TSMC Founder Morris Chang

The podcast about great technology companies and the stories and play- Oh, no, he's the technology! Now we definitely have a cold opening. All right. I guess I really want us to be about technology companies again. Well, this is a technology company.

It's a sign. All right, here we go. Who got the truth? Is it you, is it you, is it you, who got the truth now? Is it you, is it you, is it you, is it you?

Shitting down, say it straight, another story on the way, who got the truth. Welcome to the spring 2025 season of acquired, the podcast about great companies and the stories and playbooks behind them. I'm Ben Gilbert. I'm David Rosenthal. And we are your hosts.

Today, we have something very special to share with you. After becoming obsessed with semiconductors from our TSMC episode four years ago, David and I wound our way through the rest of the industry, studying fabulous companies like NVIDIA and Qualcomm, architecture companies like ARM, and chip design software companies like Synopsys. And as we were thinking, what's next in the world of chips on acquired, we threw the Hail Mary. We asked friend of the show, Jensen Huang, if he would ask Dr. Morris Chang, the 93 year old founder of TSMC, if he would be open to an interview with us.

It is kind of insane and super cool that Jensen made time to help us with this. It's not like he doesn't have a lot of other things going on. Yes. Well, listeners, it happened. So today's episode is a conversation that we recorded in Taipei last week at Dr. Chang's office.

We flew to Taiwan for a 48-hour whirlwind, where we spent some time at TSMC's headquarters in Hinchu Science Park, where many of TSMC's fabs are located. Super cool to see. Totally. So conveniently, Dr. Chang just published Volume Two of his autobiography a couple months ago, after a 26-year hiatus from Volume One.

But inconveniently, it is written in traditional Chinese and not published in the Western world. We managed to get our hands on an unpublished translation of the book to prepare. And what you are about to hear focuses on a few crucial stories from TSMC's history that Dr. Chang shares in his memoir about Apple, Nvidia, and the birth of the fabulous industry. Yes.

And big thank you to Karina Bao, who we were lucky to connect with after we set this up, and who has been translating Morris' memoirs with funding from Tyler Cowan and Enemor I always have fun writing this. You do. That's a clear David job. So with that, this show is not investment advice. David and I may have investments in the companies that we discuss, and the show is for informational and entertainment purposes only.

Please enjoy this conversation with Dr. Morris Chang with some of David and my reflections following its conclusion. We thought as a fun way to start things off would actually be to talk about the man who introduced us. Could you tell us a little bit in your words about your relationship with Jensen and TSMC's special relationship with Nvidia? Yeah. It started my relationship with Jensen.

Started with a letter that he sent me, I think it was 1997, and the letter was sent through the post office, and I received it in Xinxu. And the letter said that they were Nvidia, the company that Jensen was the CEO of, was a small company, but they had developed some really promising chips. But they were looking for a fun way, and they had approached TSMC's same-assay office, but they really got no answer from the same-assay office.

Would I please contact Jensen because Nvidia really wanted to do business with TSMC. So I was going to the US in the next week anyway. So the letter, frankly, raised my curiosity and also irritated me a little bit, because I had always told ourselves people that we should never be a negotent in talking to future customers, even if the customer seems to be a very small one.

And at this point Nvidia was four years old. They were facing bankruptcy, I think, and they had maybe 50 or 60 employees. So TSMC, I think, at that time already had a few thousand employees. And we had exceeded, I remember we had exceeded one billion US dollars in revenue in 95, and this was 97. So we were relatively speaking, we were a pretty big company.

Which is very impressive. You were yourself only a 10-year-old company doing over a billion dollars in revenue. Yeah, right. So the following week, I went to California. And I called him back with an advanced notice. I called Jensen. I looked up,

I think there was a telephone number on the stationery that he sent me the letter on. Jensen himself picked up the phone, and there was a lot of background noise. So they were, I mean, he was arguing something with his people. But as soon as I introduced myself, I was the smartest friend, he immediately shouted at those people that were making noises. He said, quiet.

Most Chinese calling me. So I then proceeded to make an appointment with him, to visit him, to visit NVIDIA the next day or something like that. And that was our first visit, our first meeting. And he immediately impressed me with his articulantness. And also impressed me with his optimism.

Well, he was also very frank. He told me that NVIDIA was in financial difficulties. But the chip that he wants now to have found it was not only a saving company, it would also make NVIDIA a major customer of TSMC. I mean, that was actually quite a bold statement. We were over a billion dollars. And to be a major customer of ours, he would have to produce revenue

for us of at least 50 million a year. Okay. Was that chip the Riva 128? I forgot the number, but it was a very successful chip. I don't think it was Riva anything.

