They were the only guy for the microprocessors.

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 chips, 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 asked 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. 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 the Intel or liked the 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 cost, but the story certainly does not end here. All right, so there was pricing. Everything was not easy. Pricing, and Jeff came himself, and we talked about pricing. And we, of course, we had done our Some work also on the cost and what price we will accept. But Jeff came and he told us just a number Well, he gave us his reasoning. He had to make his component costs meet a certain goal also. But anyway, that was settled. And Jeff said, When the pricing was settled, I said, Let's go out to dinner. I would go to a Taipei three-star restaurant for dinner. And Jeff jokingly said, If you didn't like the pricing, we will probably be going to a McDonald's. Which was never in my mind, but you 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 impact that.

Sure. The cost, yeah. But the main thing that goes into pricing, of course, is the cost. And then the second thing is, of course, where the 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 out who gets to capture the value?

Well, I don't get the privilege of sorting it out now. Cc, CC Way, I think, has the pressure and the duty of sorting that out. Yeah. Well, as a general principle, you try to find a middle ground, which is different for every CEO. Even though every CEO who wants to protect his reputation, every CEO says, 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 a detour that I said we took. At that time, back in the 2011, 2012 time, our R&D was not strong enough to do two nodes at the same time. Now we are, but back then we weren't. 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, so 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 a 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 I succeed. Where did that leave us? Do you understand what I'm saying? Oh, yes.

Sounds horrible. I would feel like I got tricked.

Well, I wouldn't say that, okay? But I I was really shocked. I emailed Jeff Williams right away. I said, We invested in all this equipment, and we were counting on you to take the 16 from us. But But now, we found out you were buying the first 16, anyway, from Samsung. So Jeff replied immediately, Don't worry, I'll be here. I'll be there. I'll be in St. Jude next week and explain 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, as soon as you As soon as you are ready, when you are 16, we'll buy from you. We'll buy all the needs from you when you're ready. Now, of course, that completely relieves me because that's what we're supposed to do anyway. So indeed, what you said was true. We developed, we had our own 16 about half a year later. Most of Apple's 60 nanometer requirements still belonged to us. Yeah. Most.

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 chief competitor.

Yeah, I know. I know. It was, I said in the all about, sitting in since you being in the foundry business, I actually see a lot of things before they actually happen. Let me tell you the IBM Qualcomm story.

Yeah, please.

Now, Qualcomm, we consider the Qualcomm to be a prime candidate to be our customer. We really wanted Qualcomm because we knew they were a technology house.

What year was this?

This was way back when we started in the '90s anyway.

And they were part of that initial wave of fabulous companies. Yes.

They started, Erwin Jacobs started the Qualcomm. Actually, before I started the TSMC. Tsmc started in '87. Qualcomm, I think, was a few years before that. So 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 now I saw Yeah. Operations VP. That's what they call. That's what our customers call their purchasing people. Operations VP, operations Senior VP. And I saw I saw him often, and he was always pretty polite. But he gave us very little business. And I also knew that his main founder was IBM. Now, sometime in the later '90s, I forgot whether it was '97 or '98, suddenly, he started. 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 knew that it was IBM from other sources of intelligence. Our business This was Qualcomm. The business that Qualcomm gave us pretty rapidly increased after that, after '97, '98 period. So I immediately knew the IBM semiconductor was in trouble because 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, fabulous company. So I immediately knew IBM was in trouble because they were losing Qualcomm. All right, so the The next step that IBM took was not a surprise to me. The next step they took was to ask us, TSMC, to co-developed the next generation of technology, which is 0. 13 microns, 130 nanometer in 1999. And since I anticipated that, it was no problem at all for us to refuse the... And in fact, even if I didn't anticipate that, we would never, never have accepted that code development. I mean, IBM was still, 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, we send its engineers to IBM. 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. Our people will be in a different culture. So we declined without having to think about it at all.

We declined the IBM IBM, in fact, was quite angry. They thought we were still a small Taiwan backward place. It's a Taiwan company, and they are a big IBM. They immediately went to UMC. And UMC accepted, only to regret seriously their acceptance a few years later.

And UMC, 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?

