TSMC Founder Morris Chang

Speaker 1 The podcast about great technology companies and the stories and players.

Speaker 2 Yodo, you said technology.

Speaker 2 Now we definitely have a cold opener.

Speaker 3 All right.

Speaker 1 I guess I really want us to be about technology companies again.

Speaker 2 Well, this is a technology company. It's a sign.

Speaker 3 All right, here we go.

Speaker 3 say it straight. Another story on the way.
Who got the truth?

Speaker 1 Welcome to the spring 2025 season of Acquired, the podcast about great companies and the stories and playbooks behind them. I'm Ben Gilbert.

Speaker 2 I'm David Rosenthal.

Speaker 1 And we are your hosts. Today, we have something very special to share with you.

Speaker 1 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.

Speaker 1 And as we were thinking, what's next in the world of chips unacquired, we threw the Hail Mary. We asked friend of the show, Jensen Huang, if he would ask Dr.

Speaker 1 Morris Chang, the 93-year-old founder of TSMC, if he would be open to an interview with us.

Speaker 2 Yeah, it is kind of insane and super cool that Jensen made time to help us with this.

Speaker 2 It's not like he doesn't have a lot of other things going on. Yes.

Speaker 1 Well, listeners, it happened. So today's episode is a conversation that we recorded in Taipei last week at Dr.
Chang's office.

Speaker 1 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.

Speaker 2 Super cool to see.

Speaker 1 Totally. So conveniently, Dr.
Chang just published volume two of his autobiography a couple months ago after a 26-year hiatus from volume one.

Speaker 1 But inconveniently, it is written in traditional Chinese and not published in the Western world.

Speaker 1 We managed to get our hands on an unpublished translation of the book to prepare, and what you are about to hear focuses on a few crucial stories from TSMC's history that Dr.

Speaker 1 Chang shares in his memoir about Apple, Nvidia, and the birth of the fabless industry.

Speaker 2 Yes, and big thank you to Karina Bao, who we were lucky to connect with after we set this up and who has been translating Morris's memoirs with funding from Tyler Cowan and Emergent Ventures.

Speaker 2 Right now, the memoirs are not published in English, and we will let you know if then when that happens. Yep.

Speaker 1 All right, listeners, you can join our email list at acquired.fm slash email. You'll get an email every time a new episode drops once a month.

Speaker 1 And this is also where we announce past episode corrections, plus a fun little game where we give hints at what the next episode will be.

Speaker 2 I always have fun writing those.

Speaker 1 You do. That's a clear David job.
So with that, this show is not investment advice.

Speaker 1 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.

Speaker 1 Morris Chang with some of David and my reflections following its conclusion.

Speaker 2 We thought, as a fun way to start things off, it would actually be to talk about the man who introduced us.

Speaker 2 Could you tell us a little bit in your words about your relationship with Jensen and TSMC's special relationship with NVIDIA?

Speaker 3 Yeah,

Speaker 3 it started

Speaker 3 my relationship with Jensen started

Speaker 3 with a letter that he sent me.

Speaker 3 I think it was 1997.

Speaker 3 And the letter was sent through the post office and I received it in Sinchu.

Speaker 3 And the letter said that

Speaker 3 they were a Nvidia,

Speaker 3 the company that Jansen was the CEO of

Speaker 3 was a small small company,

Speaker 3 but they had developed some

Speaker 3 really

Speaker 3 promising

Speaker 3 chips.

Speaker 3 But they were looking for a foundry and

Speaker 3 they had approached

Speaker 3 TSMC's

Speaker 3 San Jose office,

Speaker 3 but

Speaker 3 they really

Speaker 3 got no answer from the San Jose office.

Speaker 3 Would I please contact Jensen? Because MVDA really wanted to do business with

Speaker 3 PSMC.

Speaker 3 So I was going to the US

Speaker 3 in the next week anyway.

Speaker 3 So the letter

Speaker 3 frankly raised my

Speaker 3 curiosity and also

Speaker 3 irritated me a little bit because you know I had always

Speaker 3 told our salespeople that

Speaker 3 we should

Speaker 3 never be

Speaker 3 negligent in

Speaker 3 talking to future customers even if

Speaker 3 the customer seems to be a very small one.

Speaker 1 And at this point, Nvidia was four years old.

Speaker 3 They were facing bankruptcy, I think.

Speaker 3 And they had maybe 50 or 60 employees. So

Speaker 3 TSMC, I think, at that time only had a few thousand employees.

Speaker 3 We had exceeded, I remember we had exceeded 1 billion US dollars in revenue in 95. And this was 97.
So we were, relatively speaking, we were a pretty big company.

Speaker 1 Which is very impressive. You were yourself only a 10-year-old company doing over a billion dollars in revenue.

Speaker 3 Yeah, right.

Speaker 3 So the following week, I went to

Speaker 3 California and

Speaker 3 I called him back without advance notice. I called Jensen.
I looked up.

Speaker 3 I think there was... telephone number on the stationery that he sent me the letter on.

Speaker 3 Jensen himself picked up the phone, and there was a lot of background noise. So they were, I mean,

Speaker 3 he was arguing something with

Speaker 3 his people.

Speaker 3 But as soon as I introduced myself,

Speaker 3 this is Morris Chan.

Speaker 3 He immediately shouted to those people that were making noises. He said,

Speaker 3 quiet.

Speaker 3 Morris Chan is calling me.

Speaker 3 So

Speaker 3 I then proceeded to make an appointment with him

Speaker 3 to visit him, to visit Nvidia

Speaker 3 the next day or something like that.

Speaker 3 And

Speaker 3 that was our first

Speaker 3 visit, our first meeting. And he immediately impressed me with

Speaker 3 his

Speaker 3 articulateness and also

Speaker 3 impressed me with his

Speaker 3 optimism.

Speaker 3 Well, he was also very frank. He told me that Nvidia

Speaker 3 was in financial difficulties, but the chip that he wanted now

Speaker 3 to have foundried

Speaker 3 would

Speaker 3 not only

Speaker 3 save the company, it will also

Speaker 3 make NVIDIA

Speaker 3 a major customer of TSMC. I mean, that was

Speaker 3 actually quite a bold statement. You know, we were over a billion dollars.
And

Speaker 3 to be a major

Speaker 3 customer of ours, he would have to produce revenue for us of at least 50 million a year. Okay.

Speaker 2 Was that chip the Riva 128?

Speaker 3 I forgot the number, but it was a very successful chip. Yeah.

Speaker 3 I don't think it was Riva or anything.

Speaker 3 It was

Speaker 3 a games chip, of course. It was successful.
In fact, his prediction came true. Not only did it solve

Speaker 3 NVIDIA's financial problems,

Speaker 3 it prevented from being bankrupt, you know. Not only did it do do that, it also started to make them a major customer of TSMG.
Within two or three years, they were.

Speaker 3 They did become one of the biggest five customers of TSMG. Yeah.
Very successful chip, yeah.

Speaker 1 So 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.

Speaker 1 But it hasn't always been easy and it hasn't always been perfect.

Speaker 1 And I want to go to this moment in 2009 on the 40-nanometer node where development was slower than TSMC had hoped, and it was costing customers like NVIDIA time and money.

Speaker 1 Can you share the story of how this came to be and how it was resolved?

Speaker 3 Well, I

Speaker 3 decided to

Speaker 3 give

Speaker 3 the CEO job

Speaker 3 to

Speaker 3 a potential successor of mine,

Speaker 3 while I will still retain the chairmanship. In Taiwan, usually the chairman is the top man anyway, even though

Speaker 3 CEO is another person.

Speaker 3 So

Speaker 3 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.

Speaker 3 And

Speaker 3 it was the quality problem that

Speaker 3 the CEO first reported to me. But the CEO insisted that

Speaker 3 our people,

Speaker 3 we had the director of quality uh

Speaker 3 insisted that we were not tsmc it was not at fault

Speaker 3 and so on that basis on the basis of our

Speaker 3 quality

Speaker 3 manager's arguments he had not offered nvidia anything

Speaker 3 Now,

Speaker 3 as far as the manufacturing problem was concerned, it was a yield problem

Speaker 3 and everybody was suffering from it. And of course, Nvidia at that time was

Speaker 3 perhaps the biggest customer of that node, the 40

Speaker 3 nanometer node.

Speaker 1 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.

Speaker 3 Something like that, yes. But the

Speaker 3 problem apparently, you know, just continued. And

Speaker 3 I was,

Speaker 3 even though I was not the CEO,

Speaker 3 I was getting really impatient.

Speaker 3 And then, of course, some other problems cropped up, other problems than this 40 nanometer NVIDIA pump matter.

Speaker 3 So I decided to

Speaker 3 take the CEO position back.

Speaker 3 So in 209 I did that

Speaker 3 and there were several

Speaker 3 priority

Speaker 3 problems that I had to deal with

Speaker 3 when I took the CO

Speaker 3 job back

Speaker 3 and one of them was this continuing problem,

Speaker 3 continuing argument, controversy with the NVIDIA.

Speaker 3 Anyway,

Speaker 3 I remember in the first few days

Speaker 3 after I took back the CEOship,

Speaker 3 I called all the major customers, including Jensen.

Speaker 1 And Qualcomm was, I believe, a name. Oh, yeah.

Speaker 3 Qualcomm was also. Yeah.

Speaker 3 And Qualcomm, the top customers, didn't change very much.

Speaker 3 uh since then except for maybe one yeah apple apple yeah apple came later. Yeah.

Speaker 3 And in my call with Jensen,

Speaker 3 he was

Speaker 3 still

Speaker 3 very friendly with me,

Speaker 3 but he also

Speaker 3 reminded me in a very serious tone that we had the quality delivery manufacturing problem on the 40 nanometer.

Speaker 3 All right, so I said I knew that and it's one of my priority problems. But give me a couple weeks and I will get back with you.

Speaker 3 And

Speaker 3 as I said,

Speaker 3 I did have

Speaker 3 several problems

Speaker 3 aside from

Speaker 3 the

Speaker 3 40 nanometer

Speaker 3 manufacturing problem and the

Speaker 3 problem with the argument that we were having with NVIDIA.

Speaker 3 Aside from that,

Speaker 3 we also had

Speaker 3 the problem of

Speaker 3 the pricing

Speaker 3 was dropping faster than the cost.

Speaker 3 You know, I mean, you don't want to see that, you know. Your gross margin percentage kept dropping, you know.

Speaker 1 Because you had committed to a schedule of price drops with customers, but you you weren't able to drive down your manufacturing costs at the same rate.

Speaker 3 All right. So that was one problem.

Speaker 3 Another problem was

Speaker 3 the immediate one that triggered me to retake the CEOship

Speaker 3 because

Speaker 3 the previous CEO

Speaker 3 had

Speaker 3 laid off.

Speaker 3 Except he didn't use the term layoff, you know.

Speaker 3 He used

Speaker 3 bad performance review, the worst performance review people, and there were about six or seven hundred of them, you know.

Speaker 3 And he laid them off

Speaker 3 on the basis of their

Speaker 3 poor performance review.

Speaker 3 And well,

Speaker 3 we never did that, you know.

Speaker 3 I mean, the worst we would do was to put them on, place them on probation for six months. And

Speaker 3 quite often, you know, at the end of the six months,

Speaker 3 everybody will go back to

Speaker 3 his

Speaker 3 or his or her old job.

Speaker 3 And some of them

Speaker 3 would get

Speaker 3 transferred because they were in the wrong jobs, you know.

Speaker 3 So some of them would get transferred. But we almost never

Speaker 3 really fired people, even after the probation period.

Speaker 1 So, under your watch, you never

Speaker 1 did a layoff, and you never looked at performance reviews, which are meant to help coach people as the means to determine who to layoffs.

Speaker 3 That's right, yeah. And I actually, you know,

Speaker 3 have told the managers that, you know.

Speaker 3 But, and, well, in 2008,

Speaker 3 of course, there was

Speaker 3 a financial crisis. And the semiconductor business, in fact, got affected.

Speaker 3 And

Speaker 3 our revenue dropped. Our business dropped pretty seriously.

Speaker 3 I was not a CEO, I was a chairman, but I just knew that

Speaker 3 anyone

Speaker 3 any

Speaker 3 general manager, any CEO, general manager

Speaker 3 without very much experience,

Speaker 3 what

Speaker 3 he or she would do in a situation like that. It's a kind of a knee-jerk kind of reaction, you know.
Oh, he says, oh, this is my test.

Speaker 3 I got to

Speaker 3 save, you know, all the money possible and I got to, you know, lay up people, you know.

Speaker 2 But this is the semiconductor industry, and Moore's Law means no matter what happens, you will always need people.

Speaker 3 Well, I know, I know.

Speaker 3 Well, semiconductor industry, but semiconductor engine people

Speaker 3 actually

Speaker 3 think the same way as I described, you know. I mean, they are layoffs.
They are, they are people, too. I had a lot of experience at Texas Instruments.

Speaker 3 But at Texas Instruments,

Speaker 3 I was not a CEO. I was just one of the top managers under the CEO level.

Speaker 3 And when the company decided to have a layoff, the CEO conferred with the top managers who included me.

Speaker 3 And their first reaction was exactly the same. And I'm talking about the

Speaker 3 70s, early 70s.

Speaker 3 Their first reaction on who to lay off was exactly the same as what

Speaker 3 our TSM CCO did in

Speaker 3 late 208, 209,

Speaker 3 which was, you know, go by performance.

Speaker 3 I mean,

Speaker 3 well,

Speaker 3 now I was the only one

Speaker 3 at Texas Instruments in the early 70s that said,

Speaker 3 No,

Speaker 3 that would not be a

Speaker 3 credible

Speaker 3 way of doing it. People would not respect us if we

Speaker 3 lay off

Speaker 3 by

Speaker 3 performance ratings.

Speaker 1 And why is that?

Speaker 3 Because it's very subjective. Performance reviews, the performance ratings are done by everyone's own supervisor.
So

Speaker 3 700 worst performing people in the company. And who gave the 700 people the bad ratings? 700 supervisors, you know.
Very subjective. It's not something that people will respect.

Speaker 3 If in a year you have to hire people back,

Speaker 3 you have to hire the laid-off people back, then you shouldn't lay off because the layoff, the separation expense expense is usually half a year,

Speaker 3 about half a year.

Speaker 3 And it takes at least half a year to train a person.

Speaker 3 So if you need the people back

Speaker 3 within a year,

Speaker 3 you shouldn't lay off.

Speaker 1 So what did you do when you came back as CEO, both about the employment issue and about the customer issue?

Speaker 3 You mean customer issue being NVIDIA? Yeah. Yeah.
Well,

Speaker 3 to finish the employment issue, the laid-off employees, as I said, there were 700 of them, six or seven hundred of them,

Speaker 3 came to my home to demonstrate and protest.

Speaker 3 Now,

Speaker 3 the company, TSMC, was pre-warned that hundreds of people would appear

Speaker 3 in front of my home. So they notified the police department in my district.
So the police department sent 50, 60 police officers to

Speaker 3 try to maintain the order.

Speaker 3 Now

Speaker 3 more than 100 protesters appeared and the neighbors, my neighbors, you know, they had trouble getting in and out.

Speaker 3 That was only the first time. A month or so later,

Speaker 3 the problem was still not

Speaker 3 solved.