It was a games chip, of course. It was successful. In fact, his prediction came true. Not only did it solve NVIDIA's financial problems, it prevented from being bankrupt. Not only did it do that, it also started to make them a major customer of TSMC. I think for three years,

they were. They did become one of the biggest five customers. Wow. Very successful chip. Yeah. So there was a great partnership forage there. TSMC would fab the chips, would manufacture

them, NVIDIA would design them. That is true all the way to today at immense scale. But it hasn't always been easy. It hasn't always been perfect. And I want to go to this moment in 2009 on the 40 nanometer node, where development was slower than TSMC had hoped. And it was costing

customers like NVIDIA time and money. Can you share the story of how this came to be and how it was resolved? Well, I decided to give the CEO job to a potential successor of mine while I will still retain the chairmanship. In Taiwan, usually the chairman is the top man anyway, even though CEO is another person. So the problem you just mentioned happened during the period when someone else was the CEO. Apparently, it was a manufacturing problem. It was also a quality problem. And

it was the quality problem that the CEO first reported to me. But the CEO insisted that our people, we had the director of quality insisted that we were not TSMC, it was not at fault. And so on the basis of our quality managers arguments, he had not offered NVIDIA anything. Now, as far as the manufacturing problem was concerned, it was a new problem. And everybody was suffering from it.

And of course, NVIDIA at that time was perhaps the biggest customer of that node, a 40 nanometer node. And a yield problem in the context of this industry is when you are trying to make a bunch of very high quality chips, but you just can't get the percentage that actually work up very high. Something like that, yes. But the problem apparently just continued. And I was, even though I was not the CEO, I was getting a little impatient. And then of course, some other problems,

problem problems, then this 40 nanometer, NVIDIA problem other. So I decided to take the CEO position back. So in 2009, I did that. And there were several priority problems that I had to deal with when I took the CEO job back. And one of them was this continuing problem, continuing argument, controversy with NVIDIA. Anyway, I remember in the first few days, after I took back the CEO ship,

I called all the major customers, including Jensen. And Qualcomm was, I believe, Qualcomm was also. And Qualcomm, the top customers didn't change very much since they accepted maybe one Apple Apple came later. And in my college, Jensen, he was still very friendly with me. But he also reminded me in a very serious tone that we had the quality delivery manufacturing problem on the 40 nanometer. All right, so I said I knew that. And it's one of my

priority problems, give me a couple of weeks and I will get back with you. And as I said, I did have several problems aside from the 40 nanometer manufacturing problem and the problem was the argument that we were having with NVIDIA. Aside from that, we also had the problem of pricing was dropping faster than the cost. You don't want to see that. It was margin percentage kept dropping. Because you would committed to a schedule of price drops with customers,

but you weren't able to drive down your manufacturing costs at the same rate. All right, so that was one problem. Another problem was the immediate one that triggered me to retake the CO ship because the previous CO had laid off, except he didn't use the term lay off. He used the web performance review. The worst performance review people, there were about six or 700 of them, and he laid them off on the basis of their poor performance review. Well, we never did that. I mean, the worst we would do was to put them on

police among probation for six months. And quite often, at the end of the six months, everybody would go back to his or his or her old job. And some of them would get transferred because they were in the wrong jobs. So some of them would get transferred. But we almost never really fired people even after the probation period. So under your watch, you never did a layoff

and you never looked at performance reviews, which are meant to help coach people as the means to determine. That's right. Yeah, I actually, you know, I have told the managers that, you know, that and well, in 2008, of course, there was a financial crisis and the semiconductor business impact got affected. And our revenue dropped, our business dropped pretty seriously. I was not chairman, but I just knew that anyone, any general manager, any CEO, general manager, without very much experience. What he or she would do in a situation like that, it's kind of a knee

jerk kind of reaction. Oh, he says, Oh, this is my test. I got to save all the money possible. And I got to layoff people. But this is the semiconductor industry and Moore's law means no matter what happens, you will always need people. Well, I know, I know, well, semiconductor industry people

actually think the same way as I described, you know what I mean? They are layoff, they are people, too. I had a lot of experience at Texas Instruments. But at Texas Instruments, I was not a CEO. I was just one of the top managers under the CEO level. And when the company decided to have a layoff,

these CEO conferred with the top managers who included me. And their first reaction was exactly the same. And I'm talking about the 70s, early 70s, their first reaction or who to layoff was exactly the same as what Howard, TSM, CCO did in 2008 to 2009, which was, you know, go by performance. Well, now I was the only one at Texas Instruments in the early 70s that said, no, that would not be credible way of doing it. People would not respect us if we layoff by performance ratings.

And why is that? Because it's very subjective. Performance reviews, the performance ratings are done by everyone's own supervisor. So 700 was performing people in the company. And who gave the 700 people the bad ratings, 700 supervisors, you know, very subjective. It's not something that

people will respect. If in a year you have to hire people back, you have to hire the laidoff people back, then you shouldn't layoff because the layoff, the separation expense is usually about half a year. And it takes at least half a year to train a person. So if you need the people back, one thing a year, you shouldn't layoff. So what did you do when you came back as CEO, both about the employment issue and about the customer issue? You mean customer issue being

evident? Yeah. Well, to finish the employment issue, the laidoff employees, as I said, there were 700 of them, 600 or 700 of them came to my home to demonstrate and protest. Now, the company, TSMC, was pre-worn that hundreds of people would appear in front of my home. So they notified the police department in my district. So the police department sent 50-60 police officers to

