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Quick takeaways
- - Morris Chang's determination and leadership helped TSMC become a global powerhouse in the semiconductor industry.
- - TSMC's success lies in its ability to provide advanced semiconductor manufacturing capabilities to leading tech companies.
- - Continuous investments in technology and strong customer relationships have created a significant moat for TSMC.
- - TSMC currently holds over 50% market share in the foundry industry and plans to maintain its technological edge.
- - TSMC's business model, focusing on scale manufacturing and outsourcing non-core competencies, has made them a leader in the industry.
- - Geopolitical risks and industry disruptions pose potential challenges for TSMC's future operations.
Deep dives
Morris Chang's early career at Texas Instruments
Morris Chang's career at Texas Instruments (TI) started as a young engineer working on a project with IBM. He achieved remarkable success in improving yields and developing the semiconductor business, ultimately becoming a Vice President at TI. However, after a series of setbacks and cultural differences, he left TI and joined General Instruments (GI). But that didn't work out either, leading him to reassess his career options.
The Opportunity with Industrial Technology Research Institute (ITRI)
Morris Chang accepted an opportunity to lead the Industrial Technology Research Institute (ITRI) in Taiwan. Despite concerns from family and colleagues, he ventured to Taiwan. ITRI was a government initiative with the goal of developing technology businesses in Taiwan. Morris faced challenges due to cultural differences and the perception that he was a foreigner taking charge. However, he was determined to make it work.
The Birth of TSMC
After successfully running ITRI, Morris Chang was approached by government officials to start a pure-play foundry called TSMC. The idea was to capitalize on Taiwan's strength in semiconductor manufacturing and fill the gap in technology and IP expertise. Morris took on the challenge, despite skepticism from many. He launched TSMC, which became a global leader in semiconductor manufacturing.
Morris Chang Overcomes Challenges and Builds TSMC
Morris Chang faced numerous challenges in the early days of TSMC. He needed to develop talent, establish partnerships, and convince customers to trust a new company. Despite the skepticism, Morris's leadership and expertise helped TSMC thrive. The company focused on being a pure-play foundry, gaining market share and profitability. Morris Chang's vision and perseverance made TSMC a global powerhouse in the semiconductor industry.
TSMC's Beginnings and the Pure Play Foundry Model
TSMC was founded by Morris Chang in 1987 with a vision to create a pure play foundry company. This idea was initially met with skepticism as most semiconductor companies at the time manufactured their own chips. However, Morris believed in the potential of a contract manufacturing model and saw an opportunity to cater to IC designers wanting to start their own businesses. TSMC started by taking on the dregs from established chip companies, offering manufacturing services when they didn't have capacity or didn't want to produce certain chips anymore. While the market wasn't stable initially, Morris had an insight into the future demand for semiconductor manufacturing capabilities. He focused on building relationships with emerging fabless companies like Qualcomm and Nvidia, which eventually became major customers for TSMC.
The Rise of the Mobile and Cloud Era
The emergence of the mobile and cloud computing era presented golden opportunities for TSMC. Apple's entry into the smartphone market created a demand for custom chips, and TSMC secured a deal with Apple to manufacture their A4 and subsequent generations of chips. TSMC also benefitted from the growth of the cloud computing industry, where parallel processing and GPUs became crucial for tasks like machine learning. TSMC's success lies in its ability to provide advanced semiconductor manufacturing capabilities to leading tech companies, cornering the market and becoming a dominant player in the industry.
Enabling Technologies and the Flywheel Effect
TSMC's continuous investments in advancing its manufacturing process technology, such as extreme ultraviolet lithography, have enabled its customers to produce better-performing chips. As customers experience better performance, they are able to address more market segments, leading to increasing revenues for TSMC. The flywheel effect occurs as TSMC's revenue growth drives further investments in research, development, and advanced manufacturing capabilities, allowing it to stay at the forefront of the industry. TSMC's scale, technological advancements, and strong customer relationships have created a significant moat, establishing the company as a key player in the semiconductor manufacturing industry.
Current Status and Future Prospects
TSMC currently holds over 50% market share in the foundry industry and is the leading provider of advanced semiconductor manufacturing. Its financial performance has been exceptional, with double-digit revenue growth and high profit margins. Looking ahead, TSMC plans to raise prices by 20% and continue investing heavily in capital expenditure to maintain its technological edge. The company's focus on leading-edge technology and strong customer relationships position it for continued success in the rapidly evolving semiconductor market.
The Rise of TSMC: A Game-Changing Foundry
TSMC's combination of Moore's Law and Rock's Law allows them to dominate the semiconductor industry. They focus on manufacturing chips at scale, making use of operating leverage and scale economies to achieve high profitability. TSMC's business model is highly defensible, with an impenetrable moat. Their success has made them the most successful B2B hardware company and positioned them among the top 10 technology companies of all time.
The Power of TSMC's Strategy
TSMC's strategy of focusing on what they do best and outsourcing non-core competencies has allowed them to excel in the semiconductor industry. Through their efficient and high-scale manufacturing processes, they have become an indispensable source for companies in need of cutting-edge chips. Their ability to provide value to their customers and create a strong ecosystem has solidified their position as a leader in the industry.
The Implications and Challenges for TSMC
While TSMC has achieved significant success, there are potential challenges on the horizon. Geopolitical risks, particularly in their location in Taiwan, present uncertainties for their future operations. Additionally, unexpected changes in the industry or the emergence of new technologies could disrupt TSMC's dominance. However, at present, TSMC remains the most successful B2B hardware company, playing a crucial role in enabling technological advancements worldwide.
It's time. We dive into the unbelievable history behind the quietest technology giant of them all — and as of recording the world's 9th (!) most valuable company — the Taiwan Semiconductor Manufacturing Company. This story checks every box in the Acquired pantheon of greatness: China, America, MIT, Don Valentine, Silicon Valley, "real men" looking silly, and... moats literally built by lasers. We're not kidding. Pull up a seat and settle in for a great one!
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Links:
- Episode Sources: https://docs.google.com/document/d/1rQMgQDY5c3Fs5DsjB4cZHVZGdhN4kK-6HapO_r7pjyQ/edit?usp=sharing
Carve Outs:
- Ted Lasso (Season 1): https://tv.apple.com/us/show/ted-lasso/umc.cmc.vtoh0mn0xn7t3c643xqonfzy
- Greek: https://www.imdb.com/title/tt0976014/
- Who is Michael Ovitz?: https://www.amazon.com/dp/B07B2HS77M/
Note: Acquired hosts and guests may hold assets discussed in this episode. This podcast is not investment advice, and is intended for informational and entertainment purposes only. You should do your own research and make your own independent decisions when considering any financial transactions.
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