Speaker 3 I was still not the

Speaker 3 CEO.

Speaker 3 So they appeared again, some protesters, about 25 of them decided to spend the night to sleep over in the little park that's about a block away from my home. My wife literally

Speaker 3 didn't sleep that night, you know. I bet.
She wake up and went over to the window to take a look to see what was going on.

Speaker 3 But then very early the next morning,

Speaker 3 my wife,

Speaker 3 six o'clock the next morning, my wife, you know, got up and

Speaker 3 she took one of the

Speaker 3 bodyguards and went to a

Speaker 3 neighborhood market and got

Speaker 3 the Chinese style breakfast, or Chinese bread, you know, fried bread, you know. I don't know whether you ever had it or not.
Probably not. Yeah, yeah.

Speaker 3 Bun, buns, you know.

Speaker 3 Yeah, soybean milk, you know, and take

Speaker 3 enough

Speaker 3 of the breakfast, enough for 25, 30 people,

Speaker 3 and

Speaker 3 back to

Speaker 3 the park, to the park, and

Speaker 3 distribute them to the protesters.

Speaker 3 And they were thankful, you know.

Speaker 3 Yeah.

Speaker 3 And they actually decided to

Speaker 3 not

Speaker 3 go to

Speaker 3 the president's

Speaker 3 palace, president's mansion.

Speaker 3 And they told

Speaker 3 my wife that they would not do that that day.

Speaker 3 And all this

Speaker 3 kind of precipitated my

Speaker 3 taking back the CEO job.

Speaker 3 Well, there's another thing, you know, I told the previous CEO

Speaker 3 before

Speaker 3 he laid off the six, 700 people. I said, if you, because I knew, as I said, I knew that it would be his knee-jerk reaction

Speaker 3 to

Speaker 3 confront a crisis

Speaker 3 such as the crisis we had.

Speaker 3 It would be his knee-jerk reaction to lay off.

Speaker 3 So I said to him, if

Speaker 3 you want to lay off, bring it to the board.

Speaker 3 I'll call a special board meeting.

Speaker 3 And I knew what I would ask the board to do,

Speaker 3 which was not to grant the permission.

Speaker 3 But he decided to circumvent that, the CEO,

Speaker 3 because

Speaker 3 what he did,

Speaker 3 he did not consider it to be layoff, you know. It was just punishment for the poor performance.

Speaker 3 Well,

Speaker 3 as far as the CEO is concerned, I did keep him.

Speaker 3 I had

Speaker 3 more than one nice talk with him.

Speaker 3 I

Speaker 3 intended to, and I told him that he was still a

Speaker 3 potential

Speaker 3 successor to me.

Speaker 3 So I kept him at the same job grade, we have job quits, and the same

Speaker 3 salary and bonus.

Speaker 3 But

Speaker 3 He was now

Speaker 3 the

Speaker 3 president of

Speaker 3 businesses.

Speaker 3 And back then, you know, we had high hopes for the so-called new businesses, which was

Speaker 3 solar cells and LED.

Speaker 1 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.

Speaker 3 Ended up the biggest marketing, biggest market opportunity. Why is that so ironic?

Speaker 1 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.

Speaker 1 And, you know, solar is a small fraction of that.

Speaker 1 LEDs are a small fraction of that. You were already in the best market.

Speaker 3 I know.

Speaker 3 And I knew that.

Speaker 3 I did not really mean, I did not really think that solar or LED would

Speaker 3 really replace our integrated circuits business. But I knew the integrated circuits business was going to be great, you know.

Speaker 3 But

Speaker 3 at that time, which was

Speaker 3 2009,

Speaker 3 at that time, we also thought that solar and LED was going to be very promising.

Speaker 3 But it didn't work out, of course. The solar business could have been pretty good.
However, China ruined it. It subsidized the hell out of it.
And

Speaker 3 they now control that business, solar cells.

Speaker 3 The prices were extremely low, still low, still low. So it didn't take off.
TSMC service didn't take off.

Speaker 3 And LED did not take off either because LED,

Speaker 3 it's not, the market is not as big as solar. However, it's controlled.
The patents are controlled by just a few companies.

Speaker 3 And they wouldn't let the few companies that control the patents of LED were not let up at all.

Speaker 3 So a few years later, the CEO

Speaker 3 that was put on the new businesses

Speaker 3 decided that

Speaker 3 his new assignment wasn't working out either. So he quit.

Speaker 1 And he's now running MediaTech, is that correct?

Speaker 3 He's now the

Speaker 3 vice chairman

Speaker 3 and the CEO of MediaTech. Yeah.

Speaker 1 So coming back to this moment in 2009,

Speaker 1 you offered to rehire anyone who was laid off that was interested in coming back,

Speaker 1 and you're setting the new sort of vision and strategy as CEO, or in many ways, returning to the old one. How did you resolve the NVIDIA dispute?

Speaker 3 Yeah,

Speaker 3 in the first

Speaker 3 four or five weeks after I retook the CEO job,

Speaker 3 I probably spent

Speaker 3 almost half of the time

Speaker 3 on

Speaker 3 how resolve the problem with NVIDIA.

Speaker 3 As far as youths were concerned, well, we were doing our best because, you know, we had to do it anyway, you know. I mean, NVIDIA was just one of the customers.

Speaker 2 Yeah, not just NVIDIA, but

Speaker 3 Qualcomm and Intel. Yeah.

Speaker 3 And it was a very important note, 40 nanometer was a very important note in the progression of Morse Law. You

Speaker 3 Only after 40 can we,

Speaker 3 if we do the 40 well,

Speaker 3 can we do the

Speaker 3 28? 28 was the next one.

Speaker 3 And I called

Speaker 3 the

Speaker 3 salespeople that were in direct, that have been in direct contact with Nvidia. And of course I called

Speaker 3 everybody that was

Speaker 3 somehow involved, somewhat involved in the problem.

Speaker 3 So it was a matter of money, you know. As far as the progress on

Speaker 3 the manufacturing lines, I mean, we're already doing what we could. I mean, it was, as I

Speaker 3 just said, it wasn't just for NVIDIA.

Speaker 3 It's for TSMC, you know.

Speaker 3 But NVIDIA,

Speaker 3 because

Speaker 3 they had borne the brunt of the

Speaker 3 problem, the damage. So it's a matter of money.

Speaker 3 I worked out a number.

Speaker 3 I

Speaker 3 familiarized myself with all aspects of the problem. And then I worked out a number.

Speaker 3 And I also knew that

Speaker 3 NVIDIA's customers

Speaker 3 were after them, you know.

Speaker 3 they had demands on NVIDIA too.

Speaker 3 So

Speaker 3 I used all the intelligence I could get

Speaker 3 and I think that was it turned out that it was

Speaker 3 good.

Speaker 3 So about a month

Speaker 3 after

Speaker 3 I retook the CEO

Speaker 3 job,

Speaker 3 I sent an email to Jensen. I said

Speaker 3 I'm coming to Silicon Valley next week on this date.

Speaker 3 I will be at your home

Speaker 3 at six o'clock.

Speaker 3 Let's have

Speaker 3 just salad and pizza, which was something that

Speaker 3 we had had many times in the past.

Speaker 3 Now,

Speaker 3 immediately

Speaker 3 he sent back

Speaker 3 an email. He said,

Speaker 3 when do we discuss business then

Speaker 2 did he ask who was going to pay for the pizza and salad

Speaker 3 he didn't ask that

Speaker 3 so i i anticipated that so i said

Speaker 3 6 30

Speaker 3 we'll start having

Speaker 3 pizza and salad

Speaker 3 eight o'clock shop we'll go to your office at your home

Speaker 3 and we'll discuss business.

Speaker 3 So on the appointed date,

Speaker 3 they I showed up and we followed a schedule exactly, you know, 6.30, I showed up. We had a very present pizza and the salad.

Speaker 3 The thing is that

Speaker 3 his wife,

Speaker 3 Lori, would make the pizza, the salad, you know, and

Speaker 3 the pizza was delivered.

Speaker 3 from outside. Maybe they made their own pizza too.
I forgot.

Speaker 1 Would not surprise me.

Speaker 3 Yeah.

Speaker 3 Anyway,

Speaker 3 I had had it many times at his home. All right.

Speaker 3 So at Ilco Shop, it was I who looked at the watch and said, Jensen, why don't we go to your study, you know?

Speaker 3 And I

Speaker 3 gave him the offer.

Speaker 1 It was on the order of $100 million.

Speaker 1 dollars, right?

Speaker 3 Yes, more than 100 million, yeah.

Speaker 3 and i also said

Speaker 3 our offer is effective 48 hours

Speaker 3 if you do not there there is not going to be we're not going to argue we're not going to bargain

Speaker 3 if you don't accept the offer within 48 hours we'll have to go to an arbitrator

Speaker 3 which was what he had suggested to the previous CEO anyway, that we will go to the arbitrator, you know.

Speaker 3 But the previous CEO did not even give him a number, you know.

Speaker 3 The previous CEO gave him zero.

Speaker 2 You probably don't want to go to arbitration with your best customer.

Speaker 3 No, I didn't want to.

Speaker 3 But you know, I had to say that.

Speaker 3 And

Speaker 3 because, I mean, that number, the number we offered him was arrived at

Speaker 3 after,

Speaker 3 as I said, weeks of work on my part

Speaker 3 and i thought it was fair to both sides you know and did jensen accept the offer yeah

Speaker 3 he did

Speaker 1 uh in two days within two days i think it's an amazing example of a situation where you had strong partnership together for many years you built this close personal relationship such that you could have an hour and a half family dinner and not talk business you were able to then come up with a large sum of money, over $100 million,

Speaker 1 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.

Speaker 3 I know.

Speaker 3 I liked it too.

Speaker 3 That's why I included a story in my autobiography.

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Speaker 1 After

Speaker 2 the 40 nanometer node, after you fixed these problems, as you said, the next node was 28 nanometers.

Speaker 2 And as we understand your story and the company's story, 28 nanometers is when TSMC

Speaker 2 really

Speaker 2 started to take the leadership role at the leading edge in the industry. How did you decide to go commit so hard to 28 nanometers after having had all the problems at 40 nanometers?

Speaker 3 Well,

Speaker 3 I had a lot of trouble at TI.

Speaker 3 My peak job at TI

Speaker 3 was

Speaker 3 the head of

Speaker 3 Worldwide Semiconductors.

Speaker 3 TI, of course, had many businesses, defense business, materials and controls,

Speaker 3 and also their origin, which was geophysical and so on.

Speaker 3 But TI's semiconductor business was their biggest,

Speaker 3 and I was the head of that.

Speaker 3 worldwide semiconductor business.

Speaker 3 I wanted,

Speaker 3 at that time when I was the head of

Speaker 3 Worldwide Semiconductors,

Speaker 3 our RD budget was

Speaker 3 4.8% of revenue, of our revenue.

Speaker 3 And I thought it was not enough.

Speaker 3 I just wanted to raise it to 5.5%

Speaker 3 of the revenue.

Speaker 3 But my request was denied every time I raised

Speaker 3 Now, coming back to TSMC,

Speaker 3 I wanted to set a number,

Speaker 3 a number, a percentage of revenue number,

Speaker 3 so we don't have to argue every year how much on the wish is spent.

Speaker 3 So

Speaker 3 at about that time,

Speaker 3 about the time 2008, 2009,

Speaker 3 when I came back. I just

Speaker 3 almost like at that time we were running, I think, six or seven percent a year, but it was negotiated every year between the RD director and the CEO, you know.

Speaker 3 So I want to stop that. I want to make him at ease, you know.

Speaker 3 doesn't have to argue, doesn't have to

Speaker 3 request every year.

Speaker 3 So I almost just literally picked a number our head. We've been running six or seven percent already.
So I said, oh, let's pick eight percent. Okay, yeah.

Speaker 3 Eight percent,

Speaker 3 regardless of

Speaker 3 whether there's a recession or not.

Speaker 3 And that's just eight percent of revenue.

Speaker 3 And that was the best news, if you ask

Speaker 3 our RD director, who was

Speaker 3 back then, I think,

Speaker 3 in the second place of Andy.

Speaker 3 He will tell you, I mean, he has told me many times in the last 10, 15 years, that this was

Speaker 3 really

Speaker 3 the best thing that we did for Andy.

Speaker 3 So they were not concerned. The R ⁇ D director was not concerned at all about having his planned budget cut back,

Speaker 3 his planned

Speaker 3 resource, people

Speaker 3 allocation cut back,

Speaker 3 none of that.

Speaker 3 So he has been working 8%.

Speaker 3 So it has been like that.

Speaker 3 And

Speaker 3 that is what

Speaker 3 propelled our

Speaker 3 RD effort.

Speaker 1 In this period in 2010, it wasn't just ramping the RD budget. It was also the capital expenditures.

Speaker 1 You had had almost a decade of two to two and a half billion spent, you know, building the fabs every year. And in 2010, you ramped that to almost six billion.

Speaker 1 What was it about the competitive environment, the 28-nanometer node that caused you to push all your chips in on that?

Speaker 3 Yeah, I think it was the kind of a mutual feeling thing, you know.

Speaker 3 As I settled

Speaker 3 the

Speaker 3 R and D budget at 8% of revenue, I mean to the

Speaker 3 satisfaction of the R and D people,

Speaker 3 they began to have

Speaker 3 big ideas, you know.

Speaker 3 They began to be telling me, oh,

Speaker 3 28

Speaker 3 is going to be the term they use, and they have used it several times.

Speaker 3 But the first term, the first time I heard them using it is the 28. 28

Speaker 3 is going to be the

Speaker 3 sweet spot. It's just like tennis racket, you know.

Speaker 3 You hit the ball

Speaker 3 with a sweet spot of your record. Yeah.
Yeah. Do you play tennis?

Speaker 1 I have played tennis, not well.

Speaker 3 Good.

Speaker 3 I was like you, you know,

Speaker 3 like 40 years ago, I was like you. I don't play anymore.
But, you know, so I know the feeling of hitting a ball in the sweet spot. You know,

Speaker 3 28 nanometers is in the sweet spot. And so

Speaker 3 I said, why? You know, he gave me a lot of technical reasons.

Speaker 3 20 narrow it.

Speaker 3 So

Speaker 3 I decided I would believe him.

Speaker 3 And

Speaker 3 he now had the resources to push it, to do it

Speaker 3 as fast as he could.

Speaker 3 So

Speaker 3 now the capital spending.

Speaker 3 Now, of course, Back then, we had already built up pretty good

Speaker 3 infrastructure, organizational infrastructure. We had

Speaker 3 a pretty good

Speaker 3 market forecasting group.

Speaker 3 And I had set up the business development department,

Speaker 3 which was like

Speaker 3 the marketing department. Now, we always had a pretty strong sales effort.

Speaker 3 But to me, sales effort is just

Speaker 3 the tactical side

Speaker 3 with the customers.

Speaker 3 Marketing is the strategic side to the outside world.

Speaker 3 Now, from all these inputs, the marketing, the business development department,

Speaker 3 which as I said was our strategic marketing group.

Speaker 3 and from the technical from the RD side that

Speaker 3 28 was going to be sweet spot

Speaker 3 I decided that

Speaker 3 and I quoted Shakespeare in my autobiography that

Speaker 3 there's a tide in the affairs of man

Speaker 3 which taken at its flood leads on to fortune.