try to maintain the order. Now, more than 100 protesters appeared. And the neighbors, my neighbors, you know, they are trouble getting in and out. That was only the first time. A month or so later, the problem was still not solved. I was still not the CEO. So they appeared again. Some were

protesters. About 25 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 didn't sleep at night. She would wake up and went over to that window to take a look to see what was going on. But then very early the next

morning, my wife, six o'clock, the next morning, my wife, you know, fell up. And she took one of the bodyguards and went to a neighborhood market and got the Chinese-style breakfast, or Chinese bread, you know, fried bread, you know, I don't know whether you ever had it or probably not. Yeah. Yeah. It was fun. It was, you know, so it'd be milky. And take enough of the

breakfast, enough for 25-30 people and back to the park and distribute them to the protesters. And they were thankful, you know, yeah. And they actually decided to not go to the president's palace, president's mansion. And they told my wife that they would not do that that day. And all this kind of precipitated of my taking back the CEO job. Well, that's another thing, you know. I told

the previous CEO before he laid off the 600-700 people. I said, if you because I knew, as I said, I knew that it would be his knee-jerk reaction to confront a crisis such as the crisis we had. It would be his knee-jerk reaction to lay off. So I said to him, if you want to lay off, bring it to the wall, I'll call a special warm meeting. And I knew what I was asked the board to do, which was not to grant the permission. But he decided to circumvent that,

the CEO, because what he did, he did not consider that to be lay off. It was just punishment for the poor performers. Well, as far as the CEO, I said, I did keep him. I had more than one nice clock with him. I intended to, and I told him that he was still a potential successor to me. So I kept him at the same job weight, we have job weights, and the same

salary and bonus. But he was now the president of new businesses. And back then, we had the high hopes for the so-called new businesses, which was Solar Cells and LED. It's the great irony that your core business of manufacturing integrated circuits ended up becoming the largest market opportunity of all. You don't need any new businesses. And of the biggest marketing, biggest marketing opportunity,

why is it so ironic? Well, it's always interesting to me when companies think, oh, we should look at other new businesses. When in reality, semiconductors became a $600 billion a year market, and Solar is a small fraction of that. LEDs are a small fraction of that. You were already in the best market.

I know. And I knew that. I did not really think that Solar or LED would really replace our integrated circuits business. But I knew the integrated circuits business was going to be great. You know, but at that time, which was 2009, at that time, we also thought that Solar and LED was going to be very promising. But it didn't work out, of course. The Solar business could have been

pretty good. However, China ruined it, subsidized the hell of it. And they now controlled the business, Solar cells. The prices were still low. So it didn't take off. PSMC servers didn't take off.

And LED did not take off either, because LED is not the market. It's not as big as Solar. However, it's controlled. The patents are controlled by just a few companies. And they wouldn't let the few companies that control the patents of LED were not enough at all. So a few years later, the CO

that was put on the new businesses decided that his new assignment wasn't working out either. So he quit. And he's now running MediaTek. Is that correct? He's now the Vice Chairman and the CEO of MediaTek. Yeah. So coming back to this moment in 2009, you

offered to rehire anyone who was laid off that was interested in coming back. And you're setting the new vision and strategy as CEO or in many ways returning to the old one. How did you resolve the NVIDIA dispute? Yeah. In the first four or five weeks after I retook the CEO job, I probably spent almost half of the time on how to resolve the problem with NVIDIA. As I was used to were concerned,

but we were doing our best because we had to do it anyway. I mean, every day was just one of the customers. Yeah, not just NVIDIA, but Qualcomm and Intel. And it was a very important note, 40 nanometers was very important note in the progression of Moore's law. You know, only after 40, can we do the 40? Well, can we do the 28? 28?

What's the next one? And I caught the salespeople that were in direct, that happened in direct contact with NVIDIA. And of course, I caught everybody that was somehow involved, somewhat involved in the problem. So it was a matter of money. As far as the progress on the manufacturing lines, I mean, we were already doing what we could. I mean, it was as I just said, it wasn't just

for NVIDIA. It's for TSMC, you know. But NVIDIA, because they had borne the brunt of the problem, the damage. Well, as a matter of money, I worked out a number. I familiarized myself with all aspects of the problem. And then I worked out a number. And I also knew that

NVIDIA's customers were after them. They had demands on NVIDIA too. So I used all the intelligence I could get. And I think it turned out that it was good. So about a month after I retook the CO job, I sent an email to Jensen. I said, I'm coming to Silicon Valley next week on the stage. I will be

at your home at 6 o'clock. Let's have just salad and pizza. We saw something that we had had many times in the past. Now, immediately sent back an email. He said, when do we discuss business then?

Did he ask who was going to pay for the pizza and salad? He didn't ask that. So I anticipated that. So I said, 630, we'll start having pizza and salad. 8 o'clock shop will go to your office at your home. And we'll discuss business. So on the point of the day, I showed up and we followed

a schedule exactly 6 or 8. We had a very present pizza and salad. His wife, Laurie, would make the pizza and the salad. And the pizza was delivered from outside. Maybe they made their own pizza too. I forgot. Would not surprise me. Anyway, I had had it many times at his home.