Smaller. They were smaller already. That was what I meant when I said that sitting here as founder, 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 developed 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 learning curve theory is simple, but one would be foolish if one just takes the simple explanation and thinks that 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 cars. If a company makes more cars, then it's cost per car, unit cost, it 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 it thinks that's all it is about, then you really I haven't learned anything at all. 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 a Boston Consulting Group. And now, there's a branch in business economics that's called competitive strategy or something. Competitive strategy, I guess. And Michael Porter Joe was at one time considered a big figure in this competitive strategy. He wrote three or four books, big books, 700 pages each. 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. Who's? Michael Porter. Oh, well good. 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 Michael Porter. But Bruce Anderson, 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 TI CEO, Mark Sheppard, and told him that Boston Consulting Group. He had founded the Boston Consulting Group, and we have BCG 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? So Mark Shepard said, yes. So Bruce Henderson brought Bill Bane, you probably know that name, with him and came to Dallas and made a presentation. And Mark Shepard invited the CEO is the COO and me to attend the presentation. And it was a very eloquent presentation because Bruce Henderson was a very eloquent man. And Bill Bane was on the side, apparently, Bruce Henderson's protege. Anyway, Mark Sheppard was impressed, and he decided that TI would work with BCG on this learning curve theory.

And Bruce Henderson then I assigned Bill Baine to work most of the time at TI, most of my, like three days a week, And Mark Happer assigned me as TI's guy. So Bill Baine and I became partners. And I assigned Bill Bane a small office very close to my office at TI in the same building and small office because he needed a lot of things for me. He needed permission to get our costs, our prices. We had 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. Every time when he arrived at some interesting useful conclusions, she will also discuss them with me. 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 Baine 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. I found it 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. 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. 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. It's almost... 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 into it. Then in the future, there will be one winner in semiconductor manufacturing.

But one day after a couple of years, Bill Band came to me in Dallas. He 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, Obviously, Bruce Henderson thinks very highly I love you. And Bill Baine said, Yes, but there is the Walsh imperative. That's the first time I heard that term, Walsh 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 they're huge acquired listeners just like all of you.

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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 the West Coast of the United States. It is this incredibly important thing in the world. It's this unlikely success of grand scale.

Unlikely, in your opinion?

I mean, You started it when you were 56.

Yeah.

There are many things- I'm not going to argue with you, okay?

I'm merely asked as a point of curiosity. I didn't realize. I didn't think it was that unlikely. Yeah. Well, it did exceed my expectations. Tsmc's size and importance exceeded my expectations, but not by an order of magnitude.

But wasn't the original plan to stop building after FAB 2?

No, that was never. That was only the very initial plan. Okay. We were never going to stop there. We were just talking about learning curve. 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 fabs. But I was a serious student of learning curve, and 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 a bad business. Fablus was not a thing yet. All of your initial customers were the integrated device manufacturers, the Intels of the world, and you were taking their worst 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 Fablus coming or was that a very lucky thing?

No, I saw it coming. And in fact, I just had dinner or two months ago at dinner with the first guy, Gordon Campbell, Gordie Campbell. Have you heard his name? Anyway, Gordie Campbell came to see me in General Instruments in my final months at General Instruments, he came to see me. He did not know that I was leaving. Frankly, I did not know when I saw him that I was leaving yet. But the reason he came to see me at General Instruments was that he wanted the funding. He wanted investment from General Instruments. $50 million, he said. He wanted to start a new company. $50 million. So I said, Do you have a business plan? No, it's all in my head. So I said, Well, I need at least a business plan. I mean, I have to go to the board of General Instruments. So he said, All right, I'll send it to you within three weeks. Three weeks later, there was no business plan. And I was interested because I knew that he had a good reputation of starting companies. So I called him and he said, Ah, Mars, I'm sorry, I didn't send you anything because I don't need you anymore.

I said, How come? He said, I don't need 50 $10 million more. I need only $5 million, and $5 million, I can gather up very easily. I said, Why do you need only $5 million? He said, I'm not going to build a FAB. See? That was the start for me, that there will be fabulous companies. Another guy came to General Instruments and said he had already started a company which was called Atmel, A-T-M-E-L. And they did not have any fax. And this guy wanted the General Instruments to make the wafers for them. And back then, General Instruments had empty fax. So I said, I told the semiconductor manager of general instrument, I said, I'll go ahead and work with him.

Don Valentine? Yeah. Who I'm sure you knew.

Yeah, I knew him.

He had a great quote when asked about starting Sequoia, and he said, Well, I had an advantage. I knew the future. It sounds like you knew the future, too.