Speaker 3 I decided that this was 28 nanometer was going to be our tide.

Speaker 3 Our next tide anyway. There will be others, seven nanometer.
It was another, was the next sweet spot, the R D people told me.

Speaker 3 And I again, you know,

Speaker 3 reminded myself of Shakespeare, you know.

Speaker 2 Taking it the flood.

Speaker 3 Taking it at the flood, yeah.

Speaker 3 So, I mean, that took took,

Speaker 3 however, you know, I mean setting the R D at 8% of

Speaker 3 did not

Speaker 3 invite any opposition from the board.

Speaker 3 But suddenly

Speaker 3 increasing

Speaker 3 capital spending threefold, I think, did invite a lot of questions. from the board.
Our practice in the board meetings,

Speaker 3 because back then, or even now,

Speaker 3 most of the directors are from overseas,

Speaker 3 US

Speaker 3 and England.

Speaker 3 And we would

Speaker 3 email the agenda

Speaker 3 to them. two weeks before the board meeting.

Speaker 3 Then

Speaker 3 the night

Speaker 3 before the board meeting,

Speaker 3 I would

Speaker 3 invite the independent directors to dinner.

Speaker 3 And

Speaker 3 that dinner, the conversation at that dinner was not on record.

Speaker 3 So

Speaker 3 the independent directors, actually

Speaker 3 more,

Speaker 3 three quarters of our directors

Speaker 3 were independent, are independent directors.

Speaker 3 Anyway, so in the in the

Speaker 3 night before and the evening before the meeting, they had the opportunity to ask me questions if they had any.

Speaker 3 But

Speaker 3 on this matter of

Speaker 3 vastly increased capital spending, they didn't even wait

Speaker 3 until they get to that they got to that

Speaker 3 dinner.

Speaker 1 Because this was effectively betting a huge amount of the company's cash on this node this process this generation yeah

Speaker 3 and uh so they uh they called uh

Speaker 3 the uh chief um

Speaker 3 uh the general counsel the general counsel is also the secretary to the board yeah

Speaker 3 uh they called uh

Speaker 3 him at that time it was uh an American the general counsel was an american

Speaker 3 and said

Speaker 3 we want to talk to the chairman. We don't like this

Speaker 3 idea at all.

Speaker 3 Anyway,

Speaker 3 so I talked to them

Speaker 3 on the phone

Speaker 3 about a week or so before the board meeting. And, all right.

Speaker 3 You know, this is something that,

Speaker 3 of course, I told them what I have now just told you,

Speaker 3 inputs from

Speaker 3 market forecast, inputs from our RD, inputs from our business department, the new business development department. And of course, you know, they didn't believe it.

Speaker 3 You really can't convince anybody on something like this. So at the end, I had to say, well, look,

Speaker 3 I heard you,

Speaker 3 but

Speaker 3 I am still the guy that's responsible for the operation of the company.

Speaker 3 So you need to let me go ahead with this one.

Speaker 3 So

Speaker 3 they were satisfied with that.

Speaker 2 And what was the result?

Speaker 1 What happened around this era of 28 nanometer that created so much demand? Oh,

Speaker 3 I think you know the result. That was good.

Speaker 2 And that was...

Speaker 2 The smartphone era coincided with 28 nanometer.

Speaker 3 Yeah.

Speaker 2 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?

Speaker 3 No, I didn't. Maybe the business development guy, that was another interesting story.

Speaker 3 Yeah, maybe he knew. Maybe he, or at least

Speaker 3 I now hope,

Speaker 3 and I, of course, hoped at that time too, that he had

Speaker 3 a more detailed

Speaker 3 visibility

Speaker 3 than I did

Speaker 3 but I

Speaker 3 I mean of course this was was not the only

Speaker 3 it was not the only input you know I had a few other advisors too yeah

Speaker 2 so that takes us to Apple could you share with us

Speaker 1 how you end up meeting Apple

Speaker 3 yeah

Speaker 3 but before we before do that, let me offer

Speaker 3 how we

Speaker 3 made

Speaker 3 CC, actually, the business development

Speaker 1 director. The current CEO.

Speaker 3 The current CEO, the current chairman and CEO.

Speaker 3 When Rick

Speaker 3 was

Speaker 3 the CEO between

Speaker 3 205 and 2009.

Speaker 3 He had

Speaker 3 split operations into two groups,

Speaker 3 advanced technology

Speaker 3 and

Speaker 3 mainstream technology. And

Speaker 3 CC was

Speaker 3 the head of the mainstream.

Speaker 3 Actually,

Speaker 3 really,

Speaker 3 I should say, the lesser one, okay.

Speaker 3 And Mark Liu was the head of the

Speaker 3 advanced.

Speaker 3 And each group had a small

Speaker 3 business development section,

Speaker 3 maybe 30 or 40 people each.

Speaker 3 All right, so I came back to be the CEO

Speaker 3 and I

Speaker 3 never thought

Speaker 3 the split up of two groups was a good idea anyway. In fact,

Speaker 3 back in 1996,

Speaker 3 the president, he was not a CEO, but he was the president.

Speaker 3 We didn't have the CEO title back in 1996.

Speaker 3 But the president who was American.

Speaker 3 Don Brooks. Yeah, right.

Speaker 3 He wanted to

Speaker 3 split. He got a little, I think he got a little tired of running this company.
He was going to be here for only a year at first,

Speaker 3 but he winded up, he ended up

Speaker 3 spending six, seven years in Taiwan. Towards the end, he was getting a little tired of running this thing.

Speaker 3 And he thought that he would do it like TI, for instance.

Speaker 3 When TI had a germanium transistor department, silicon transistor department, integrated circuit, bipolar integral circuit, MOS integrated circuit, you know.

Speaker 1 It's the divisional org structure instead of a functional org structure.

Speaker 3 Right, yeah.

Speaker 3 But I

Speaker 3 really

Speaker 3 did not think that the foundry business, TSM systems,

Speaker 3 was suitable for the

Speaker 3 divisional structure.

Speaker 3 Because, you know,

Speaker 3 we have almost the same group of customers.

Speaker 3 How do you divide up the group, divide up the company if you want

Speaker 3 the so-called divisional structure?

Speaker 3 Well, you know, you know, Don Brooks was going to divide it by a fab, you know. My goodness, you know.
The customers move from one fab to another, the same customers, you know.

Speaker 1 Not to mention, TSMC has 21, 22 fabs now.

Speaker 2 And so, what are you going to have 22 divs?

Speaker 3 Of course, he only had three or four fabs, you know, back then. Yeah.

Speaker 3 But

Speaker 3 he was not convinced. He kept arguing.

Speaker 3 And I said, Look, why don't we get

Speaker 3 a consultant?

Speaker 1 McKinsey. McKinsey.

Speaker 3 Why don't we get McKinsey? okay.

Speaker 3 So we got McKinsey in,

Speaker 3 and McKinsey, after a month or two, two months actually,

Speaker 3 and a couple of million dollars, I guess,

Speaker 3 told us the same answer, you know, that functional is best is best.

Speaker 3 And then Don Brooks said,

Speaker 3 well, tell me one company,

Speaker 3 one big company that's functionalized.

Speaker 3 And McKinsey immediately answered,

Speaker 3 Boeing,

Speaker 3 which is a good answer, you know. Yeah.
Yeah.

Speaker 2 Except it's not true.

Speaker 1 Boeing has commercial and

Speaker 2 government.

Speaker 3 Well, they probably have commercial and government, but they don't have 707, 747,

Speaker 3 757. You know, they don't have, they don't divide.

Speaker 3 And if we divide up by fab, it would be like dividing up 707 from 757, 737, you know, yeah.

Speaker 3 Well, anyway,

Speaker 3 Don Brooks

Speaker 3 attempt was in 1996.

Speaker 3 And well,

Speaker 3 by

Speaker 3 205,

Speaker 3 Rick Tsai, you know, decided to check the same ground.

Speaker 3 Well, and he did.

Speaker 3 This time, you know,

Speaker 3 I didn't stop him.

Speaker 3 My

Speaker 3 idea, my principle when I was

Speaker 3 the chairman and not the CEO

Speaker 3 was,

Speaker 3 well, sometimes

Speaker 3 you have to let the CEO make his own mistakes and learn from them, you know.

Speaker 3 Of course,

Speaker 3 not if the whole company is going down the

Speaker 3 chain. So

Speaker 3 you have to interfere then, but only then.

Speaker 3 Well, anyway.

Speaker 3 So that was the background.

Speaker 3 Two groups when I came back to be the CEO,

Speaker 3 the Advanced group and mainstream group.

Speaker 3 And each group had a small business development section, 30 or 40 people. I think Advance has had

Speaker 3 more, a bigger group than mainstream.

Speaker 3 All right.

Speaker 3 So I wanted to combine the two operation groups.

Speaker 3 And I also wanted

Speaker 3 a real

Speaker 3 marketing. And I didn't call it marketing because I decided to use business development in English because it has a good translation in

Speaker 3 Chinese.

Speaker 3 All right. Now I've decided to combine the two

Speaker 3 groups, operation groups.

Speaker 3 Now,

Speaker 3 back in 2009,

Speaker 3 when I decided to combine the two groups,

Speaker 3 I think the

Speaker 3 advanced group

Speaker 3 had

Speaker 3 something

Speaker 3 like

Speaker 3 10,000 employees,

Speaker 3 And

Speaker 3 the mainstream group had

Speaker 3 a little less, but also 7,000 or 8,000 employees.

Speaker 1 And the mainstream group, just because we haven't explained this concept yet, is taking those older fabs that have the higher nanometer nodes, and they're finding customers that don't necessarily need the leading edge to automotive parts or it's CMOS sensors for cameras and finding customers to keep the utilization high on those older fabs from previous generations.

Speaker 3 Yeah, right. But also

Speaker 3 quite often the same customers use both mainstream and advanced technologies.

Speaker 3 Take Qualcomm. I'm quite sure that they use, you know,

Speaker 3 the most advanced.

Speaker 3 And

Speaker 3 even Apple, I think they use.

Speaker 2 Yeah, if you think about all the chips in an iphone yeah you know the a16 pro yeah is built on the leading edge yeah but there are many many other chips in there yeah right

Speaker 1 so you combine to one business development organization 80-ish people yeah we had the

Speaker 3 mark

Speaker 3 li in charge of the events and the cc way in charge of the uh the question is you know who's going to be in charge of what you know the combined or you need only one for the combined operations you need only one person.

Speaker 3 The truth is that we had a lot of operational talents, you know.

Speaker 3 Operation meaning manufacturing,

Speaker 3 taking the developed technology from RD, you know, and

Speaker 3 converting it into mass production.

Speaker 3 We had a lot of talents there.

Speaker 3 But

Speaker 3 business development or marketing, there,

Speaker 3 and neither

Speaker 3 Mark

Speaker 3 nor

Speaker 3 CC

Speaker 3 had any

Speaker 3 real previous experience in marketing business development

Speaker 3 so that was my my main worry

Speaker 3 you know we need we need we combine the two groups we need

Speaker 3 a combined

Speaker 3 operations manager,

Speaker 3 but even more importantly in my mind, we needed a combined market, business development manager.

Speaker 3 So

Speaker 3 I

Speaker 3 first offered

Speaker 3 the marketing,

Speaker 3 business development job to the

Speaker 3 guy who was

Speaker 3 in the

Speaker 3 bigger job, advanced technology, Mark.

Speaker 3 And I explained to him

Speaker 3 that I did not think he had had

Speaker 3 any significant

Speaker 3 marketing experience in the past. And this would

Speaker 3 this new job, if he takes it, would

Speaker 3 give him the opportunity of

Speaker 3 being

Speaker 3 professional in the area.

Speaker 3 But

Speaker 3 he declined it. He said,

Speaker 3 my goodness,

Speaker 3 I have 10,000 people reporting to me now. You want me to take a job that has only 60, 70 people in it?

Speaker 3 That was the end of that conversation.

Speaker 1 And your goal was for him to become a well-rounded executive

Speaker 1 in hopes of leading the company after he sort of did that tour of duty.

Speaker 3 And I explained to him that, yeah.

Speaker 1 Not to mention it's a very important 60 or 70 people.

Speaker 1 They're responsible for finding all the next business.

Speaker 3 I know, I know.

Speaker 3 Actually, back in my mind, I was thinking of

Speaker 3 the time when Kissinger was Nixon's national security advisor, and somebody else, whose name I have even forgotten, was the secretary of state

Speaker 3 and

Speaker 3 kissinger you know

Speaker 3 probably had a couple hundred people reporting to him whereas the secretary of state you know had thousands of people all over the world reporting to him

Speaker 3 and who had more power you know kissinger certainly not the name who you've forgotten yeah

Speaker 2 and before this period you were doing the business development and marketing for the company, right? You were the one finding the NVIDIA's, the Jensens, the Broadcoms, the next

Speaker 2 great customers in great markets for you.

Speaker 3 That's right. That's right.

Speaker 3 I was.

Speaker 1 You were always on a plane meeting with the current top 15 customers and trying to find the next top 15.

Speaker 3 Yeah, except for those four years when I was not the CEO. Yeah.

Speaker 3 Yeah.

Speaker 3 But you were right. I was on the plane most of the time visiting customers.

Speaker 3 That was my pleasure. Yeah, I really liked it.

Speaker 3 Well, anyway,

Speaker 3 so

Speaker 3 I then, of course,

Speaker 3 offered the business development job to Cece.

Speaker 3 And he accepted it.

Speaker 3 I mean, I thought he accepted it

Speaker 3 even delightfully, you know.

Speaker 2 Yeah.

Speaker 2 And he's now the the chairman and CEO of TSMC. Yeah.

Speaker 2 So this had just happened.

Speaker 2 And you came home from a board meeting, we understand, one evening.

Speaker 3 That's right. The board meeting had ended

Speaker 3 and it was

Speaker 3 six o'clock or later.

Speaker 3 And

Speaker 3 I went home.

Speaker 3 This was

Speaker 3 Taipei.

Speaker 3 We had our board meetings

Speaker 3 back at that time

Speaker 3 in,

Speaker 3 in fact, here.

Speaker 3 You have seen my conference room. Yes, across the hall.
Yeah, yeah, right.

Speaker 3 Yeah, we had all our board meetings in Taipei, in that conference room.

Speaker 3 Anyway, it was 6.30 or so

Speaker 3 when I got home. And I think my wife knew that

Speaker 3 I would not be home until around 6.30

Speaker 3 because as soon as I she actually she met me at the door

Speaker 3 which wasn't very often you know

Speaker 3 but this time she had something to tell me that's why she met me at the door

Speaker 3 she said

Speaker 3 Terry Gow called in the afternoon

Speaker 3 and said he was coming to dinner.

Speaker 1 And who is Terry Gao, for listeners?

Speaker 3 Terry Gao

Speaker 3 is a relative, is actually

Speaker 3 a

Speaker 3 second cousin of Sophie's. Sophie is my wife.

Speaker 3 And

Speaker 3 they share the same grandparents. That's what makes them second cousins, I think.
Yeah.