All right. So it will cost up. It was I who looked at the watch and said, Jensen, why don't we go to study? And I gave him the offer. It was on the order of $100 million, right?

Yes. More than $100 million. Yeah. And I also said, our offer is effective. 48 hours. If you do not,

there is not going to be, we're not going to bargain. We're not going to bargain. If you don't accept the offer within 48 hours, we'll have to go to an arbitrator, which was what he had suggested to the previous CEO anyway, that we will go to the arbitrator. But the previous CEO did not even give him a number. You know, previously, he gave him zero. You probably don't want to go to arbitration

with your best customer. No, I didn't want to. But I had to say that. And because I mean, that number, the number we offered him was arrived at after, as I said, weeks of work on my part. And I thought it was fair to both sides. And did Jensen accept the offer? Yeah. He did.

Oh, into within two days. I think it's an amazing example of a situation where you had strong partnership together for many years. You built this close personal relationship such that you could have an hour and a half family dinner and not talk business. You were able to then come up with a large sum of money over $100 million settle. And then since then, there have been many, many billions of dollars of business done together. It's a great success of working out your differences.

I know. I like that too. That's why I included the story in my autobiography. All right, listeners, now is a great time to tell you about a long time friend of the show. Vanta AI has scrambled the whole security picture. It used to be that you prove that you were secure

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has to be continuous now, which is why Vanta automates your security, your compliance, and the work to earn and prove trust. We're huge fans of Vanta over here and literally hundreds of acquired listeners have become Vanta customers at their companies over the years. So you can get $1,000 off of Vanta at vanta.com slash acquired. That's v-a-n-t-a dot com slash acquired for $1,000 off and just tell them that Ben and David sent you. After the 40 nanometer node, after you fixed these problems, as you said, the next node was 28 nanometers. And as we understand your story and

the company's story, 28 nanometers is when TSMC really started to take the leadership role at the leading edge in the industry. How did you decide to go commit so hard to 28 nanometers after having had all the problems at 40 nanometers? Well, I had a lot of trouble at TI. My peak job at TI was the head of worldwide semiconductors. TI of course had many businesses, defense business, materials and controls. And also their origin, which was geophysical and so on.

But TI's semiconductor business was the biggest and I was the head of that worldwide semiconductor business. I wanted to at that time, when I was the head of worldwide semiconductor business, our R&D budget was 4.8% of revenue, of our revenue. And I thought it was not enough. I just wanted to raise it to 5.5% of the revenue. But my request was denied all the every time I raised it. Now, coming back to TSMC,

I wanted to set a number, a number, a percentage of revenue number. So we don't have to argue every year how much R&D we should spend. So at that time, about the time, 2008, 2009, when I came back, I just almost like at that time, we were running, I think, 6 or 7%. And it was negotiated every year between the R&D director and the CEO. So I wanted to stop that.

I want to make him at ease. And I mean, I don't have to argue. I don't have to request every year. So I almost just literally picked a number of our head. We've been running 6 or 7% already.

So I said, oh, let's pick 8%. 8%, regardless of whether there's a recession or not, and that's 8% of revenue. And that was the best news if you ask our R&D director, also back then, I think, in the second place of R&D. He would tell you, he has told me many times in the last 10 to 15 years that this was really the best thing that we did for R&D. So they were not concerned, the R&D director was not concerned at all about having his planned budget cutbacks, his planned resource, people allocation cutback, and none of that. So he's been working 8% and so has been like that.

And that is what propelled our R&D effort. This period in 2010, it wasn't just ramping the R&D budget. It was also the capital expenditure. You had almost a decade of two to two and a half billion spent building the fabs every year. And in 2010, you ramped that almost 6 billion. What was it about the competitive environment,

the 28 nanometer node that caused you to push all your chips in on that? I think it was the kind of mutual feeding thing. As I settled the R&D budget at 8% of revenue, I mean, to the satisfaction of R&D people, they began to have big ideas. They began to be telling me how 28 is going to be the term they used. And they have used it several times.

But the first term, the first time I heard them using it is the 28. 28 is going to be the sweet spot. It's just like tennis racket. You hit the ball with a sweet spot of your racket. Yeah. Do you play tennis? I have played tennis, not well. Good. I was like you. Like 40 years ago,

I was like you. I don't play anymore. But I know the feeling of hitting the ball in the sweet spot. 28 nanometer is in the sweet spot. And so I said, why? He gave me a lot of technical reasons,

a brand name. So I decided I would believe him. And he now had the resources to push it, to do it, as fast as he could. So now the capital spending. Now, of course, back then, we had already built up pretty good infrastructure organization. We had a pretty good market forecasting group.

And I had set up the business department, which was like a marketing department. We always had a pretty strong sales effort. But to me, sales effort is just the tactical side with the customers. Marketing is the strategic side to outside world. Now, for more of these simple, the marketing, the business department department, which I said was our strategic marketing. And from the technical,

from the R&D side that 28 was going to be sweet spot. I decided that, and I posted a Shakespeare in my autobiography, that there's a tide in the affairs of man, which taken at his foot, leads on to fortune. I decided that this was 28 nanometer, was going to be our tide. Our next tide anyway, there will be others. Seven nanometers, it was another, was the next sweet spot that R&D people told me. And again, reminded myself of Shakespeare. Taking it the flood.