Well, at least I had the dreams of it. At Mel, and they were still fighting. At Mel, he wanted the FAB to be run his way. Now, of course, the Johnny Isman, the semiconductor manager, wanted to run the FAB his way. And Johnny Isman owned the FAB anyway, for heaven's sake. So that was just a very early situation in which the difficulty and the advantage of running a foundry business already appeared. The difficulty was, you You have to satisfy a lot of customers. Everyone wanted the FAB to rerun his way. But you can only run FAB one way, which will satisfy more or less all the customers. The advantage, of course, is you have a lot of customers.

Well, we can't thank you enough, Dr. Chang.

Dr. Chang, thank you.

All right, very good. It was my pleasure. Even though it's the first time in a long, long time that 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. We wanted to do a little post game on that interview, a little bit of analysis, our conclusions, the things that are still sitting with us a few days later after we've crossed the ocean. David, 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 make a business model point. It just felt like we should let him talk and then we could do our part after.

Yeah, totally. Fortunately, we have a model for doing analysis at the end of story, which is our playbook. Ah, a playbook. Let's do it.

Okay, so the first thing that I can't shake that just keeps 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 more Doris' original pitch, like his original slide deck.

His original business plan that he pitched to the Taiwanese government.

The government, and then to investors. There's two different versions of this extremely simple pitch deck. One of the bullet points, it's right in there of be a 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.

At the time, they didn't have the capabilities, certainly not TSMC, and didn't exist in Taiwan, to be able to design chips and products. 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 he scrapped that. I get the sense because the thing that they were good at was this manufacturing angle. It's almost like an accident of history, 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 this is the path that has led them to being essentially alone operating at the leading They have surpassed technology-wise all of the other integrated and quasi-integrated chip foundries out there.

Yeah, I guess that's my first thing is this... You can connect the dots looking backwards as Steve Jobs said in that famous quote, But forwards is difficult.

This primarily, I think, was the main reason why TSMC has worked so well.

That they don't compete with customers.

They are truly the only founder 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 chips. 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. 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 EDA tools like cadence or synopsis. They're not NVIDIA, they're not Arm, they're not cadence synopsis, they're not ASML, they're not their own equipment vendor. What enabled this? One of the things that I think is underappreciated, and we didn't talk that much about with Morris, but the rise of Arm. If you try to play forward a world where Intel and the X86 architecture had maintained its dominance, you wouldn't have had this window, this opportunity for the value chain to rearrange itself. But the fact that there was an architecture, as we talked about on our ACQ2 episode with Rene from Arm, this architecture that became dominant in phones and then computers and then servers and now is coupled with all these AI chips, you open the door to have a dedicated foundry for arm chips in a way where if it had 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 X86 company.

Then AMD, of course, is the second source that AMD is a TSMC customer. That's the one edge case. It's like, well, there is AMD that designs X86 chips that TSMC manufactures. But that's not the common case of the way it would have gone in an X86 dominated world. It would have been fully integrated Intel.

Yeah. I mean, one super straightforward and enormous example of this just is Apple. If Arm hadn't become such a viable CPU architecture platform and Apple hadn't standardized their Apple Silicon on Arm, probably Intel would be making all of the chips that go into your iPhone, all the leading edge chips that go into your iPhone. They already had the Intel relationship. Macs were running on X86 Intel chips.

Yeah, you have to keep peeling the onion because this, of course, supposes that Intel actually could have gotten their act together and made a chip for mobile phones that was performant. But maybe all the baggage from X86 actually prevented them from structurally doing that. It wasn't like a competency thing. It was like it never could have happened that X86 could run on phones.

Yeah. I think all this is true. But if Arm hadn't existed, there would have been nowhere else for 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 designers, Apple, NVIDIA.

In a large part, that's due to Arm.

Yes. And Arm and TSMC are coupled at the hip of history of how this came to be. In fact, didn't you find that a bunch of these were started within 12 months of each other?

Yes, totally. The mid to late '80s were like an absolute golden period for all these companies getting started. Not only TSMC, Arm, Synopsys, Cadent, and ASML all founded right within a couple of years of each other. Which brings us to to hint you, Science Park. Going there in person. We talked about this on our original TSMC episode that even if you wanted to, you couldn't airlift TSMC and this capability out of Taiwan and recreate it somewhere else.

We talked about as if we knew it in 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 government-sponsored industrial park, which it was, it was Silicon Valley, 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 TSMC that's there. It's all of their partners It's all of their customers. We're driving by and 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 MediaTec right there, headquartered right there. Right across the street, the craziest thing to me, we saw there are two universities that are just there.

In the science park?

Yes, 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 NVIDIA campus.