Speaker 2 And for our Western listeners who this won't be obvious to you, Terry Gao is the founder and CEO of Foxconn.

Speaker 3 Right. Terry Gao

Speaker 3 is a second cousin of Sophie's, and he's also,

Speaker 3 he is also, he was also

Speaker 3 at that time the chairman of

Speaker 2 Hanhai, which is

Speaker 1 Foxconn to American listeners.

Speaker 3 His name slipped my mind

Speaker 3 for a second, Hong Hai, which

Speaker 3 is a very important supplier to Apple.

Speaker 3 And a pretty big company. And in fact, Terry Gao

Speaker 3 is reputed to be one of the richest men in Taiwan.

Speaker 3 And she said,

Speaker 3 Sophie

Speaker 3 is lovely.

Speaker 3 but she doesn't

Speaker 3 know too much of my business.

Speaker 3 I don't think she understood the significance of

Speaker 3 Terry Gao coming to dinner,

Speaker 3 bringing

Speaker 3 a vice president from Apple.

Speaker 3 I don't think she quite understood, quite really, she didn't really, she wasn't really 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 smart the the iphone seems to be working uh yeah i've been strategized well strategizing is probably too

Speaker 3 uh strong a word you know i mean i've been just thinking

Speaker 3 thinking also also knowing that

Speaker 3 we we just can't do anything about we can't do anything about it Apple is a very cold-mouthed company. If you try to talk to them, if you offer your service,

Speaker 3 I mean, they will just

Speaker 3 tell you to go away.

Speaker 3 They will come to see you when they are ready.

Speaker 3 That's what I knew about Apple,

Speaker 3 even then.

Speaker 3 I know the same thing now, you know.

Speaker 3 Yeah.

Speaker 3 All right. All right.
So eight o'clock. Now, Sophie did know that

Speaker 3 I would not be home until after six o'clock.

Speaker 3 So

Speaker 3 he had told, she had told

Speaker 3 Terry that, and Terry had set

Speaker 3 the time

Speaker 3 of arrival, of their arrival

Speaker 3 at eight o'clock.

Speaker 3 So eight o'clock was a bit late for for my dinner, but I said, what the heck? We're waiting.

Speaker 3 All right. So they showed up.

Speaker 3 I didn't ask her. Sophie just said a vice president.

Speaker 3 And I just thought to myself, it wouldn't be just an ordinary vice president. Yeah, so

Speaker 3 because there was no reason for

Speaker 3 Terry to just bring any

Speaker 3 Apple vice president to my home.

Speaker 3 It must be something special. It must be someone special

Speaker 3 for TSMC.

Speaker 3 All right, so Jeff Williams came. He was

Speaker 3 not just a vice president, he was the chief operating officer of Apple.

Speaker 3 And

Speaker 3 Jeff was a pretty straightforward person. He

Speaker 3 didn't

Speaker 3 spend much time in

Speaker 3 ordinary

Speaker 3 chit-chats.

Speaker 2 There wasn't the same pizza and salad

Speaker 3 period before.

Speaker 3 It wasn't, but it wasn't formal either. You know,

Speaker 3 my wife, Sophie, just added,

Speaker 3 we have a cook, you know, we had a cook

Speaker 3 and a pretty good cook.

Speaker 3 So

Speaker 3 Sophie just told the cook to add a few dishes.

Speaker 3 She's a Chinese cook. She doesn't do any Western food.

Speaker 3 And, you know,

Speaker 3 Terry obviously she grew up on Chinese food. And I would imagine that the Apple

Speaker 3 guy that he bought

Speaker 3 would also like

Speaker 3 Chinese food.

Speaker 3 Anyway, so she just asked the cook to cook a few more dishes.

Speaker 3 But, you know, it wasn't important. The food was not important.

Speaker 3 Either the quantity or the quality was not important, because

Speaker 3 almost

Speaker 3 Jeff almost immediately started his pitch, know,

Speaker 3 almost as soon as

Speaker 3 he sat down to dinner.

Speaker 1 And what is the pitch from someone like Jeff Williams like?

Speaker 3 We

Speaker 3 would like you to

Speaker 3 fund our waivers,

Speaker 3 something like that. Pretty straightforward.

Speaker 3 I mean, so I was, I

Speaker 3 listened

Speaker 3 that night. I think Jeff

Speaker 3 talked

Speaker 3 maybe 80%

Speaker 3 and I talked 20%.

Speaker 3 If you don't count the

Speaker 3 relative to relative talk between Sophie and Terry, you know,

Speaker 3 which was very, which was not very much either.

Speaker 1 And Jeff had proposed economic terms. at this first dinner, right?

Speaker 3 No,

Speaker 3 nothing so concrete. Okay.
He did say that we will let you

Speaker 3 have a 40% gross margin.

Speaker 3 And I think, well, I didn't say anything. I didn't answer him.
I didn't respond to that. But our margin at that time was already 45%.

Speaker 3 And I was trying to push it up to 50%.

Speaker 3 It was

Speaker 3 announced effort in the company to push the growth model.

Speaker 3 And I had that

Speaker 3 effort for many years

Speaker 3 after I came back to be the CEO.

Speaker 3 And I really didn't even

Speaker 3 succeed even at my retirement.

Speaker 3 Now, of course,

Speaker 3 what happened later was that there was COVID and so on. And also we began to have leadership, technology leadership.

Speaker 3 So our

Speaker 3 margin, you know,

Speaker 3 jumped up to over 50%.

Speaker 3 But when I retired, it was still short of 50%,

Speaker 3 slightly short of 50%. I was almost there

Speaker 3 when I retired.

Speaker 1 And in technology leadership, you're saying that around this time, the 28-nanometer node, you were.

Speaker 3 We're talking about

Speaker 3 2010.

Speaker 1 Yes, you were still

Speaker 1 among a select few at the leading edge, but there was fierce competition. Whereas once you got to seven nanometers or so, that's when you really.

Speaker 3 You are neglecting, I think, when you said that,

Speaker 3 you were neglecting Intel. Okay.

Speaker 3 Yeah.

Speaker 3 At 28 nanometers,

Speaker 3 we were very definitely the leader among foundries. Yeah.

Speaker 3 And maybe among

Speaker 3 a few other companies such as Texas Influence and so on, but not Intel, okay.

Speaker 2 And Apple was considering Intel.

Speaker 3 No, Apple

Speaker 3 was not actively considering Intel. That came later.
Later. Yeah.

Speaker 3 But

Speaker 3 you know,

Speaker 3 I'm quite sure

Speaker 3 we'll have time to cover that. Yeah.

Speaker 1 Well, take us there now. So after November of 2010, you had the initial conversation with Jeff Williams.

Speaker 2 Yeah.

Speaker 3 He said that he would let us at 40%.

Speaker 3 And my thought was, my goodness, you know, we're already at 45%.

Speaker 3 But I also thought. that he was trying to be generous when he said that he would let us have 40%.
40%.

Speaker 3 And I also thought to myself, well,

Speaker 3 now it's not, this dinner is not the time to go into a pricing discussion. We have a lot of other things to discuss.

Speaker 3 Anyway, so I said, no, we were about to go into production. We were almost in production.
with 28 nanometers at that time.

Speaker 3 The initial stage, anyway.

Speaker 3 28.

Speaker 3 So I said, I thought it was going to be 28. I said, 28? Nope.

Speaker 3 What node

Speaker 3 do you want?

Speaker 3 20, he said.

Speaker 3 Now, that was a surprise to me. And frankly, it was also a disappointment because

Speaker 3 the more more slow progression

Speaker 3 after 28 was going to be 16.

Speaker 3 Now

Speaker 3 Apple, Jeff Williams, wanted the 20.

Speaker 2 A half step.

Speaker 3 A half step. But

Speaker 3 half step, a half step is a detour, you know.

Speaker 3 We would have to, my thought at the dinner there was that we would have to spend effort on the 20

Speaker 3 which of course would help us on the natural next note which was 16 now

Speaker 3 but still

Speaker 3 it was a detour from 28 you know

Speaker 3 from 28 if we had if we could go directly to

Speaker 3 if on the would directly go to uh 16 it would be less time than

Speaker 3 first do 20. And then, no.
The point is that back then,

Speaker 3 R D

Speaker 3 did not have enough resources to do two nodes at the same time.

Speaker 3 Later we did.

Speaker 3 Later we did.

Speaker 1 So you have this conundrum where

Speaker 1 this is right after you had just spent $6 billion in CapEx the previous year, going all in on 28 nanometers. You're asking Apple, which could be your biggest customer ever, this is for 28, right?

Speaker 1 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.

Speaker 1 And you're, of course, left with this question: is it worth it to land Apple as a customer?

Speaker 3 It wasn't that serious. It wasn't that serious.

Speaker 3 Because when we figured

Speaker 3 a very big market for 28,

Speaker 3 and therefore

Speaker 3 when we planned to increase vastly our capital spending

Speaker 3 we didn't have Apple in mind we didn't include Apple

Speaker 3 Apple came strictly as a present surprise

Speaker 3 yeah anyway for the company in total but not for 28 you know 28 28 yeah we didn't have we didn't include apple in our 28 planning.

Speaker 1 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.

Speaker 3 That's right. That is where

Speaker 3 our connection with

Speaker 3 Roman Sachs came in.

Speaker 3 Remember, I planted a lot of seeds

Speaker 3 in

Speaker 3 when I ran TSMC.

Speaker 3 I knew that one of these days we'll probably

Speaker 3 need

Speaker 3 top-level investment bank advice.

Speaker 3 So

Speaker 3 we established a good relationship with Goleman Sachs

Speaker 3 very early in our existence.

Speaker 3 I was in fact a board director of Goleman Sachs. Did you know that? Yes, yeah.

Speaker 3 We did the

Speaker 3 ADR with

Speaker 3 Cooman Sachs, yeah,

Speaker 3 which

Speaker 3 opened up

Speaker 3 a good relationship with Cooman Sachs.

Speaker 2 It was your

Speaker 2 New York public listing of the stock.

Speaker 3 Yeah, ADR is American Deposit

Speaker 3 receipts. Yeah.

Speaker 3 It's New York, yeah.

Speaker 3 It's a separate market, you know. It's in fact right now the

Speaker 3 tsmc price

Speaker 3 uh adr price uh

Speaker 3 is uh has a 20 premium over

Speaker 3 really wow however you know

Speaker 3 you need tsmc board permission to convert your shares to adr yeah otherwise you'd be able to arbitrage

Speaker 3 yeah

Speaker 3 we don't want that so as I said, as I was saying, that the board has to approve any conversion of

Speaker 3 ordinary Taiwan TSMV stock to ADRs.

Speaker 3 And the board does not give such permission

Speaker 3 easily anyway. Okay, yeah.

Speaker 2 So, you had planted this seed with Goldman Sachs when you knew you would need them.

Speaker 3 Right.

Speaker 3 This was very early in our history. Now

Speaker 3 we need

Speaker 3 funds.

Speaker 3 I mean, this

Speaker 3 Apple thing came after we had already decided to increase

Speaker 3 capital spending.

Speaker 3 And now, you know, Apple

Speaker 3 requires even more capital spending.

Speaker 3 And

Speaker 3 we have to figure out where the cash is going to come from.

Speaker 3 So

Speaker 3 there were several possibilities, of course. We're paying a dividend, not a very big dividend

Speaker 3 back then, but

Speaker 3 a modest dividend then. We could cut that dividend

Speaker 3 and then

Speaker 3 we

Speaker 3 also could

Speaker 3 sell stock you know new stock offering either in in taiwan or in the us uh we have the adrs you know

Speaker 3 uh

Speaker 3 or we can borrow money you know

Speaker 3 uh

Speaker 3 corporate bonds you know or you could only fill part of apple's order right

Speaker 3 And we, in fact,

Speaker 3 we did that.

Speaker 3 We first did our financial planning

Speaker 3 and

Speaker 3 we decided not to cut dividend.

Speaker 3 We decided not to sell new stock.

Speaker 3 We decided to just borrow.

Speaker 3 And

Speaker 3 this was also

Speaker 3 with consultation with Goldman Sachs.

Speaker 3 We chose

Speaker 3 borrowing.

Speaker 3 How much?

Speaker 3 I looked at the numbers. And just as you said, I decided to take half of what Apple said.

Speaker 3 Well, Apple said they needed.

Speaker 1 Is this common, by the way? It seems like it would be in a customer's interest to come to you and say,

Speaker 1 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.

Speaker 3 I know. I know.

Speaker 3 Well,

Speaker 3 back

Speaker 3 in the 90s, in the first,

Speaker 3 let's say, 15 years, first 10, 12, 15 years

Speaker 3 of our existence, we were short of capacity almost all the time.

Speaker 3 And what you just said happened all the time, you know.

Speaker 3 And so we figure out

Speaker 3 that we'll require a deposit from the customer.

Speaker 3 And we'll even

Speaker 3 confiscate the deposit if the time

Speaker 3 comes for him to take the wafers and he doesn't, you know.

Speaker 3 And everybody delights in the word confiscate.

Speaker 3 It was first used by me.

Speaker 3 I told the salespeople in San Jose, I said,

Speaker 3 tell the customer that they need we need a deposit from them because you know just as you said you know it's our money and it's only their words you know

Speaker 3 they may not want the wafers when the time comes

Speaker 3 and I told the salesman tell the customer they will confiscate the deposit and

Speaker 3 the salesman never heard anything like that before, you know.

Speaker 3 And so they were, they were,

Speaker 3 they were, you know,

Speaker 3 uproar,

Speaker 3 in happiness. You know, I mean, now, you know, they could, they could actually stand up and tell the customer that we might even

Speaker 3 confiscate your money. But of course,

Speaker 3 it really,

Speaker 3 we never confiscated any money. No,

Speaker 3 it did happen

Speaker 3 quite often, particularly in the 2000s.

Speaker 3 2000,

Speaker 3 we had,

Speaker 3 I think it was called the Internet

Speaker 3 recession, I think,

Speaker 3 because

Speaker 3 the Internet was,

Speaker 3 you know, people were

Speaker 3 starting companies

Speaker 3 called pets.com or something, you know.

Speaker 3 Yeah.

Speaker 3 It was

Speaker 3 anyway. So we had the recession, yeah.

Speaker 1 Which trickled all the way back to semiconductors. TSMC's revenues,

Speaker 1 it was four years after the dot-com bubble before they were back at the dot-com, yeah, dot-com, dot-com at those rates.

Speaker 3 Yeah,

Speaker 3 yeah.

Speaker 3 Was it five? It was almost four years, yeah.

Speaker 3 I remember it recovered only in 203, yeah. It started in 2000,

Speaker 3 no, started in 2001, the first quarter of 2001 and recovered in the third quarter of 2003 so it was three years yeah wow three years

Speaker 3 old one oh two

Speaker 3 uh the third fourth quarter of 03 three years

Speaker 3 um

Speaker 3 anyway

Speaker 3 the customer a quite a few customers had placed deposits

Speaker 3 to anticipate normal good times during those years. And we did build the plant.

Speaker 3 In fact, we bought,

Speaker 3 we purchased, or I should say,

Speaker 3 yeah, we bought

Speaker 3 a couple of other companies.

Speaker 3 And

Speaker 3 so their plants, their fabs became ours.