Taking it the flood. So, I mean, that took the time. I mean, setting the R&D at 8% of did not invite any opposition from the board. But suddenly, increasing capital spending, threefold, I think, did invite a lot of questions from the board. I'll practice in the board meetings, because back then, even now, most of the directors are from overseas.

US and England. And we would email the agenda to them two weeks before the board meeting. Then the night before the board meeting, I would invite the independent directors to dinner. And that dinner, the conversation at the dinner was not on record. So, the independent directors actually, more three quarters of directors were independent directors. Anyway, so in the night

before the evening, before the meeting, they had the opportunity to ask me questions if they had any. But on this matter of vastly increased capital spending, they didn't even wait until they get to that dinner. Because this was effectively betting a huge amount of the company's cash on this note of this process, this generation. Yeah. And so they called the chief general counsel, the secretary to the board.

They called him at that time, it was an American, general counsel, was an American. And said, we want to talk to the chairman. We don't like this idea at all. But anyway, so I talked to them on the phone about a week or so before the board meeting. And all right, you know, this is something that of course I told them, what I have now, I just told you inputs from market forecast, inputs from our auntie, inputs from our business department, the new business department department. And of course, you know, they didn't believe it.

You really can't convince anybody on something else. So at the end, I had to say, well, look, I heard you, but I am still the guy that's responsible for the operation of the company. So you need to let me go ahead with this one. So they would satisfy with that. And what was the result? What happened around this era of 28 nanometer that created so much

demand? I think, you know, that was good. And that was the smartphone era. Yeah. I'm excited with 28 nanometer. Yeah. Yeah.

When the business development group was looking at this and you were looking at this, did you see how big smartphones were going to become and the immense opportunity that that would unlock for you? No, I didn't. Maybe the business environment, that was another interesting story. Yeah, maybe he knew, maybe he or at least I now hope. And I of course hoped at that time too, that he had a more detailed visibility than I did. But I mean, of course, this was not the only

was not the only input, you know, I had a few other advisors too. So that takes us to Apple. Could you share with us how you end up meeting Apple? Yeah. But before we do that, we offer how we made the CC actually, the business development director. The currency, the currency, the current chairman and CEO.

Yeah. When Rick was CEO between 2005 and 2009, he had split operations into two groups, advanced technology and mainstream technology. And CC was the head of the mainstream, actually, really, I should say the lesser one. Okay. Mark Lewis, the head of the advanced and each group had a small business development section, maybe 30 or 40 people each. All right.

So I came back to be the CEO and I never thought the split up of two groups was a good idea anyway. In fact, back in 1996, the president, he was not a CEO, but he was a president. We didn't have the CEO title back in 1996, but the president who was an American. Dan Brooks? Yeah, right. He wanted a two-spirit. I think he got tired of running this company.

He was going to be here for only a year at first, but he ended up, he ended up spending six, seven years in Taiwan. Towards the end, he was getting real tired of running this thing. And he thought that he would do it like a TI, for instance. I mean, TI had a Germanium transition department, silicon transition department, individual circuit, bipolar individual circuit, MOS individual circuit, you know. It's the divisional org structure instead of a functional org structure.

But I really did not think that the Foundry business, TSMC, was suitable for the divisional structure. Because, you know, we have almost the same group of customers. How do you divide up the company if you want the so-called divisional structure? Well, you know, Dan Brooks was going to divide it by Fab. My goodness, you know, a customer moved from one Fab to the same customers, you know.

Not to mention TSMC has 21, 22 Fabs now. And somebody didn't have to. Back then he only, of course, he only had three or four Fabs, you know, back then. But he was not convinced. He kept arguing. And I said, look, why do we get the consultant?

McKinsey. McKinsey. Oh, I got McKinsey. Okay. So we got McKinsey in. And McKinsey after a month or two

months, actually, and a couple of million dollars, I guess, told us the same answer, you know, that functional is best. And then Dan Brooks said, well, tell me one company, one big company that's functionalized. And McKinsey immediately answered, well, Boeing, which is a good answer, you know. Yeah. Yeah.

Except it's not true. Boeing has commercial and government. Well, they probably have have commercial and government, but they don't have 707, 747, yeah, 757, you know, they don't have, they don't have, and if we divide up by Fab, it would be like dividing up 707 from 757, 737, you know, yeah. By the way, Dan Brooks attempt was in 1996. And well, by 2005, Rick Sine decided to try the same ground.

Well, and he did this time. You know, I didn't, I didn't stop him. My idea, my principle, I was the chairman and not the CEO was, well, sometimes you have to let the CEO make his own mistakes and learn from them, you know, of course, not if the whole company is going down the drain. You have to interfere then, but only then. Well, anyway, so that was the background.

