Okay, before we get into playbook and just hit some things that I think we missed during the narrative, or at least didn't put a fine enough point on in the narrative, I have a what would have happened otherwise that I want to hit. We haven't done this in a while. No, we haven't. And I'll just read this as a direct quote from Bloomberg. And there were some awesome sources for this episode, all of which are linked in the show notes. In the mid 2000s, as Apple Inc. was preparing for the release of its new smartphone, Steve Jobs approached then CEO of Intel, Ottolini, about providing the chips for the iPhone. Intel already sold iPhone, the processors that ran on its Macs. But Jobs made... We need to add video to

acquired so that everybody can see the look on my face right now. I'm just like, literally, I got like fists in the air. I'm so happy.

And remember, Ottolini was the guy that Jobs brought out on stage during the Intel transition. They were burying the PowerPC to say, this is the future, this is the partnership. So, okay. But Jobs made what Ottolini considered a lowball offer and Apple awarded the contract to Samsung. It later began designing the chips itself, eventually outsourced production to TSMC, a contract manufacturer in Taiwan that had been found, blah, blah, blah, blah, blah. So what could have been? Apple went to Intel and said, do you want this contract? Because they were partners on the Mac. Totally. And apparently it was less about the fact that, I'm sorry, you want to use Arm? What? No, we're the x86 company. And it was more about, we felt it was a lowball offer.

Biggest strategic error of all time. All right, I'm going to postulate a playbook theme and I'm put forward as a post, more than a playbook theme. What's the, you know, like in geometry, there's like laws, right, that are proved, but then there's like postulates that are like, you can't prove them, but our fundamental understanding of the universe doesn't work if they don't work. Whatever that is, axioms, I don't know, whatever it is. I'm going to put one of those out there. Please. Never make strategic decisions based on economics. This is prime example. Like the number of, and we talk about this all the time on this show vcs passing over valuation on something you know uh andreessen getting cold feet about a 300 million valuation on uber yep right this intel move passing on yeah partnering with apple and

maybe more specifically than economics because like you could imagine that you would want to pass on this Intel didn't get to be the upside from the deal. Assuming that the structure is right, then passing because a number is too low in the structure. Or Ford Motor Company not hiring Morris Chang over $1. You know, like whatever. Humans

are so prone to cutting off their noses despite their

faces. So we already have the Rosenthal doctrine of never bet against the internet, but now we have the Rosenthal postulate, which is never make strategic decisions based on pricing. Based on pricing. Not economics, but pricing. I like it. I need to add a new section of the acquired website. All right. All right. Next on Playbook is another one on Intel fading. So it takes a very long time to become irrelevant. So despite Intel's stock price being, I think TSMC is like two and a half X Intel stock price. As a matter of fact, ASML is actually larger than Intel by market cap now. They are the sole source provider of one thing in the value chain to mostly one company, and they're bigger than Intel now. I'd be fascinated.

Okay, so public markets investors who are listening, shoot us a DM in Slack or post in general. AcquiredFM at gmail.com. Or AcquiredFM at gmail.com. Whatever channel works for you or Twitter, whatever.

I'd

be super curious. If you are along this thesis that we're sort of laying out on the show, how are you playing it between TSMC and ASML?

Which is now Europe's most valuable company.

Right. I mean, probably you just invest in both, but how do you think about that?

Right. And what's the up-and that's kind of speculative at this point, but could be another puzzle piece here?

Are you also shorting Intel through all that? What do you do here?

All right. So my point on Intel is it takes a long time to become irrelevant. They still control 80% of the computer processor market, and they have an even bigger share in servers. So despite everything we're saying, it's still huge. Workloads running on CPUs that are in computers and on the cloud, pretty big business. Yeah.

The majority of workloads they're having in the cloud is not Tesla Dojo. It's, I don't know, some company that's not a tech company somewhere in the world running their Outlook server on Office 365. Yep. Absolutely. Doesn't need five nanometer process.

Two other Intel things. One is that indecision has been very tough on the company. Bob Swan, who was the former CEO, started to prepare to outsource manufacturing of Intel-designed ships to TSMC. I think even two years ago, this was the plan. They finally decided, thrown in the towel, Intel is the greatest ship manufacturing company in the world. Real men are

sensitive. They talk about their feelings.