Speaker 3 And the customer didn't need the

Speaker 3 wafers anymore, didn't need the outputs of those fabs anymore

Speaker 3 and we didn't

Speaker 3 confiscate their deposits but we let them delay you know demand yeah right and eventually every one of them

Speaker 3 they all use their

Speaker 3 use of their deposits

Speaker 1 but you know that would come you know and so then back to at this point early 2011 with apple you go to them and say

Speaker 3 uh we are prepared to serve half yeah the number that you told us well first uh of course uh the new or right of the new business development director cc

Speaker 3 he he had the uh privilege of first telling the lower level uh

Speaker 3 purchasing people uh at Apple.

Speaker 3 And

Speaker 3 he got a response back, you must be crazy, you know.

Speaker 3 So Cece did not comment on that.

Speaker 3 At least he said he didn't comment on that. He brought it back to me.

Speaker 3 And then I went to

Speaker 3 Apple myself and talked to Jeff Williams.

Speaker 3 So I said to him,

Speaker 3 we have to issue corporate bonds.

Speaker 3 I think I use the word prudent, after all the prudent financial planning, we decided that we would take half of what you asked for.

Speaker 3 Now, he was very

Speaker 3 quiet about it.

Speaker 3 He only made one suggestion. He said, well,

Speaker 3 I think you can eliminate your dividend.

Speaker 3 You know, your shareholders will understand that. I said, Well, no, I don't think.

Speaker 3 Well, the fact is, I had looked into that. I mean, that's also a reason for having high-level consulting

Speaker 3 advice.

Speaker 3 About one-third of our investors, shareholders,

Speaker 3 are very seriously interested in the dividends.

Speaker 3 So if

Speaker 3 we do what

Speaker 3 Jeff Williams said,

Speaker 3 our stock is going to drop like hell, you know.

Speaker 1 Trigger a sell-off.

Speaker 3 Right.

Speaker 3 Anyway, but

Speaker 3 when I talked to

Speaker 3 Jeff Williams,

Speaker 3 And I went to see him in,

Speaker 3 what's the place? Cupertinatino. Yeah, Cupertino.

Speaker 3 I mean, he was, he took it

Speaker 3 fairly willingly, you know.

Speaker 3 No big problem at all. The only suggestion that he made

Speaker 3 was

Speaker 3 the elimination of dividend, you know. And I said, no.

Speaker 3 And

Speaker 3 he then let it just

Speaker 3 lie

Speaker 3 there, you know.

Speaker 3 Okay.

Speaker 3 But then

Speaker 3 the issue was settled. I mean, how much demand we will take

Speaker 3 and how we will get. We still had to borrow billions of dollars, even with

Speaker 3 half of the demand.

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Speaker 1 So this really was, especially after the investment in 28 nanometers that depleted your reserves, this is a bet the company move.

Speaker 1 You're taking on a bunch of debt to go build the fabs to make this happen.

Speaker 3 But yeah, I know, bet the company, but

Speaker 3 I didn't think I would lose, you know.

Speaker 1 You sound like Jensen.

Speaker 2 That's exactly what Jensen said.

Speaker 3 And

Speaker 3 so,

Speaker 3 all right, but I think that

Speaker 3 the financial

Speaker 3 discussion with Apple had already happened

Speaker 3 when

Speaker 3 Apple,

Speaker 3 when Jeff Williams called me in February of 200, we're talking about 2011 now.

Speaker 3 And he said,

Speaker 3 it was a very short conversation.

Speaker 3 Well,

Speaker 3 he said,

Speaker 3 we need to

Speaker 3 pause our discussions

Speaker 3 for

Speaker 3 two months

Speaker 3 because

Speaker 3 the highest level of Intel

Speaker 3 has

Speaker 3 approached

Speaker 3 Tim Cook

Speaker 3 and

Speaker 3 has

Speaker 3 asked

Speaker 3 Tim Cook

Speaker 3 to consider Intel.

Speaker 1 And at this time, Intel was the major supplier for all Macs. Apple's Mac line was all Intel.

Speaker 3 Yeah, yeah. Yeah.
That wasn't an issue, of course. I mean, in February of 2011, Jeff Williams was talking about

Speaker 3 the iPhone. Yeah.

Speaker 2 But they had a close existing relationship.

Speaker 3 Yeah.

Speaker 3 Yeah.

Speaker 3 I don't know what relationship they really have.

Speaker 3 Well, anyway, it must be close.

Speaker 3 So that was all he said. And

Speaker 3 I wasn't all that worried

Speaker 3 because in 211

Speaker 3 Intel was no longer

Speaker 3 a name

Speaker 3 that

Speaker 3 you would, when you hear it,

Speaker 3 you would stand up and bow, you know.

Speaker 3 Interesting.

Speaker 3 I mean,

Speaker 3 heck, you know, in the 90s, in the late, in the late

Speaker 3 20th century, I mean, they were a name in semiconductors.

Speaker 3 When you hear it, of course, I'm exaggerating the situation.

Speaker 2 Moore's Law. I mean,

Speaker 2 they're Intel.

Speaker 3 Yeah, Intel, you know. If you hear the name, if you hear that they are in competition with you, you know, my goodness, you'll be trembling with fear, you know.

Speaker 1 I mean, this is why you started TSMC as a pure play foundry business because you didn't want to compete head-to-head.

Speaker 1 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.

Speaker 3 I didn't say that we never catch Intel.

Speaker 3 Fair enough. Look where we are in 2025.

Speaker 3 Okay. Yeah.

Speaker 3 Anyway, so

Speaker 3 I of course had to accept Jeff Williams' request.

Speaker 3 All right.

Speaker 3 But again, you know,

Speaker 3 as I just told you, I wasn't all that worried because,

Speaker 3 you know,

Speaker 3 I reviewed in my mind all the characteristics that

Speaker 3 Apple is looking for in a supplier, you know,

Speaker 3 technology. At that time, we thought we were almost at par with Intel.
Almost.

Speaker 3 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.

Speaker 3 And

Speaker 3 customer trust.

Speaker 3 We thought

Speaker 3 that our customers trusted us more

Speaker 3 than Intel's customers trusted Intel.

Speaker 3 So

Speaker 3 I will do word.

Speaker 3 But then indeed, and I also thought that

Speaker 3 when Jeff Williams told me the highest level of Intel, I thought he was talking about

Speaker 3 somebody like Andy Grove, who was retired, of course.

Speaker 3 But it turned out that he was only talking about

Speaker 3 the CEO of Intel at that time.

Speaker 3 Yeah.

Speaker 3 But I knew that only later.

Speaker 1 Would that have been Bob Swan or Paul Ottolini?

Speaker 3 No, it was

Speaker 3 the Italian guy, Ottellini. Otolini.
Paul Attalini. Ottolini.
Goddamn. Yeah.

Speaker 1 So today Intel doesn't make the chips in the iPhone. What happened?

Speaker 2 And in fact, TSMC makes all of Apple's chips. Yeah.

Speaker 3 All right.

Speaker 3 I wasn't too worried, but you know, it still was

Speaker 3 in my mind.

Speaker 3 So a month passed.

Speaker 3 I think it was about the middle of February when Jeff

Speaker 3 called to tell me to pause for two months.

Speaker 3 So

Speaker 3 almost exactly a month later, March,

Speaker 3 middle of March, sometime,

Speaker 3 I decided that I would

Speaker 3 pay them a visit

Speaker 3 and ask them what's going on, you know, any progress.

Speaker 3 So I emailed Jeff and asked for an appointment. I said I was coming to the Silicon Valley anyway,

Speaker 3 which was pretty normal.

Speaker 3 And I will stop in at your place

Speaker 3 on such and such a day. Is that okay?

Speaker 3 And Jeff replied by saying that,

Speaker 3 yeah, come here, but I won't be here. I have asked Tim Cook to see you.

Speaker 3 I mean, this freedom, Jeff's freedom of delegating his boss

Speaker 3 to see a visitor, it was a privilege that I seldom had in my career, you know.

Speaker 1 Yeah, normally someone says someone on my team will see you, not my boss will see you.

Speaker 3 I know, I know. It was usually that way.
It was usually the other way. Yeah, but

Speaker 3 in this case, it was Jeff S.

Speaker 3 Well, anyway, so I showed up and

Speaker 3 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 carried our tray back to his office.

Speaker 3 And anyway, he told me there's nothing to worry about

Speaker 3 because Intel

Speaker 3 just does not know how to be a foundry.

Speaker 3 That's a very short, but a very satisfactory answer to me.

Speaker 1 What is your interpretation of the meaning behind that statement?

Speaker 3 I was explaining to you, you know, we had

Speaker 3 on technology or manufacturing.

Speaker 3 Subconsciously, I think I interpreted Jeff's

Speaker 3 explanation to me to be

Speaker 3 the third one, customer trust, you know.

Speaker 3 I mean, they were always

Speaker 3 very superior, you know, Intel.

Speaker 3 Before this Apple thing, Apple and we,

Speaker 3 before

Speaker 3 Apple

Speaker 3 became our customer. I knew a lot of Intel's customers in Taiwan.
You know, all the PC makers

Speaker 3 are Intel's customers.

Speaker 3 None of them liked Intel.

Speaker 3 None of them.

Speaker 3 Intel

Speaker 3 always acted like they were the only guy. I mean, they were the only guy, you know,

Speaker 3 for the

Speaker 3 microprocessors. Yeah.

Speaker 1 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.

Speaker 1 And even if Intel is trying to do business in good faith, they do have the conflict where they also design chips.

Speaker 1 which is competing with Apple's chip designers or NVIDIA's chip designers or any other.

Speaker 3 Yeah,

Speaker 3 but I really don't think Tim meant that.

Speaker 3 I think Tim meant that

Speaker 3 the customer asks a lot of things.

Speaker 3 We have learned to respond to every request.

Speaker 3 Some of them were crazy.

Speaker 3 Some of them were irrational. We had to respond to each request courteously, which we do, you know.

Speaker 3 Intel

Speaker 3 has never done that.

Speaker 3 Intel,

Speaker 3 I mean,

Speaker 3 I said I knew a lot of

Speaker 3 customers of Intel's here in Taiwan.

Speaker 3 And

Speaker 3 none of them, I mean, they all wished that there were another supplier.

Speaker 3 Yeah, none of them either trusted Intel or liked Intel.

Speaker 1 So to finish the Apple story,

Speaker 1 the short answer is it worked on 20 nanometer. Were there any trade-offs where

Speaker 1 did pursuing 20 nanometer and spending the billions of dollars cost TSMC in any way?

Speaker 3 Well, it might have cost, but I mean, yeah, the story certainly does not end

Speaker 3 here.

Speaker 3 All right, so I mean, there was pricing, you know,

Speaker 3 everything

Speaker 3 was not easy.

Speaker 3 Pricing,

Speaker 3 and Jeff came himself

Speaker 3 and

Speaker 3 we talked about pricing. And we, of course, we had done our homework also on the cost

Speaker 3 and

Speaker 3 what kind of price we would accept.

Speaker 3 But Jeff came and he told us just a number, you know. Well, he gave us his reasoning.

Speaker 3 He had to make

Speaker 3 his

Speaker 3 component costs meet a certain goal also, yeah.

Speaker 3 But anyway,

Speaker 3 that was settled and Jeff said, ah. And

Speaker 3 when the pricing was settled,

Speaker 3 I said, let's go out to dinner. We go to a Taipei three-star

Speaker 3 restaurant for dinner. And Jeff jokingly said, ah,

Speaker 3 if you didn't like the pricing, we will be, we will probably be going to a McDonald's,

Speaker 3 which was never in my mind, but he said that.

Speaker 2 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.

Speaker 3 Sure.

Speaker 3 The cost, yeah.

Speaker 3 But

Speaker 3 the main thing that goes into pricing, of course, is the cost.

Speaker 3 And then the second thing is, of course,

Speaker 3 whether

Speaker 3 your desired price will be accepted by the customer, you know.

Speaker 1 One thing that has occurred to me is

Speaker 1 TSMC now gets mid-50% gross margins, call it 55, 57

Speaker 1 higher than your time. But many of your customers have 70, 80% gross margins.

Speaker 3 Yeah.

Speaker 1 TSMC is creating a lot of value. The designer is creating a lot of value.
How do you sort of sort out who gets to capture the value?

Speaker 3 Well, I don't get the privilege of sorting it out now.

Speaker 3 CC way, I think, has the pressure and the duty of sorting that out. Yeah.

Speaker 3 Well, I mean, as a general principle, you know,

Speaker 3 you try to find a kind of a middle ground, which is different for every CEO, you know.

Speaker 3 Even though every CEO

Speaker 3 who wants

Speaker 3 to protect his reputation,

Speaker 3 every CEO says, ah, I worry about the long range.

Speaker 3 But in truth,

Speaker 3 not everyone does.

Speaker 3 So

Speaker 3 it's a very personal, how to sort these things out. I think it's a very personal issue.
Now, for a lot of CEOs, there's really no choice. You have to,

Speaker 3 you, you have to, as a supplier, you have to accept a certain price. If it's a commodity, particularly, you know.

Speaker 3 We have not finished with Apple yet. Yeah.
Please.

Speaker 2 Let's finish Apple. Yeah.

Speaker 3 Now, I think you were asking

Speaker 3 whether there was any

Speaker 1 trade-offs.

Speaker 3 Trade-offs. Well, the trade-off,

Speaker 3 there was a pretty significant, serious trade-off. And that was the detour that I said, you know, we took.

Speaker 3 At that time, back in the

Speaker 3 2011, 2012

Speaker 3 time,

Speaker 3 our RD was not strong enough to do two nodes at the same time. Now we are, but back then we weren't.
So

Speaker 3 the trade-off of accepting the 20 node technology was that we delayed our 16 node

Speaker 3 development.

Speaker 3 And then

Speaker 3 Samsung came up with the 16. They had lost the 20 business, you know, so they

Speaker 3 they they

Speaker 3 were ahead of us in the 16 nanometer development.

Speaker 1 Because they got to skip 20.

Speaker 3 Yeah, because they didn't get the 20, okay.

Speaker 3 They didn't need to develop 20. So I got a shock.
I mean, it was a real shock when I heard

Speaker 3 that

Speaker 3 Apple had placed their first orders of 16 with

Speaker 3 Samsung.

Speaker 3 Now, that was a real shock.

Speaker 3 We invested so much, even though we took only half of the original demand. It was still tens of billions of dollars, I think.

Speaker 3 And we were counting on it being at least 80, 90% of the equipment being

Speaker 3 converted to 16.

Speaker 3 And now, if Apple

Speaker 3 went to Samsung for the 16,

Speaker 3 where did that leave us?

Speaker 3 Do you understand what I'm saying? Oh, yes.

Speaker 2 It sounds horrible.

Speaker 1 So I would feel like I got tricked.

Speaker 3 Well,

Speaker 3 I wouldn't say that, okay? But

Speaker 3 I was really shocked. That was...

Speaker 3 So I emailed.

Speaker 3 Jeff Williams right away.

Speaker 3 And I said, you know,

Speaker 3 we invested in all this equipment and we were

Speaker 3 counting on you to

Speaker 3 take the

Speaker 3 16 from us.

Speaker 3 But now, you know,

Speaker 3 we found out you were buying 16,

Speaker 3 the first 16 anyway from Central.