The thing that really jumped out to me is you always hear people talk about how integrated this ecosystem is with each other, that synopsis has to be closely tied with TSMC to understand what the next node will look like so that they can make it easy for people who are using synopsis tools to design ships to actually manufacture using TSMC's process. You get the sense of, oh, I see, because they all are walking across the street to each other and having this extremely close communication. Not to mention, David, both of our flight experiences felt like, oh, these are a bunch of chip design fabulous companies that are making the pilgrimage over to Taiwan to meet with people in this ecosystem.

My plane felt like the semiconductor version of the tech busses that go from San Francisco down to Silicon Valley every day. The backpacks that I saw on the plane, there's a Google backpack, there's an Amazon backpack, there's an arm backpack, there's a Marvelle backpack.

Yeah, which does raise the point of this Arizona fab and the outside of Taiwan fabs. Why is 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 think it's the Tai nan one in the south. But it just becomes clear that there are customers and government reasons to build Fabs in other countries, but- You're not going to be able to recreate the magic of that ecosystem, physically instantiated right there. Yeah. It would take decades to recreate the ecosystem that they have in the science parks.

Which is funny on that front. 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, anywhere in the world.

At least to spur innovation with this particular of a mandate.

Totally. The land grant University is here in America, but this was like a rifle shot. We are going to spur semiconductor industry innovation in this this industrial park in this location, and it worked.

There you have one of the 10 most valuable companies in the world and the only, I guess, one of two trillion dollar companies that are not on the West Coast of the United States. I would say it worked.

It worked.

The scale, too. We drove by a construction site where it looked like a quarter of the building was done. This is where they're making the two nanometer process, which presumably will be in the next iPhone. It's not like anyone said anything about that, but jeez, I wonder after five nanometer and then N3E and N3P, when they have this two nanometer process, I wonder what they're going to make on that. Lots of Nvidia GPU 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 for this two nanometer facility that are not even ready for prime time yet. But I 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 fabs smacked me in the face. I felt like I was looking at a sphincts in Egypt. I mean, it's huge. It's like many football fields of size, just per phase of the fab. These are enormous buildings. Yeah.

Okay, so back to things I've been new on since the conversation with Dr. Chang. I felt a little bit bad for saying, Hey, your original business plan was 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. But that is true. I mean, he believed that Fabless was going to be a thing, but for the first, I don't know, at least five years, the only real business that they had was IDMs who were willing to say, How cheap can you give me some of your manufacturing capacity? 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 TSMC. Intel is constantly taking their existing FAB footprint and repurposing it and upgrading it for the leading edge, which on the one hand is great. It's utilizing their assets for the most valuable, highest valuable products. On the other hand, though, they then lose the manufacturing capabilities for older process node generations. It's not like demand goes away for those chips and those products.

It does. It just does slowly.

It does slowly, yeah. I mean, replacement parts is a great example. There are technology systems and products, manufacturing things, even automobiles, built 10, 20, 30 years ago that have specific chips that were made with old process technology that when they break and they need replacing, you need those exact same chips. This is the business that TSMC started in.

Right. So that is the fundamental philosophical difference is, I think FAB. Fab 1 belonged to Itri, the government where Morris was President of that organization before taking the helmet TSMC. Fab 2 and three, were the first TSMC-specific fabs that they built, and they're still running from the late '80s. In addition to the old replacement parts, there are still applications for older nodes. If you're in this world of 40 nanometres and up and one micron, and I don't know all the names of the previous generations, but the less high resolution etching on silicon, CMOS sensors are great examples of that. The cameras that we're talking into right now that have these great Sony sensors, 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 free to run.

Right. All the capital expenditure. Now, there's maintenance CapEx that needs to go into it, of course. But the initial CapEx, yes, fully depreciated. You're just getting essentially very, very high margin dollars out of those old fabs.

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 TSMC does.

Totally.

But that point of, I'm obsessed with this idea that... It was funny that Morris went on the record and said, No, I knew. I knew Fabulous was coming, and he had a couple of great anecdotes about that, which is funny because in older interviews, sometimes he goes, Oh, the timing was a little lucky on when Fabulous happened. But I think he even said to Jensen, In the first few years of TSMC, growth wasn't very high because we were waiting for the customers to emerge. But it really is this idea that he saw the future, he made a bet, and he did a crappy business to build up competency, capability, volume. Capacity. Yeah, exactly.

To build up literal fabs.