Bob Swan is no longer the CEO of Intel. And now in a complete reversal, their new CEO, Pat Gelsinger, wants to turn Intel into a foundry themselves by which other fabless companies can contract with Intel to build. Maybe that's right. But if so, they got to figure out, and I think they're thinking about this the right way because they said it's going to be a fully separate autonomous division. They got to run that like a completely separate independent company of the rest of Intel. And if so, I don't actually know why Intel owns it. Yeah.

I mean, well, A, let's look at AMD here, right? They did this. They spun out their manufacturing into Global Foundries.

Which has been good for Global Foundries and AMD. Like Global Foundries is getting ready to IPO.

Yep. Yeah, that's probably the right strategic decision, but it's not going so well. I mean, like it's going fine. It's not TSMC. Right. It's going better probably than if they had not done that, but they're not a winner here. Like TSMC is the winner.

Yeah. I guess the playbook theme there is indecision is paralyzing. I mean, this company has spun its wheels one direction or the other, and all it's done is make itself deeper in the mud. Oh,

I just looked up, I was trying to remember this. Gelsinger was the VMware CEO. He started his career at Intel and then EMC and then EMC owned the majority of VMware. They became the CEO of VMware. Yeah. And he was the outside candidate to replace Bomber as Microsoft CEO.

organization that people think he's really going to make some good change there. We'll see. The last thing on Intel, and it's funny, this is not the Intel episode, but there's a thing that happened here that is very similar to the fact that Kodak developed the digital camera first in their lab. They knew it. They knew this was the future and they didn't commercialize it because it's impossible to counterposition yourself because of the innovator's dilemma. Intel actually saw extreme UV lithography, EUV first. So Intel was the biggest early investor in EUV, committing more than $4 billion to it in 2012. Whoa. It was slower than its main rivals, and this is from the Wall Street Journal, in adopting the technology and skeptical about whether it would work. Eventually, Intel calculated that it was a sure bet to try and improve existing ways of handling lithography. And of course, where we are today, EUV completely enabled the next generation of chips to be built that existing ways couldn't.

What a great argument and example for why you need startups.

Right? Right?

Totally. Yeah, Intel was there. They invested in it. They saw it and they were like...

They put $4 billion in. And I think even to this day, there is not a shipping Intel chip that was manufactured by Intel using UV.

Wow. That's crazy.

You're right. It is the most perfect, pure example of the innovator's dilemma in action. That's

why you need startups. Yep.

All right. My next one is that if you're only looking at the outcomes that happened, you cannot reverse engineer what the probability that would happen is. And this is a very abstract way of me saying the strategy of if you build it, they will come that Morris implemented is a bad strategy. And it also worked. Right.

Like if something's low probability, Valentine hated, they would never invest in developing a market. That was like rule number one. We invest when the market already exists, not when we need to develop it.

And this is like the classic problem. This is the knock. Up here in Seattle, there's a lot of people spinning out of Microsoft, starting companies. Classically, people coming out of Microsoft would always want to build platforms because Microsoft was the platform company, and they would always have a small, too small of an understanding of the market of people that wanted that platform today. And they assumed if you build it, they would come. Morris was that exact problem. And yet, if something is going to be true 10% of the time and fail 90% of the time, one out of 10 times, it's going to work. And it may have been the case. I guess what I'm saying here is if you're starting a startup, it's impossible to know if this was actually a good strategy or if it was a bad strategy that probabilistically just happened to work.

I mean, this is the thing about startups, right? There are all these rules, but they can all be broken. There is no formula. Yep, totally. All right. Other playbook themes? I just have one more that, again, we talked about a bunch in the episode, but I want to highlight and actually add one spin on here. You know, the Jeff Bezos quote about AWS. As a startup, that doesn't make your beer taste better the analogy back to german beer factories and outsourcing electricity generation outsource

things that aren't your core competency right focus

on what makes the beer your beer whatever that is proverbially taste better and everything that is not that like finance and accounting outsource etc double underscore that. But this is obvious, so obvious, but obviously Bezos didn't say it directly. And thus, I think we don't highlight it enough. The counterpoint to that is anytime you see something that lots of people, lots of companies are doing that is not making their beer taste better that is a massive opportunity to go build a platform company yeah that is how you build a platform company grading all right so we were thinking for grading look we could grade like i don't know taiwan's decision to do this

to own 50 of the company at the outset whatever

like you know uh a plus you know not interesting so we had the thought experiment. We'll try this for this episode rather than like letter grading this. We'll ask a question. Where does TSMC belong in the pantheon of great technology companies of all time? Is it FANG level? Is it like top five? Is it top 10? Is it like top 20? Like, where is this? What is the right context in which we should be placing TSMC, this whole story, the company, the power, all of it?