Speaker 3 So

Speaker 3 Jeff replied immediately,

Speaker 3 don't worry.

Speaker 3 I'll be here, I'll be there, I'll be in Sinju next week and explain to you.

Speaker 3 So that

Speaker 3 made me,

Speaker 3 that relieved me a little,

Speaker 3 but

Speaker 3 certainly not completely.

Speaker 3 But next week,

Speaker 3 he did show up.

Speaker 3 And he explained to us, he said, well, you know,

Speaker 3 as soon as you're ready, with your 16, we'll buy from you, who buy all of

Speaker 3 the needs from you when you're ready. Now,

Speaker 3 of course, that completely

Speaker 3 relieves me, you know, because that's what we're supposed to do anyway, you know.

Speaker 3 So indeed, at least that was true.

Speaker 3 We developed, we had our own 16

Speaker 3 about

Speaker 3 half a year later. And

Speaker 3 most of

Speaker 3 Apple's 16 nanometer requirements still belonged to us.

Speaker 3 Yeah.

Speaker 3 Most. Yeah.

Speaker 2 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 PurePlay Foundry business model.

Speaker 2 Samsung Samsung is Apple's chief competitor.

Speaker 3 Yeah,

Speaker 3 I know. I know.
It was,

Speaker 3 I said in the autobiography, you know, me sitting in Sinshu,

Speaker 3 being in the foundry business,

Speaker 3 I actually see a lot of things

Speaker 3 before

Speaker 3 they actually happen.

Speaker 3 So let me tell you the IBM Qualcomm story.

Speaker 2 Please.

Speaker 3 Now,

Speaker 3 Qualcomm,

Speaker 3 we consider the Qualcomm to be a

Speaker 3 prime

Speaker 3 candidate to be our customer.

Speaker 3 We really wanted Qualcomm because we knew they were a technology house.

Speaker 1 What year was this?

Speaker 3 This was way back, you know, when we started

Speaker 3 in the 90s anyway. Yeah.

Speaker 1 And they were part of that initial wave of fabulous companies.

Speaker 3 Yes. They started.

Speaker 3 Erwin Jacobs started the Qualcomm

Speaker 3 actually

Speaker 3 before

Speaker 3 I started

Speaker 3 TSMC.

Speaker 3 TSMC started in 87.

Speaker 3 Qualcomm, I think, was a few years before that. Yeah.

Speaker 3 So we, in the 90s, early 90s, all the way up to

Speaker 3 97, maybe

Speaker 3 96, 97, all the way up to

Speaker 3 the

Speaker 3 latter part of the 90s.

Speaker 3 We wanted

Speaker 3 Qualcomm

Speaker 3 to be a customer.

Speaker 3 And

Speaker 3 I saw their

Speaker 3 operations VP.

Speaker 3 That's what they call, that's what our customers call their purchasing people, operations VP, operations senior VP.

Speaker 3 And

Speaker 3 I saw him often, and he was always pretty polite, but he gave us very little business.

Speaker 3 And I also knew that his foundry, his main foundry was IBM.

Speaker 3 Now,

Speaker 3 sometime in the later 90s, I forgot whether it was

Speaker 3 97 or 98,

Speaker 3 suddenly

Speaker 3 he started,

Speaker 3 first he started to tell me that he would use us now.

Speaker 3 He didn't even tell me who

Speaker 3 our competitor was, who our competitor had been, but I kind of knew that it was IBM

Speaker 3 from other sources of intelligence.

Speaker 3 And

Speaker 3 our business with Qualcomm, the business that Qualcomm

Speaker 3 gave us,

Speaker 3 pretty rapidly increased after that,

Speaker 3 after the 97, 98 period.

Speaker 3 So

Speaker 3 I immediately knew the IBM semiconductor was in trouble.

Speaker 3 Because,

Speaker 3 I mean,

Speaker 3 they had their own fabs and so on.

Speaker 3 But their main business

Speaker 3 was really

Speaker 3 supplying to

Speaker 3 Qualcomm and a few other very small companies, very small, fabulous companies.

Speaker 3 So

Speaker 3 I immediately knew

Speaker 3 IBM was in trouble because they were losing Qualcomm.

Speaker 3 All right.

Speaker 3 So the next step

Speaker 3 that IBM took

Speaker 3 was not a surprise to me. The next step they took was to ask us, TSMC,

Speaker 3 to

Speaker 3 co-develop the next generation

Speaker 3 of technology, which is 0.13 micron, 130 nanometer, okay,

Speaker 3 in 1999.

Speaker 3 And since I anticipated that,

Speaker 3 it was no problem at all for us to refuse the...

Speaker 3 And in fact,

Speaker 3 even if I didn't anticipate that, we would never, never have accepted that kind of an offer, co-develop.

Speaker 3 I mean, IBM was still, you know,

Speaker 3 they still consider themselves to be the senior

Speaker 3 partner in any partnership they establish. The senior partner.
So we were

Speaker 3 the company that co-developed something with them will send. its engineers to IBM, you know.

Speaker 3 And when we do that, we lose our ability to develop our own process.

Speaker 3 We'll have to depend on this co-development thing.

Speaker 3 And the co-development thing

Speaker 3 is going to have a lot of difficulties.

Speaker 3 Heck, you know, our people, you know,

Speaker 3 will be in a different culture. So we declined.

Speaker 3 without having to think about it at all, we declined the IBM offer.

Speaker 3 And IBM, in fact, was

Speaker 3 quite

Speaker 3 angry, you know. I mean, they thought,

Speaker 3 we're still a

Speaker 3 small Taiwan

Speaker 3 backward place, you know, Taiwan company, and they are a big IBM.

Speaker 3 So they immediately went to

Speaker 3 UMC.

Speaker 3 And UMC accepted,

Speaker 3 only to regret seriously their acceptance a few years later.

Speaker 1 And UMC at that point in time was, was it fair to call it a peer of TSMC here in Taiwan in terms of volume and size?

Speaker 3 Not by 1999.

Speaker 1 They were already smaller.

Speaker 3 Smaller. They were smaller already.
Yeah.

Speaker 3 That was what I meant when I said that.

Speaker 3 sitting here as a founder

Speaker 3 i i i can see some things that uh

Speaker 3 like this IBM thing.

Speaker 2 This might be a good time to go back to the learning curve.

Speaker 2 Speaking about the importance of owning your own technology and process at the leading edge and controlling your own destiny, you develop the learning curve.

Speaker 3 I really did not develop it. I certainly did not initiate it.

Speaker 3 I think I had a role at TI.

Speaker 3 I had a role in

Speaker 3 refining it to the point point where a semiconductor company can use it effectively. That's my role.

Speaker 1 So

Speaker 1 how would you explain it to a novice?

Speaker 3 Well, explaining learning curve theory is simple,

Speaker 3 but

Speaker 3 one would be foolish if one just takes the simple explanation

Speaker 3 and thinks that that's all it is.

Speaker 3 The simple explanation of learning curve is that

Speaker 3 as you

Speaker 3 make

Speaker 3 more

Speaker 3 of one thing,

Speaker 3 anything

Speaker 3 actually started with refrigerators and cars.

Speaker 3 If a company makes more cars, then

Speaker 3 its cost per

Speaker 3 car, unit cost, goes down. That's why it's also called experience curve.
You gain more experience,

Speaker 3 you become more efficient. efficient.

Speaker 3 That's a simple explanation. But

Speaker 3 if one

Speaker 3 just takes that simple explanation and thinks that's all it is about,

Speaker 3 you know,

Speaker 3 you really

Speaker 3 haven't learned anything at all.

Speaker 3 All right.

Speaker 3 Anyway,

Speaker 3 the learning curve. Well,

Speaker 3 Bruce Henderson,

Speaker 3 who is now

Speaker 3 considered

Speaker 3 the father

Speaker 3 of

Speaker 3 strategies.

Speaker 2 Founded Boston Consulting Group.

Speaker 3 Yeah,

Speaker 3 he was the founder of Boston Consulting Group. And

Speaker 3 now, you know, I mean, there's a branch in

Speaker 3 business economics

Speaker 3 uh that's uh

Speaker 3 that's called uh

Speaker 3 uh competitive strategy or something yeah

Speaker 3 competitive strategy i guess um

Speaker 3 uh and michael porter was at one time uh considered uh a big figure in this competitive strategy i mean he wrote

Speaker 3 three or four books, you know, big books, you know, 700 pages each, you know.

Speaker 3 I have all of them.

Speaker 1 His original competitive strategy memo, I think it's like 20 pages, is still some of the best business writing ever.

Speaker 3 Just who's? Michael Porter. Oh.

Speaker 1 Well, good.

Speaker 3 He was a director of TSCC at one point, right?

Speaker 3 Yeah, yeah. And I had a story about him in my autobiography, too.
which because of time we probably won't go into.

Speaker 3 Not Michael Porter. But Bruce Anderson, we will talk about him.

Speaker 3 He

Speaker 3 He is now considered to be the father of the competitive strategy. He came to Texas Instruments

Speaker 3 one day in, I think, around 1970.

Speaker 3 Or I should say he first called the TI CEO

Speaker 3 Mark Shepard.

Speaker 3 and told him that

Speaker 3 Boston Consulting Group.

Speaker 3 He had founded the Boston Consulting Group, and we have

Speaker 3 BCG

Speaker 3 has

Speaker 3 an experience curve theory

Speaker 3 that would benefit semiconductor industry.

Speaker 3 And TI was the largest company in the semiconductor industry then.

Speaker 3 And

Speaker 3 would Mark Shepard

Speaker 3 like a presentation

Speaker 3 of this

Speaker 3 theory?

Speaker 3 So Mark Shepard said yes. So Bruce Henderson brought Bill Bain,

Speaker 3 you probably know that name,

Speaker 3 with him

Speaker 3 and came to Dallas.

Speaker 3 and made a presentation. And Mark Shepard invited

Speaker 3 the COOs, COO and me to attend the presentation.

Speaker 3 And it was

Speaker 3 a very eloquent presentation

Speaker 3 because, you know, Bruce Henderson was a very eloquent man.

Speaker 3 And Bill Bain was on the side,

Speaker 3 apparently Bruce Henderson's protege.

Speaker 3 Anyway, Mark Shepard was impressed and he decided decided that TI would

Speaker 3 work with

Speaker 3 BCG

Speaker 3 on

Speaker 3 this

Speaker 3 learning curve theory.

Speaker 3 And

Speaker 3 Bruce Henderson then

Speaker 1 assigned Bill Bain

Speaker 3 to

Speaker 3 work

Speaker 3 most of the time.

Speaker 3 at TI, you know, most of my, like three days a week. And Mark Schepper assigned me as TI's

Speaker 3 guy.

Speaker 3 So

Speaker 3 Bill Bain

Speaker 3 and I became partners.

Speaker 3 And

Speaker 3 I

Speaker 3 assigned Bill Bain a small office

Speaker 3 very close to my

Speaker 3 office

Speaker 3 at TI in the same building and a small office because he needed a lot of things from me. He needed permission to get our costs, our prices.

Speaker 3 We had a lot of families of integrated circuits and transistors.

Speaker 3 I mean, he had a lot of requests. So it was easier if he was nearby.

Speaker 3 And

Speaker 3 every time when he arrived at some

Speaker 3 interesting, useful conclusions, he will also discuss them with me.

Speaker 3 So we had a very pleasant association for,

Speaker 3 I would think, two years, maybe even more.

Speaker 3 And he would, you know,

Speaker 3 fly

Speaker 3 to Dallas.

Speaker 3 every Monday and

Speaker 3 go back to Boston either Wednesday night or Thursday night. And of course, every time he

Speaker 3 went back to Boston, it would be to tell Bruce Henderson

Speaker 3 what he had done that week.

Speaker 3 So this happened. This went on for,

Speaker 3 I think, two years.

Speaker 3 And then finally,

Speaker 3 Bill Bain came to see me one day.

Speaker 3 And it was in those two years that I absorbed

Speaker 3 a lot of learning curve stuff,

Speaker 3 which

Speaker 3 I used up to now.

Speaker 3 I found it

Speaker 3 highly.

Speaker 3 highly fruitful

Speaker 3 just as a thinking tool, you know. Yeah.
Yeah.

Speaker 1 It seems 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.

Speaker 1 And it seems like over time,

Speaker 1 all the returns in the industry, the winner is the one with all the volume because they'll just have the lowest prices.

Speaker 1 And there's a flywheel where once you have the lowest prices, you get all the business, then you can reinvest that in the next node.

Speaker 3 It's almost,

Speaker 1 I couldn't have told you that TSMC was going to be the winner, but once you internalize the learning curve and globalization, you can sort of

Speaker 1 into it. Then in the future, there will be one winner in semiconductor manufacturing.

Speaker 3 But one day,

Speaker 3 after a couple of years,

Speaker 3 Bill Bain came to me in Dallas and said,

Speaker 3 you are the first one I tell this to

Speaker 3 outside the Boston Consulting Group.

Speaker 3 I am

Speaker 3 leaving Boston Consulting Group to start my own consulting company.

Speaker 3 So I said, why? I said, you know, obviously Bruce Henderson thinks very highly of you.

Speaker 3 And Bill Bain said, yes, but

Speaker 3 there is the gross imperative.

Speaker 3 That's the first time I heard that term, you know, quote imperative.

Speaker 1 He meant for him personally.

Speaker 3 Yeah.

Speaker 3 For him personally.

Speaker 3 Well, anyway, that was that.

Speaker 1 All right, listeners, this is a great time to thank our longtime friend of the show, Vanta, the leading agentic trust platform that helps you automate compliance and manage risk.

Speaker 1 David, I caught up with Christina and the Vanta team to get the latest.

Speaker 2 Ooh, nice.

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Speaker 1 But now they have realized that the business that they're really in is making it easier for you to earn the trust of your customers.

Speaker 3 Hmm, yep, makes sense.

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Speaker 2 When we first started working with Vanta almost five years ago, I think it was, we thought, oh, this is one of those great acquired universe products that lets you focus only on what differentiates your product and outsource the things that don't.

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Speaker 1 As our time comes toward a close,

Speaker 1 one question David and I wanted to ask you is: TSMC is essentially the only trillion-dollar company in the world, not on the west coast of the United States.

Speaker 1 It is this incredibly important thing in the world.

Speaker 1 It's this unlikely success of grand scale.

Speaker 3 Unlikely, in your opinion?

Speaker 1 I mean, you started it when you were 56. Yeah.

Speaker 3 There are many things. I'm not going to argue with you.
Okay. I merely asked as a point of

Speaker 3 curiosity. I didn't realize, I didn't think it was that unlikely.

Speaker 3 Well,

Speaker 3 it did exceed my expectations.

Speaker 3 TSMC's size and importance exceed

Speaker 3 my expectations, but not

Speaker 3 by an order of magnitude.

Speaker 1 But wasn't the original plan to stop building after Fab2?

Speaker 3 That was never,

Speaker 3 that was only the very initial plan. Okay.
Yeah. We were never going to stop there.

Speaker 3 I mean, we were just talking about learning, COVID. You know that, you know, I mean,

Speaker 3 how could we plan to,

Speaker 3 if I didn't know anything about Learning Curve, I would say, yeah, maybe we'll stop after two VAPs, you know.