Two groups when I came back to be the CEO, the events group and mainstream group. And each group had a small business development section 30 or 40 people. I think events has had more like a bigger group than the mainstream. All right. So I wanted to combine the two operation groups and also wanted a real marketing and I didn't call it marketing because I decided to use business development in English because it's a good translation in Chinese. All right. Now I've

decided to combine the two groups operation groups. Now back in 2009, when I decided to combine the two groups, I think the events group had something like 10,000 employees and the mainstream group had less but also 7,000 employees. And the mainstream group, just because we haven't explained this concept yet, is taking those older fabs that have the higher nanometer nodes and they're finding customers that don't necessarily need the leading edge to automotive parts or its CMOS sensors for cameras and finding customers to keep the utilization high on those older fabs from previous generations.

Yeah. Right. But also, you quite often the same customers use both mainstream and advanced like, hmm, take walk home. I'm passionate that they use the most advanced and or you're an apple, I think they use. Yeah. If you think about all the chips in an iPhone, you know, the A16 Pro

was built on the leading edge, but there are many, many other chips in there. Yeah, right. So you combine to one business development organization, AD-ish people. Yeah. We had the Marc Liu in charge of the events and the CCOA in charge of the, the question is, who's going to be in charge of what? They combine. Or you need only one for the combined operations.

You need only one for the truth is that we had a lot of operational talents, you know, operations, manufacturing and taking the developed technology from R&D, you know, and converting it into mass production, where they love talents there. But business development or marketing there and neither Mark nor CC had any real previous experience in marketing business development. So that was my, my main worry. You know, we need, we need, we combine the two groups. We need a combined operations manager, but even more importantly, in my mind, we needed a combined market business development manager. So I first offered the marketing business development

job to the guy who was in the bigger job, advanced technology market. And I explained to him that I did not think he had had any significant marketing experience in the past. And this would, this new job, if he takes it, would give him the opportunity of being a professional in that area. But he declined it. He said, my goodness, I have 10,000 people reporting to me now. You want me to take

a job that has only 60, 70 people in it? That was the end of that conversation. And your goal was for him to become a well-rounded executive in hopes of leading the company after he sort of did that to her duty. And I explained to him that. Not to mention, it's a very important 60 or 70 people. They're responsible for finding all the next

business. I know, you know, actually back in my mind, I was thinking of the time when Kissinger was Nixon's national security advisor and somebody else whose name I have even forgotten was the secretary of state. And Kissinger, you know, probably had a couple hundred people reporting to him, who is the secretary of state, you know, had thousands of people all over the world reporting to him and who had more power, you know, Kissinger. Certainly not the name who you've forgotten. Before this period, you were doing the business development and marketing for the company, right?

You were the one finding the Nvidia's, the Jensen's, the Broadcom's, the next great customers in great markets for you. You were always on a plane meeting with the current top 15 customers and trying to find the next top 15. Except for those four years when I was not a CEO. Yeah. But you were right. I was on the plane most of the time, but it was in customers.

That was my pleasure. Yeah. I really like it. Well, anyway, so I then, of course, offered the business development job to C.C. And he accepted the route. I mean, I thought he accepted it.

Even delightfully, you know. Yeah. So he's now the chairman and CEO of TSMC. So this had just happened and you came home from a board meeting we understand one evening. That's right. The board meeting had ended and it was six o'clock or later and I went home.

This was Taipei. We had our board meetings back at that time in fact here. You have a, you've seen my conference from hand across the hall. Yeah, yeah. Right. Yeah. We had all our board meetings in Taipei in that conference.

Anyway, it was a six-study also. When I got home and I think my wife knew that I would not be home until around six-study. Because as soon as I actually met me at the door, which was very often, you know. But this time she had something to tell me. That's why she met me at the door.

She said, uh, Terry Gao calling the afternoon and said he was coming to dinner. And who is Terry Gao for listeners? Terry Gao is a relative. It's actually a second cousin of Sophie's, Sophie's my wife. And they share the same grandparents. That's what makes them second cousins. I think.

And for our western listeners who this won't be obvious to Terry Gao is the founder and CEO of Foxconn. Right. Terry Gao is a second cousin of Sophie's and he's also, he was also at that time, a chairman of Han Hai, which is Foxconn to America. The name slipped my mind for a second. Yeah, which is a very important supplier to Apple.

And a pretty big company. In fact, Terry Gao is reputed to be one of the richest men in Taiwan. And she said, Sophie is lovely. But she doesn't know too much of my business. I don't think she understood the significance of Terry Gao coming to dinner, bringing a vice president from Apple. I don't think she quite understood quite very, she wasn't very interested

either in the significance of that. And you had been trying for months strategizing with the business development team. How do we go when Apple's business, the smart, the iPhone seems to be working? Yeah, I mean, I was strategizing. It's probably too strongly worth. I mean, just thinking.

Thinking I was also knowing that we just can't do anything about it. Apple is a very close mouse company. If you've got to talk with, if you offer your service, they will just tell you to go away. They will come to see you when they are ready. That's what I knew about Apple. Even then,

and I knew I know the same thing now. All right, so it will cost. Now Sophie didn't know that I would not be home until after six o'clock. So she had told Terry that and Terry had set the time of arrival of their arrival at it. So eight o'clock was a bit late for my dinner, but I said what the heck were waiting on? So they showed up. I didn't ask her. Sophie just said a vice president.