Right. To be there when the fabulous revolution happened. I don't know. I think he I think he was within 12 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 worst orders.

Which that actually gets to the heart of learning curve pricing that we spoke about with Morris.

We brought it up tangentially with him, but it's probably worth dwelling on what is the learning curve.

Yeah. The core insight of the learning curve from BCG, Bill Bain, and Bain and Morris, that they all developed together.

Which, by the way, how crazy is it the founders of BCG and Bain are the ones who co-developed this, or at least named it and formalized it with Morris when he was at TI.

Totally. The insight is that the goal that you are playing for is to be the largest volume player at the end of the game. If you take that as a given of If we get to be the largest volume player, this is a fixed cost business, this is a scale economy's 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 where it's more competitive, we accelerate the pricing to where we think it will get to at the end of the game. That's why doing these price cuts and also starting low with your prices. You can even start profitable 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 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. At maturity on this node, what do we think demand will be for, call it 40 nanometer, how many orders of individual chips will there be in 40 nanometer? Okay, well, to have the cheapest price for customers, we need to do the biggest ordering. Then it's just a matter of how fast can we get into volume production. Everyone intuitively grasps this, oh, economies of scale. But the implications across your whole business, your pricing strategy, The way... Like strategic finance. 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. 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 want to get the deepest down the learning curve possible. We should go take in the other order. But that exposes you to existential risk in your business when you're not within spitting distance of doing that volume on your own. So is it really worth betting the entire company?

You got to be so precise and in your forecasting of the ultimate market demand, which means the ultimate demand for your customer's products, which in the Apple case means ultimately forecasting accurately how many customers are going to buy the next generation iPhone in order to run your business.

Right. Or in NVIDIA's case, how big is AI going to be? This is a crazy thing for a manufacturer to have to do to have that crystal ball into the end market markets, the end their customers markets. But they really do need to make bets on how big those markets are going to be.

Because if you're off by 5, 10%, that's going to tank your entire profitability for that node generation, which is going to tank your free cash flow, which is going to 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 are good at forecasting and the execution is flawless, once you internalize the learning curve. The story of TSMC goes from one where it's surprising and unlikely and it becomes an inevitability. Of course, the company that is taking on all the orders to have the lowest prices.

Of course, this will be the end state of this industry is to have a dominant player.

Right now, it costs, I don't know, on the order of $20 billion to build a new FAB, eventually it will cost 40 billion, $80 billion, $100 billion. How many players are really going to be left standing with the ability to deploy $100 billion to build a building with some machines in it? This market has natural monopoly characteristics.

Yeah. That's just the CapEx side of the equation, as we talked about with Dr. Chang. There's also the R&D side of the equation that needs to go into creating the next process node that can 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 CapEx grows in a very similar way if you look at the bar graph to their net income from the year. That is even before R&D. David, to your point, if they were looking around at competitors, at other foundries, and saying, Okay, how much can we invest? They can invest more than anyone else because they have the most volume. Then on top of that, they are also spending in a separate bucket of R&D on the technology for their manufacturing processes. That's how you get Co-Oss, which is the technology that they use for packaging for AI chips that's their proprietary thing, which, by the way, once you have proprietary packaging, then it's even harder for customers to go and double-source, double-manufacturer elsewhere. They have a similar technology for packaging of mobile chips that doesn't use co-ops. 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. Then I think the last playbook theme here for me and for us is just that 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. Once the integrated circuit was invented, the compounding growth of that industry is all that mattered. Everything else is just downstream of the fact that the world is going to demand more computing at this monotonic, exponentially increasing pace every 18 to 24 months. Of course, the technical definition of Mohr's law expired a long time ago, but like, spiritually, the world demands roughly 2X the computing power that it had two years ago, every two years. That has continued for 50, 60 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 signs of slowing down.

Well, sure. But the demand side is far more than 2X. Morse law has always been about how much can happen on the innovation side of getting better at design and manufacturing. That is getting harder than ever because we're having to call more things more as law. Packaging was never a part of the original more as law, and software improvements, and 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 going to be market incentives to drive the supply side. That is why people work so hard to make it happen.

All right, here's the stat. Since TSMC was founded in 1987, the world's semiconductor market has grown from 26 billion to 527 billion last year. They rode a ridiculous tailwind.

Ridiculous tailwind, yeah.

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. The scale of the numbers are so staggering. I keep thinking about the fact that they can go spend $20 billion to build a building, and the stuff that they spit out is so valuable that that $20 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. They know for sure that it's a worthwhile investment to do that. The whole thing comes down to Oh, my God, silicon has become really valuable. Integrated circuits are the fabric of our world today.