Speaker 3 But I was a serious student of Learning Curve.

Speaker 3 And I would never, I would never stop

Speaker 3 at just two vaps.

Speaker 1 Here's why I say unlikely success. There were so many reasons why the original incarnation of TSMC

Speaker 1 was kind of a bad business. Fabulous was not a thing yet.
And so all of your initial customers were the integrated device manufacturers, the Intels of the world, and you were taking their worst,

Speaker 1 you know, excess,

Speaker 1 you were their second source supplier for manufacturing on the stuff that they didn't want to make on their own. Did you see Fabless coming, or was that a very lucky thing?

Speaker 3 No, I saw it coming.

Speaker 3 And

Speaker 3 in fact, I just had dinner, or two months ago at dinner with the first guy gordon campbell cordy campbell

Speaker 3 have you heard his name

Speaker 3 anyway cordy campbell

Speaker 3 came to see me in general instrument

Speaker 3 in my

Speaker 3 final months

Speaker 3 at general instruments

Speaker 3 He came to see me. He did not know that I was leaving.
Frankly, I did not know when when I saw him that I was leaving yet. But the reason he came to see me at General Instrument was that he wanted

Speaker 3 funding. He wanted investment from General Instrument.

Speaker 3 $50 million, he said. He wanted to start a new company.
$50 million.

Speaker 3 So I said,

Speaker 3 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 Institute.

Speaker 3 So he said, all right, I'll send it to you within three weeks. Three weeks later, there was no business plan.

Speaker 3 And I was interested because I knew that he had a good reputation of starting companies.

Speaker 3 So I called him. And he said, ah, Morris, I'm sorry I didn't send you anything because I don't need you anymore.
I said, how come?

Speaker 3 He said,

Speaker 3 I don't need $50 million more

Speaker 3 anymore. I need only $5 million.

Speaker 3 And the $5 million I can gather up very easily.

Speaker 3 I said, why do you need only $5 million?

Speaker 3 He said, I'm not going to build a fab.

Speaker 3 See?

Speaker 3 That was

Speaker 3 the start for me

Speaker 3 that

Speaker 3 there will be fabulous companies.

Speaker 3 Another guy

Speaker 3 came to General Instrument

Speaker 3 and said he had already started a company, which was called Atmel, A-T-M-E-L.

Speaker 3 And

Speaker 3 they did not have any fabs.

Speaker 3 And this guy wanted the General Instrument to make the wavefux for them.

Speaker 3 And back then, General Instrument, you know,

Speaker 3 had empty fabs.

Speaker 3 So I said, I told the semiconductor manager of General Instrument, I said, well, go ahead and work with him.

Speaker 2 Don Valentine, who I'm sure you knew.

Speaker 3 Yeah, I knew him.

Speaker 2 He had a great, great quote when asked about starting Sequoia. And he said, well, I had an advantage.
I knew the future. And it sounds like you knew the future too.

Speaker 3 Well, at least I

Speaker 3 had a glimpse of it, you know. And yeah.

Speaker 3 So

Speaker 3 Etmel, you know,

Speaker 3 and they were still fighting. I mean, Etmel,

Speaker 3 he wanted the fab to be run his way. Now, of course, the John Instrument semiconductor manager wanted to run the fab his way, you know.

Speaker 3 I mean, John Instrument owned the fab anyway, for heaven's sake, you know.

Speaker 3 So that was just a very early situation in which the difficulty and the advantage of running a foundry business already appeared.

Speaker 3 The difficulty was, you know, you have to satisfy a lot of customers, you know. And everyone, you know, wanted the fab to be run his way you know uh

Speaker 3 but you can only run fab one way you know which will satisfy more or less all the customers

Speaker 3 and the advantage of course is you have a lot of customers you know well

Speaker 3 we can't thank you enough dr chang dr chang thank you all right very good it was my pleasure

Speaker 3 Even though it's the first time in a long, long time that I have talked so long.

Speaker 2 We appreciate it. Thank you for doing it with us.

Speaker 1 All right, listeners. Well, David and I are coming at you now from our home studios back in Seattle and San Francisco.
And

Speaker 1 we wanted to do a little post-game on that interview, a little bit of

Speaker 1 analysis, kind of our conclusions, the things that are still sitting with us a few days later after we've crossed the ocean. And

Speaker 1 David, this felt essential to me because

Speaker 1 it felt like we were just recording history there with Morris.

Speaker 1 I didn't want to interrupt him to try to like make a business model point, or it just kind of felt like we should let him talk and then we could do our part after.

Speaker 2 Yeah, totally. And fortunately, we have a model for doing analysis at the end of story.

Speaker 2 Playbook. Our playbook.
So let's do it.

Speaker 1 Okay. So the first thing that I can't shake that just keeps sitting with me is

Speaker 1 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?

Speaker 1 They have Morris's original pitch, like his little original slide.

Speaker 2 His original business plan that he pitched to the Taiwanese government.

Speaker 1 The government and then to investors. There's like two different versions of this extremely simple pitch deck.
And one of the bullet points, it's right in there of be a dedicated pure play foundry.

Speaker 1 At the time,

Speaker 1 I get the sense it was actually much more about what can we win at versus what will be the most

Speaker 1 important and valuable semiconductor company in the world in the future.

Speaker 2 Right. At the time, they didn't have the capabilities, certainly not TSMC, and it didn't exist in Taiwan to be able to design chips and products.

Speaker 2 So like it was impossible for them to compete with customers. This was all they could do.

Speaker 1 Right. It crossed Morris's 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.

Speaker 1 And it's almost like an accident of history that the Pure Play foundry ended up being the best way to do this.

Speaker 1 I guess best as evaluated on MarketCap versus other foundries and integrated device manufacturers such as Intel.

Speaker 2 Well, and best that like this is the path that has led them to being essentially alone operating at the leading edge.

Speaker 2 Like they have surpassed technology-wise, all of the other integrated, you know, integrated and quasi-integrated chip foundries out there.

Speaker 1 Yeah, I guess that's my first thing is this

Speaker 1 you can connect the dots looking backwards, as Steve Jobs said in that famous quote, but forwards is difficult.

Speaker 3 This

Speaker 2 primarily, I think, was the main reason why TSMC has worked so well.

Speaker 1 That they don't compete with customers.

Speaker 2 They are truly the only foundry at the leading edge that does not in any way compete with their customers. They don't have their own end product division.
They don't design their own chips.

Speaker 2 It is truly they only serve their customers and they do not compete at any other part of the value chain with them.

Speaker 3 Right.

Speaker 1 Okay.

Speaker 1 So if you're asking yourself, how did the world arrange itself in this way such that you could have a trillion dollar company that doesn't do any design, that doesn't do any architecture, that doesn't do any EDA tools like Cadence or Synopsys.

Speaker 1 So they're, you know, they're not NVIDIA, they're not ARM, they're not Cadence Synopsys, they're not ASML, like they're not their own equipment vendor. So what enabled this?

Speaker 1 One of the things that I think is under-appreciated, and we didn't talk that much about with Morris, but the rise of ARM.

Speaker 1 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 sort of rearrange itself.

Speaker 1 But the fact that there was an architecture, as we talked about on our ACQ2 episode with Renee from ARM,

Speaker 1 this architecture that became dominant in phones and then computers and then servers and now is coupled with all these AI chips.

Speaker 1 You open the door to have a dedicated foundry for ARM chips in a way where if it had stayed x86, it's not like you could start a new foundry for all the fabulous x86 companies.

Speaker 1 For the longest time, Intel was the only x86 company. And then AMD, of course, is the second source.
And AMD is a TSMC customer. So that's sort of the one-edge case.

Speaker 1 It's like, well, there is AMD that designs x86 chips that TSMC manufactures. But that's not like the common case of the way it would have gone for an in an x86-dominated world.

Speaker 1 It would have been fully integrated Intel.

Speaker 2 Yep. I mean, one super straightforward and

Speaker 2 enormous example of this just is Apple. Like if ARM hadn't become such a viable CPU architecture platform and Apple hadn't standardized, you know, their Apple silicon on ARM,

Speaker 2 probably Intel would be making all of the chips that go into your iPhone, all the leading edge chips that go into your iPhone. Like they already had the Intel relationship.

Speaker 2 Macs were running on x86 Intel chips.

Speaker 1 Yeah, you have to keep peeling the onion because this, of course, supposes that

Speaker 1 Intel actually could have gotten their act together and made a chip

Speaker 1 for mobile phones that was performant. But maybe

Speaker 1 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.

Speaker 3 Yeah.

Speaker 2 I think all this is true. But if ARM hadn't existed, like there would have been nowhere else for.

Speaker 2 this vector of innovation to go.

Speaker 1 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.

Speaker 1 There are standalone

Speaker 1 designers, you know, Apple, Nvidia.

Speaker 2 In a large part, that's due to ARM.

Speaker 1 Yes. And ARM and TSMC are sort of like coupled at the hip of history of when this, how this came to be.
In fact, didn't you find that a bunch of these were started within 12 months of each other?

Speaker 2 Yes, totally. The mid to late 80s were like an absolute golden period for all these companies getting started.

Speaker 2 Not only TSMC, ARMS, Synopsys, Cadence, and ASML all founded right within a couple of years of each other. Which brings us to Hinshu Science Park, going there in person.

Speaker 2 And we talked about this on our original TSMC episode that, you know, even if you wanted to, you couldn't airlift TSMC and this capability out of Taiwan and recreate it somewhere else.

Speaker 1 Yeah, we talked about that as if we knew it in sort of an abstract way. This was very different driving around the science park, feeling it in a physical way.

Speaker 2 The entire ecosystem.

Speaker 2 It's like if Silicon Valley were all in one, you know, kind of government-sponsored, you know, industrial park, which it sort of was and was Silicon Valley, you know, as we talked about in our Lockheed Martin episode.

Speaker 1 Oh, the early Lockheed, yeah.

Speaker 2 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.

Speaker 2 You know, 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.

Speaker 2 There's Media Tech right there, headquartered right there. And right across the street, the craziest thing to me, we saw there are two universities that are just like there.

Speaker 1 In the science park.

Speaker 2 Yes, like that are cranking out PhDs every year that are just getting absorbed right there in the ecosystem. I mean, this would be like if there were two universities on the NVIDIA campus.

Speaker 1 The thing that really jumped out to me is you always hear people talk about how integrated

Speaker 1 this ecosystem is with each other, that

Speaker 1 Synopsys has to be closely

Speaker 1 tied with TSMC to understand what the next node will look like so that they can make it easy for people who are using Synopsys'

Speaker 1 tools to design ships to

Speaker 1 actually manufacture using TSMC's process.

Speaker 1 You kind of get the sense of, oh, I see, because they all are walking across the street to each other and having this extremely close communication.

Speaker 1 Not to mention, David, both of our flight experiences kind of 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.

Speaker 2 My plane felt like the semiconductor version of the tech buses that go from San Francisco down to Silicon Valley every day.

Speaker 2 I mean, the backpacks that I saw on the plane, like there's a Google backpack, there's an Amazon backpack, there's an ARM backpack, there's a Mar-Vell backpack. Yeah.

Speaker 1 Which does raise the point of this Arizona fab and the sort of outside of Taiwan fabs.

Speaker 1 You know, why is TSMC doing it? Because it's not their leading edge. It's not big volumes.

Speaker 1 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.

Speaker 1 I think it's the Tainan one in the south. But it just kind of becomes clear that

Speaker 1 there are customers and government reasons to build fabs in other countries.

Speaker 2 You're not going to be able to recreate the magic of that ecosystem, like physically instantiated right there.

Speaker 1 Yeah. It would take decades to recreate the ecosystem that they have in the science parks.

Speaker 2 Which is, you know, funny on that front.

Speaker 2 You and I were saying as we were driving around there, this has got to be the single most successful government-funded industry initiative of all time, like anywhere in the world.

Speaker 1 At least to spur innovation with this particular of a mandate.

Speaker 2 Totally. The land-grant universities here in America, but like this was like

Speaker 2 a rifle shot. Like, you know, we are going to spur semiconductor industry innovation in this.

Speaker 2 industrial park in this location.

Speaker 3 And it worked.

Speaker 1 And there you have one of the 10 most valuable companies in the world, and the only, I guess, one of two

Speaker 1 trillion-dollar companies that are not on the west coast of the United States. I would say it worked.

Speaker 3 Yeah,

Speaker 2 it worked. It worked.

Speaker 1 And the scale, too, we drove by a construction site where it looked like a quarter of the building was done.

Speaker 1 This is where they're making the two-nanometer process, which presumably will be in the next iPhone.

Speaker 1 It's not like anyone said anything about that, but geez, I wonder after five nanometer and then three

Speaker 1 N3E and N3P,

Speaker 1 when they have this two-nanometer process, I wonder what they're going to make on that. Lots of NVIDIA GPUs and lots of iPhone chips.
Massive building.

Speaker 1 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 primetime yet.

Speaker 1 But I think they're actually doing the small production runs, getting ready to ramp in the second half of this year on the two nanometer process.

Speaker 2 Like you said, the scale of the physical buildings of these fabs

Speaker 2 smacked me in the face. I felt like I was looking at a Sphinx in Egypt.
I mean, like, it's huge. It's like many football fields of size, like, you know, just per phase of the fab.

Speaker 2 These are enormous buildings.

Speaker 1 Yep. Okay.
So back to things I've been noodling on since the conversation with Dr. Chang.

Speaker 1 I felt a little bit bad for saying, hey, your original business plan was kind of a bad one, that

Speaker 1 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.

Speaker 1 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,

Speaker 1 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? And it's not strategic at all, but here you go.

Speaker 1 Here's some revenue.

Speaker 2 This is a major difference in Intel's fab strategy versus TSMC.

Speaker 2 Intel is constantly taking their existing fab footprint and repurposing it and upgrading it for the leading edge, which, you know, on the one hand is great.

Speaker 2 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.

Speaker 2 And it's not like demand goes away for those chips and those products.

Speaker 1 It does. It just does slowly.

Speaker 2 It does slowly. Yeah.
And I mean, like, replacement parts is a great example.

Speaker 2 Like, you know, there are technology systems and products, you know, 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, like you need those exact same chips.

Speaker 2 So this is the business that TSMC started in.

Speaker 1 Right. So that is the fundamental philosophical difference is I think fab,

Speaker 1 so fab one belonged to ITRI,

Speaker 1 the government where Morris was president of that organization before taking the helm at TSMC.

Speaker 1 Fabs two

Speaker 1 and three.

Speaker 1 were the first TSMC specific fabs that they built, and they're still running from the late 80s. And in addition to the old replacement parts, there are still applications for older nodes.

Speaker 1 If you're in this

Speaker 1 world of 40 nanometers 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.

Speaker 1 CMOS sensors are great examples of that. The cameras that we're talking into right now that have these great Sony sensors,

Speaker 1 those don't require a two nanometer process, but they do require etching the same way that you would etch a chip.

Speaker 1 And so that's a specialty use case of TSMC's older fabs, which by the way, on an accounting basis are fully depreciated. So they're almost like free to run.
Right, right.

Speaker 2 All the capital expenditure. Now there's maintenance capex that needs to go into it, of course, but like

Speaker 2 the initial capex, yes, fully depreciated. You're just getting like essentially very, very high margin dollars out of those old fabs.
Right.