And I just thought to myself, it wouldn't be just an ordinary vice president. Yeah, so because there was no reason for Terry to just bring any Apple vice president to my home. It must be something special. It must be someone special for TSMC. All right, so Jeff Williams came.

He was not just a vice president. He was chief operating officer of Apple. And Jeff was a pretty forward person. He didn't spend much time in ordinary chit chats. There wasn't the same pizza and salad period before. It wasn't formal either. My wife Sophie just added. We have a cook. We had a cook.

And pretty good cook. Sophie just told the cook to add a few dishes. She's a Chinese cook. She doesn't do any Western food. And Terry obviously, she grew up on Chinese food. And I would imagine that the Apple

guy that he brought would also like Chinese food. Anyway, so she just asked the cook to cook a few more dishes. But you know, it wasn't important. The food was not important. Either the quantity or the quality was not important because almost Jeff almost immediately started his pitch. You know,

almost as soon as he sat down to dinner. And what is the pitch from someone like Jeff Williams like? We would like you to boundary our waivers. Something like that. Pretty straightforward. I mean, so I was I listened. That night, I think Jeff talked

maybe 80% and I talked 20%. If you don't count the relative to relative talk between Sophie and Terry, you know, which was very which was not very much either. And Jeff had proposed economic terms at this first dinner, right? No, not nothing so concrete. Okay. You just say that we

will let you have 40% of all this money. And I think I didn't say anything. I didn't answer him. I didn't respond to that. But our margin at that time was already 45%. And I was trying to put it up

to 50%. It was a announced effort in the company to push the equals margin. And I had that effort for many years after I came back to meet the CEO. And I really didn't even did succeed even at my retirement. Now, of course, what happened later was that there was COVID and also we began to have leadership, technology leadership. So our margin, you know, jumped up to over 50%. But when

retired, I was still short of 50%. Slightly short of 50%. I was almost there. Why retired? In technology leadership, you're saying that around this time, the 28 nanometer node, you were talking about to a champ? Yes, you were still among a select few at the leading edge,

but there was fierce competition, whereas once you got to seven nanometers or so, that's what you really are. You're neglecting. I think when you said that, you were neglecting Intel. At 28 nanometers, we were very definitely the leader among boundaries. Yeah. And maybe among

few other companies such as Texas, New England, but not Intel. And Apple was considering Intel. No, Apple was not actively considering Intel. That came later later. I'm quite sure we'll have time to cover that. We'll take us there now. So after November of 2010,

you had the initial conversation with Jeff Williams. He said that he would let us 40%. And my thought was, my goodness, you know, we're already at 45%. But I also thought that he was trying to be generous when he said that he would let us at 40%. And I also thought to myself, well, now it's not this dinner. It's not the time to go into a pricing discussion. We have a lot of

other things to discuss. Anyway, so I said, no, we were about to go into production away. We were almost in production with 28 nanometers at that time. The initial stage, anyway, 28. So I said, I thought it was going to be 28. No, what node do you want? 20, he said. Now, that was a surprise to

me. And frankly, it was also a disappointment because the most law progression after 28 was going to be 16. Now, Apple, Jeff Williams, wanted a 20. A half step. A half step. A half step is a

detour, you know, we would have to, my thought at the dinner there was that we would have to spend effort on the 20. Which of course would help us on the natural next node, which was 16. But still, it was a detour from 28, you know, from 28, if we could go directly to R and D, we could go to 16. It would be less time than the first two, 20 and then, no, the point is that back then, R and D did not have enough resources to do two nodes at the same time. Later, we did. Later,

we did. So you have this conundrum where this is right after you had just spent $6 billion in CapEx the previous year going all in on 28 nanometers. You're asking Apple, which could be your biggest customer ever. This is for 28, right? And you hear back, no, we want you to go do something that you're not planning on spending any money on and have this huge distraction. And you're of course left

with this question. Is it worth it to land Apple? It wasn't that serious. It wasn't that serious. Because when we figured a very big market for 28 and therefore, when we planned to increase vastly our capital spending, we didn't have Apple in mind. We didn't include Apple. Apple

came strictly as a present surprise. Anyway, for the company in total, but not for 28, but we didn't include Apple in our 28 planning. But it's still the question of, are you willing to go do this huge distraction and spend on the order of $10 billion over the next few years doing 20 nanometer for Apple when you weren't planning on doing 20 nanometer at all? That's right. That is where our connection with Goldman Sachs came in. Remember, I planted a lot of

seeds when I ran TSMC. I knew that one of these days we'll probably need top-level investment bank advice. So we established a good relationship with Goldman Sachs very early in our existence. I was in fact an auditor of Goldman Sachs. Did you know that?