Well, Ben, 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 Dr. Chang. What a great way to start the year. Should we do carve-outs?

Carve-outs. All right, I have two. One is a 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. I had a spectacular Triple A experience where I went to fill up the air in my tires before a road 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. The car was actually not driving away from this gas station. I was like, Crap, I can't even go get the other car. I had my baby in the back seat, and my wife and I were trying to figure out what to do. We're like, Do we have to call a tow truck to tow us? I was like, I signed up for Triple A while I'm just sitting there in the gas station parking lot. 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 fill up the air in my tires so we could be quickly on our way, not ruin the weekend.

Amazing.

It was like a hundred bucks or something. It's really not a bad price. A hundred bucks to become a member, whatever, it's And then the service is actually free for something as trivial as this, and you get three of them a year. Wow. I'll take it. It was a phenomenal experience.

All right. Triple A. Here we go.

My second one is a YouTube channel called Defunct Land. You and I were talking about this.

Oh, yes. This is so good. You turned me on to 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. If you like Acquired and you wish you had something Acquired-like that's visual, that's about history and intellectual property and people trying crazy stuff, some of the most crazy entrepreneurs and executives within companies decided to build theme parks. It is very fun to see the weird old Nickelodian hotels or Action Park in, I think it's New Jersey, the wildly unsafe park from the '60s, '70s, and '80s.

Man, those were the days. Yes.

You could get lost for hours and hours and hours watching Defunctland, so I highly recommend the YouTube channel.

I'm really glad that you and I grew up as kids in the era where we could still take unreasonable amounts of risk, and nobody thought that there was anything wrong with that. Yes. Oh, good. My carve-out, speaking of it being 2025, how are we talking about this? On the plane on the way over to Taipei, I finally watched Everything Everywhere All at Once for the first time. I can't believe I hadn't seen it before, but two kids under three and a half. Not a lot of time for movies. It's so good. I think this was your carve out when it came out a couple of years ago. Just so good. Truly enjoyed it, lived up to the hype, deserves every award that it won.

All right. Well, we've got some thank you to folks who helped us prepare for this episode. First to our sponsors, JPMorgan Payments, our presenting partner, ServiceNow and Fundrise. You can click the links in the show to learn more. Then some special shoutouts to Art Djeas, the co founder and executive chair of Synopsys, had a great conversation with us. Well, first publicly with Sassin Ghazi, the current CEO of Synopsys, on an ACQ2 episode a little while back. Then we chatted to prep for this episode and basically asked the question, what should we be asking Dr. Chang about? We got some similar notes from Rene Haas, who is the CEO of Arm. Great conversation with Sir Peter Bonfield, a current TSMC 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, almost on par with Dr. Chang. They were contemporaries at TI back in the day. To John Bathgate and Britain Johns from DS Capital, our go-to folks on anything, semiconductors. I think they were even more excited than we were that we were doing this, so we got to talk to them about it.

Yes. Also past acquired guests. I think that episode holds up really well, where we did semiconductor and complexity theory with them.

Totally.

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. 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 learned so much about CMOS sensors, about how they make the actual silicon wafers themselves. That's a sophisticated process before the etching even starts. He's just got some awesome, awesome videos on the Asianometry YouTube channel, and I very, 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 Culpen, 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 Navaratnam at Worldly Partners. He did a great, great write-up on TSMC that he'll be posting publicly 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. Actually, some of the stats that we threw out in our playbook came straight out of his write-up. If you want a more and a more analytical view of how did TSMC become TSMC, he's got a great study on that that we'll link to in the show notes. If you like this episode, go check out other semiconductor episodes. Nvidia, we've got four of them at this point. 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 Qualcomm, which I think is a sleeper pick.

That's right. Total sleeper pick. Amazing story. Erwin Jacobs, one of the greatest entrepreneurs in American history.

Yes. Our diving into how CDMA works was one of the most fun technical explanations I've ever done on an acquired episode. 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 TSMC Remastered episode. I don't know how you got this far without listening to that, but you should go listen to that. After this episode, check out ACQ2. 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. If you're interested in semis, go check that out. Come talk about this episode with us in the slack, acquire. Fm/slack. If you want to know when a future episode drops, you can find out, sign up at acquire. Fm/email, and you'll also get episode corrections and hints at what the next episode will be. With that, 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?