So interesting, because it really does raise this question of value chain. We

talked about the

five-part value chain that exists today for making chips. And so it's interesting because you could say, well, it belongs wherever Intel belonged circa 2000. Or you could say, well, the set of products that TSMC manufacturers have 100x the scale that Intel in 2000 had. If you think about it, all this stuff that everyone's all excited about, every time someone talks about the next wave of computing and they're like machine learning, or they're like crypto, or they're like 5G, and anything they tell you is something TSMC makes that enables it all. When Marc Andreessen says software is eating the world, it's only eating the world because TSMC has made it so freaking cheap to manufacture silicon. And then you can run whatever you want on that silicon. And it's the cost of compute asymptotically approaches zero because TSMC, TSMC, TSMC. So how much do we ascribe to them versus ASML? How much do we ascribe to them versus the entire landscape of talented chip designers out there, including the like 600 chip designers at Apple working on the Apple Silicon, is hard to disambiguate that. So where does it belong? I mean, it's probably the most successful and important B2B hardware company of all time. I

think we can safely say at this point, it surpasses Intel.

I

mean, gosh, right? Like that's a big statement to say, right? Like Intel, Silicon Valley, the traders say like all of it. Moore's law. But

in compounding, all the value shows up at the end. So it is true that the value that TSMC will create in the world over the next year, two years, three years, is probably more than the entire silicon industry leading up to this point combined. I mean,

hell, they grew 30% last year at an already unimaginable scale. Right. Intel's not doing that.

Right. Okay,

I think we can say it's above Intel. I

probably wouldn't say it is above Facebook, Amazon, Apple, Microsoft, Google, in terms of pure

value creation in the world. I mean, devil's advocate, you could argue that none of the innovative things those companies are doing now happens without TSMC. Yeah.

Unless the Foundry model and the Fabulous model was inevitable.

Yeah. Maybe somebody else would have done it. Yeah, maybe. But they didn't. They didn't. And Morris did. I mean, guys, the thing that's really just beaten me over the head in this episode, we've probably beaten all of you over the head with, or at least I have, is, you know, look, there's the geopolitical risk with being in Taiwan. Other than that, I don't know that there is a stronger moat that any company has in the entire world than TSMC. Compare it to all the FANG companies and Microsoft. Those are very, very strong moats. But we've seen all of those, you know, they've changed. They're new companies. They've emerged. They've, you know, Microsoft fell and then now it came back with new strategy and Facebook's not that that old and Google's not that old. TSMC is impenetrable. Yeah,

their business model and the costs required to compete are such that they have... It's like bulletproof. It's everything but bulletproof. Yeah, totally. Sadly. Sadly,

yeah. So, I don't know, maybe we're exaggerating because we're so deep in it. we always go native on these episodes. Right. The

only way it could be more valuable is if the company had an army. It's like if people talk about the U.S. dollar is backed up by the full faith of the U.S. government, which implies guns. And so it's only because everybody's currently playing by the rules that any business gets to stay in business. And so this one just happens to be a little bit more at risk than other ones. All right. So I think we can safely say

top 10. I think the question is, is it top five? Well,

Defensible is an interesting question. So in 30 years, will TSMC be a huge company?

Well, they've got this dynamic going right now with this flywheel where like structurally nobody can catch them. Something unforeseen has to change. But

something unforeseen will change because it always changes. Right, right, right. Yes, yes. True. Who's had the most similar dynamic in the past?

Standard Oil. Either been successful

or unsuccessful. Standard Oil is a good one.

I mean, that's a very different style, but same sort of dynamic with Standard Oil, right? Was they crowded out structurally how they were set up. Nobody else could compete. And the rich kept getting richer. And

they kind of still exist. That's the best. That

is the best part. They kind of still exist. Yeah. All right. I'm with you. I'll go top 10, but probably not top five. What I'm wrestling with is how much of it is just marketing. And I don't mean marketing in a bad way, but intentionally TSMC rides under the radar. They intentionally have no brand. The brand is the customers. They want the customers to succeed. So we don't hear all the time about them like we do the fan companies.