Speaker 1 And it's not that it's a better or worse decision than what Intel has historically decided to do, but it is a different one.

Speaker 1 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.

Speaker 2 Totally.

Speaker 3 Totally.

Speaker 1 But that point of, I'm obsessed with this idea that

Speaker 1 it was funny that Morris went on the record and said, no, I knew, I knew Fablus was coming.

Speaker 1 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.

Speaker 1 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.

Speaker 1 But it really is this idea that he saw the future.

Speaker 1 He made a bet.

Speaker 1 And he did kind of a crappy business to build up competency, capability,

Speaker 1 volume.

Speaker 2 Capacity.

Speaker 1 Yeah, exactly.

Speaker 2 To build up literal fabs.

Speaker 1 Right. To be there when the fabless revolution happened.
And I don't know, you know, I think he, yeah, I think he was within 12 months of when he thought it would happen.

Speaker 1 But it is crazy that when, especially in his web, you're reading the story about the early customers, year five, year six, year seven, the majority of the business is still not fabless.

Speaker 1 It's someone else's, you know, worst orders.

Speaker 2 Which that actually gets to the heart of learning curve pricing that we spoke about with Morris.

Speaker 1 We brought it up sort of like tangentially with him, but it's probably worth dwelling on what is the learning curve.

Speaker 2 Yeah. The, I mean, the core insight of the learning curve from BCG and Bill Bain and Bain and Morris that they all developed together.

Speaker 1 Which, by the way, how crazy is it? The founders of BCG and Bain are the ones who sort of co-developed this or at least named it and formalized it with Morris when he was at TI.

Speaker 3 Totally.

Speaker 2 The insight is that like the goal that you you are playing for is to be the largest volume player kind of at the end of the game.

Speaker 2 So if you take that as a given of like, if we get to be the largest volume player, this is a fixed cost business. This is a scale economies business.

Speaker 2 We can spread that fixed cost over the maximum number of customers. How do we get to the maximum number of customers in the early stages of the game where it's more competitive?

Speaker 2 We accelerate the pricing to where we think it will get to at the end of the game. So that's why doing these price cuts and also starting low with your prices.

Speaker 2 Like you can even start unprofitable with your prices in the early days in a given node generation because the goal is crowd out the competition, become the industry dominant number one player, get all the customers.

Speaker 2 Once you aggregate that demand,

Speaker 2 then you get the scale and then you can get the economies of scale pricing. But just like get to that as fast as possible is the name of the game.

Speaker 1 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,

Speaker 1 you know, call it 40 nanometer. How many orders of individual chips will there be in 40 nanometer?

Speaker 3 Okay.

Speaker 1 Well, to have the cheapest price for customers, we need to do the biggest ordering. And so then it's, it's just a matter of like, how fast can we get into volume production? Yep.

Speaker 1 Everyone sort of intuitively grasps this. Oh, economies of scale, but the implications across your whole business, your pricing strategy, the way like strategic finance, how do you,

Speaker 1 when do you decide to take on debt? When do you nah? When do you decide to take on more shareholders?

Speaker 2 It's this incredible orchestration to make it happen. You know, it's almost Costco-like in the ballet that has to go into this.

Speaker 1 Right. I mean, the example from Apple, we are about to go get the absolute whale customer, and we have to balance

Speaker 1 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 all their order.
But

Speaker 1 that kind of 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?

Speaker 2 You got to be so precise and accurate.

Speaker 2 in your forecasting of the ultimate market demand, which means the ultimate demand for your customers' products, which in the Apple case means ultimately forecasting accurately how many customers are going to buy the next generation iPhone in order to run your business.

Speaker 1 Right. Or in NVIDIA's case, how big is AI going to be? You know, these are, this is kind of a crazy thing for a manufacturer to have to do to have that crystal ball into the end market.

Speaker 1 um markets you know the end their customers markets but they really do need to make bets on how big those markets are going to be. Yep.

Speaker 2 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.

Speaker 1 To this point, though, if you actually

Speaker 1 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

Speaker 1 it becomes an inevitability. Of course, the company that is taking on all the orders to have the lowest prices.

Speaker 2 Of course, this will be the end state of this industry is to have a dominant player.

Speaker 1 Like 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.

Speaker 1 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.

Speaker 2 Yep. Yep.
And that's just the CapEx side of the equation, as we talked about with Dr. Chang.

Speaker 2 There's also the R D side of the equation that needs to go into creating the next process node that can, you know, be built on that CapEx.

Speaker 1 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.

Speaker 1 And so that is even before R ⁇ D. David, to your point, if they were looking around at competitors at other foundries and saying,

Speaker 1 okay, how much can we invest?

Speaker 1 They can invest more than anyone else because they have the most volume. And then on top of that, they are also spending in a separate bucket of RD on the technology for their manufacturing processes.

Speaker 1 And that's how you get Coas, which is the technology that they use for packaging for AI chips.

Speaker 1 That's their proprietary thing, which, by the way, once you have proprietary packaging, then it's even harder for customers to go and

Speaker 1 double source, double manufacture elsewhere. They have a similar technology for

Speaker 1 packaging of mobile chips that doesn't use Coas.

Speaker 1 But it seems 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.

Speaker 3 Yep, totally.

Speaker 2 And then I think the last playbook theme here for me and for us is just that

Speaker 2 Moore's Law is undefeated. I mean, at the end of the day,

Speaker 2 back from starting all the way back Morris's career at TI

Speaker 2 and being a contemporary of Jack Kilby and Bob Noyce and the invention of the integrated circuit.

Speaker 2 Once the integrated circuit was invented, the compounding growth of that industry is all that mattered.

Speaker 2 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.

Speaker 2 And of course, like the technical definition of Moore'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.

Speaker 2 And that has continued for 50, 60 years at this point and shows no signs of slowing down. And as a result...

Speaker 1 Well, no signs of slowing down, except that they keep hitting theoretical physics limits.

Speaker 2 Well, I said the demand side of the equation

Speaker 2 shows no signs of slowing down.

Speaker 1 Well, sure, but the demand side is far more than 2x. Moore's Law has always been about how much can happen on the innovation side of getting better at design and manufacturing.

Speaker 1 And that is getting harder than ever because we're having to like call more things Moore's Law. You know, packaging was never a part of the original Moore's Law and software improvements and

Speaker 1 proprietary interconnects.

Speaker 2 My point is that it's a self-reinforcing system.

Speaker 2 As long as the demand is there, that the world wants twice as much compute as it had yesterday, there are going to be, you know, market incentives to drive the supply side.

Speaker 2 And that is why people work so hard to make it happen.

Speaker 1 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. So

Speaker 1 they wrote a ridiculous tailwind.

Speaker 2 Ridiculous tailwind. Yep.

Speaker 1 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. Yep.

Speaker 1 The scale of the numbers are so staggering.

Speaker 1 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, like they know for sure that it's a worthwhile investment to do that.

Speaker 3 Yeah.

Speaker 1 The whole thing comes down to, oh my God, silicon has become really valuable. Like integrated circuits are the fabric of our world today.

Speaker 2 Ah, 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.

Speaker 2 What a great way to start the year.

Speaker 1 All right, listeners, it's time to talk about another one of our favorite companies, StatSig. Since you last heard from us about StatSig, they have a very exciting update.

Speaker 1 They raised their Series C valuing them at $1.1 billion.

Speaker 2 Yeah, huge milestone. Congrats to the team.
And timing is interesting because the experimentation space is really heating up.

Speaker 1 Yes. So why do investors value StatSig at over a billion dollars? It's because experimentation has become a critical part of the product stack for the world's best product teams.
Yep.

Speaker 2 This trend started with Web 2.0 companies like Facebook and Netflix and Airbnb.

Speaker 2 Those companies faced a problem. How do you maintain a fast, decentralized product and engineering culture while also scaling up to thousands of employees?

Speaker 2 Experimentation systems were a huge part of that answer. These systems gave everyone at those companies access to a global set of product metrics, from page views to watch time to performance.

Speaker 2 And then every time time a team released a new feature or product, they could measure the impact of that feature on those metrics.

Speaker 1 So Facebook could set a company-wide goal like increasing time in app and let individual teams go and figure out how to achieve it.

Speaker 1 Multiply this across thousands of engineers and PMs and boom, you get exponential growth. It's no wonder that experimentation is now seen as essential infrastructure.

Speaker 2 Yep. Today's best product teams like Notion, OpenAI, Ripling, and Figma are equally reliant on experimentation.
But instead of building it in-house, they just use StatSig.

Speaker 2 And they don't just use StatSig for experimentation.

Speaker 2 Over the last few years, StatSig has added all the tools that fast product teams need, like feature flags, product analytics, session replays, and more.

Speaker 1 So if you would like to help your teams, engineers, and PMs figure out how to build faster and make smarter decisions, go to statsig.com slash acquired or click the link in the show notes.

Speaker 1 They have a super generous free tier, a $50,000 startup program and affordable enterprise contracts for large companies. Just tell them that Ben and David sent you.

Speaker 2 Should do carve-outs.

Speaker 1 Carve outs.

Speaker 1 All right, I have two.

Speaker 1 One is a

Speaker 1 kind of a hilarious, I can't believe it's 2025. And this is my recommendation.
For anyone who's not a AAA member, I highly recommend it.

Speaker 1 Oh, I had a spectacular AAA experience where I went to fill up the air in my tires before a road trip And

Speaker 1 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.

Speaker 1 And so the car was actually not drivable away from this gas station. I was like, crap, I can't even go get the other car.

Speaker 1 And I had my baby in the back seat. And my wife and I were trying to figure out what to do.
And we're like, do we have to call a tow truck to like tow us to?

Speaker 1 And so I signed up for AAA a while i'm just sitting there in the gas station parking lot and within i think an hour hour and a half they had a mobile tire inflator on a long weekend like a holiday weekend when other people aren't working drive out and uh fill up my the the air in my tire so we could be quickly on our way not ruin the weekend amazing And it was like 100 bucks or something.

Speaker 1 It's really not a bad price. And you get, this was, so 100 bucks to become a member or whatever it is, 150.
And then the service is actually free for something as trivial as this.

Speaker 1 And you get three of them a year. Wow.
So I'll take it. It was a, it was a phenomenal experience.

Speaker 2 All right.

Speaker 2 AAA, here we go.

Speaker 1 My second one is a YouTube channel called Defunct Land. You and I were talking about this.

Speaker 2 Oh, yes. This is so good.
You turned me on to this.

Speaker 1 Yeah, it is an entire YouTube channel that I actually haven't watched in a while, but I only remembered it from our conversation.

Speaker 1 And now I need to go back and watch older ones that talks about defunct theme parks.

Speaker 1 So if you like acquired and you wish you had something, you know, acquired-like that's kind of visual, that's about history and intellectual property and people trying crazy stuff.

Speaker 1 Some of the most crazy entrepreneurs and executives within companies decided to build theme parks.

Speaker 1 And it is very fun to see the weird old Nickelodeon hotels or Action Park in, I think it's New Jersey, the like wildly unsafe park from the 60s, 70s, and 80s.

Speaker 3 Oh,

Speaker 2 man, those were the days.

Speaker 1 Yes, you could get lost for hours and hours and hours watching Defunct Land. So I highly recommend the YouTube channel.

Speaker 2 I'm really glad that you and I grew up as kids in the era where

Speaker 2 we could still take unreasonable amounts of risk, and nobody thought that that was, there was anything wrong with that.

Speaker 3 Yes. Oh, go ahead.

Speaker 2 My carve out,

Speaker 3 speaking of, you know,

Speaker 2 it being 2025, how are we talking about this?

Speaker 2 On the plane on the way over to Taipei, um i finally watched everything everywhere all at once for the first time so i can't believe i hadn't seen it before but you know two kids under three and a half not a lot of time for movies it's so good it's so good i think this was your car value when it came out a couple years ago um

Speaker 2 just so so so good truly enjoyed it lived up to the hype were deserves every award that it won All right.

Speaker 1 Well, we've got some thank yous to folks who helped us prepare for this episode. So first to Art DeGius, the co-founder and executive chair of Synopsys, had a great conversation with us.

Speaker 1 Well, first publicly with Saseen Ghazi, the current CEO of Synopsys on an ACQ2 episode a little while back.

Speaker 1 And 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 Renee Haas, who is the CEO of ARM.

Speaker 1 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.

Speaker 2 Also to Wally Rines, the former CEO of Mentor Graphics. Wally is a legend in the semiconductor industry,

Speaker 2 almost on par with Dr. Cheng.
They were contemporaries at TI back in the day.

Speaker 2 And to John Bathgate and Britton Johns from NZS Capital, our go-to folks on anything semiconductors.

Speaker 2 I think they were more excited, even more excited than we were that we were doing this and that we got to talk to them about it.

Speaker 1 Yes. Also, past acquired guests.
I think that episode holds up really well where we did, you know, semiconductor and complexity theory with them.

Speaker 2 Totally.

Speaker 1 And actually, John is the one originally who explained to me how EUV lasers work, which is still one of the most impressive accomplishments in human history.

Speaker 1 To John from the Asianometry YouTube channel, this is just an incredible channel all about semiconductors and about how all of this stuff works.

Speaker 1 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.

Speaker 1 He's just got some awesome, awesome videos on the Asianometry YouTube channel.

Speaker 1 And he 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.

Speaker 3 Very fun.

Speaker 1 Also to Tim Culpin, a former Bloomberg journalist who now has a sub stack called Culpium, also gave us some great topics to chat about.

Speaker 1 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

Speaker 1 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.

Speaker 1 And actually, some of the stats that we threw out in our playbook came straight out of his write-up.

Speaker 1 So if you want a more and kind of 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.

Speaker 1 So if you like this episode, go check out other semiconductor episodes. NVIDIA, we've got four of them at this point.

Speaker 1 One of them is an interview with Jensen, and then we've got the whole history of the company across three different episodes.

Speaker 1 We did a great live episode several years ago on Qualcomm, which I think is a sleeper pick.

Speaker 2 That's right. That's right.
Total sleeper pick. Amazing story.
Erwin Jacobs, one of the greatest entrepreneurs in American history.

Speaker 1 Yes. And our diving into how CDMA works was one of the most fun technical explanations I've ever done on an acquired episode.

Speaker 1 So if you want to understand how all of our cell phones work, go check out the Qualcomm episode. Or of course, if you did not last week, listen to the TSMC Remastered episode.

Speaker 1 I don't know how you got this far without listening to that, but you should go listen to that.

Speaker 1 After this episode, check out ACQ2. We've been talking about this episode with Synopsys.
There's one with Renee Haas from Arm Holdings that we did. It's our most recent episode.
So it's spectacular.

Speaker 1 And if you're interested in semis, go check that out. Come talk about this episode with us in the Slack, acquire.fm/slash Slack.
And if you want to know when a future episode drops,

Speaker 1 you can find out, sign up at acquire.fm slash email, and you'll also get episode corrections and hints at what the next episode will be. So with that, listeners, we'll see you next time.

Speaker 2 We'll see you next time.

Speaker 3 Who got the truth?

Speaker 3 Is it you? Is it you? Is it you? Who got the truth now? Huh?