We did the ADR with Goldman Sachs, which opened up a good relationship with Goldman Sachs. It was your New York public listing of the stock? Yeah, ADI is American deposit receipts here. It's New York. It's a separate market. In fact, we're not the TSMC price. ADR price

has a 20% premium over real. However, you need TSMC board permission to convert your shares to ADR. Otherwise, you'd be able to arbitrage? Yeah, we don't want that. So, as I said, I was saying, the board has to approve any conversion of ordinary Taiwan TSMC stock to ADR.

And the board does not give such permission easily anyway. Okay. So you had planted this seed with Goldman Sachs when you knew you would need them? Right. This was very early in our history. Now, we need funds. I mean, this

Apple thing came after we had already decided to increase capital expanding. And now Apple requires even more capital expanding. And we have to figure out where the cash is going to come from. So, there were several possibilities, of course. We're paying a dividend, not a big dividend back then, but a modest dividend. We could cut that dividend.

And then we also could sell stock, you know, you'll start offering either in Taiwan or in the US. We have the ADRs, you know. Or we can borrow money, you know, copper bonds, you know. Or you could only fill part of Apple's order. Right. And in fact, we did that.

I, you know, we first did our financial printing. And we decided not to cut the dividend. We decided not to sell new stocks. We decided to just borrow. And this was also with transportation with Goldman Sachs. We chose borrowing. How much? I looked at numbers.

And just as you said, I decided to take half of what Apple said. What Apple said they needed. Is this common, by the way? It seems like it would be in a customer's interest to come to you and say, I need to buy zillions of chips from you. I need all your wafers because they have no skin in the game.

I know you're spending all the money. I know. I know. Well, back in the 90s, in the first, let's say 15 years, 10, 12, 15 years of our existence. We were short of capacity almost all the time. And what you just said happened all the time, you know. And so we figured out that we'll require

a deposit from the customer. And we'll even confiscate the deposit. If the time comes for him to take the wafers and he doesn't, you know, and everybody relies in the world confiscate. It was first used by me. Okay. I told the sales people in San Jose, I said, tell the customer

that they need, we need a deposit from them because, you know, just as you said, it's our money and it's only their words. You know, they may not want the wafers when the time comes. And I told the salesman, tell the customer they will confiscate the deposit and the salesman never heard anything like that before. And so they were, they were, you know, uproar in happiness, you know, I mean, now, you know, they could actually stand up and tell the customer that we might even confiscate your money. But of course, it really, we never confiscated any money. Now it did happen

quite often, particularly in 2000, 2000, we had, I think it was called Internet recession, I think. Yeah. Because in Internet, you know, people were starting companies called pets, not coming, you know. Yeah. Anyway, so we had the recession, you know, which trickled all the way back to semiconductors, TSMC's revenues, it was four years after the dot combo before they were back at the dot com.

That was great. Yeah. Yeah. Well, it was almost four years. Yeah. Two, I remember it recovered only

in two or three. Yeah. It started in 2000, no, starting 2001, the first quarter of 2001, and the recovered in the third quarter of 2003. So it was three years. Yeah, wow. Three years.

Oh, one, oh, two, the third, fourth quarter of three, three years. Anyway, the customer, quite a few customers had placed deposits to anticipate normal good times during those years. And we did build the plant. In fact, we bought, we purchased, or I should say, yeah, we bought a couple of other companies. And so their plants, their fabs became ours. And the customer didn't

need the wafers anymore. They need the outputs of those fabs anymore. And we didn't confiscate their deposit. But we let them delay, you know, demand. Yeah. Right. And eventually, every one of them,

they all use their use up their deposits. But that would come to know. And so then back to, at this point, early 2011 with Apple, you go to them and say, we are prepared to serve half the number that you told us. First, of course, the new, or rather, the new business development director, C.C., he had the purpose of first telling the lower level purchasing people at Apple. And he got, he got a response back. You must be crazy, you know. So C.C., they're not coming on that.

C.C. said, he didn't come in there. He brought it back to me. And then I went to Apple myself and talked to Jeff Williams. So I said to him, we have to issue corporate bonds.

I think I used to have prudent financial planning. We decided to take half of what you asked for. He was very quiet about it. He only made one suggestion. He said, well, I think you can eliminate your dividend. You know, your shareholders will understand that. I said, well, no, I don't think

you'll, well, the fact is I looked into them. I mean, that's also a reason for having high level consulting advice. About one third of our investors shareholders are very seriously interested in the dividends. So if we do what the Jeff Williams said, I was talking to Jeff Williams. Trigger a sell off. Right. Anyway, but when I talked to Jeff Williams,

I went to see him in what's the place? Coopatino. Yeah, Coopatino. He was talking fairly willingly. No big problem. The only suggestion that he made was the elimination of dividend.

You know, I said, no, and he didn't let it just lie that there, you know, okay. But then then the issue was settled. I mean, how much demand do we take and how we will get? We still have to borrow billions of dollars, even with the half of a demand. All right, listeners, now is a great time to thank our longtime friend of the show, ServiceNow. If you are running a large enterprise, AI agents are likely spread across

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make it work safely, securely at scale, go check out ServiceNow.com slash acquired and tell them that Ben and David sent you. So this really was especially after the investment in 28 nanometers that depleted your reserves. This is a bet the company moved. You're taking on a bunch of debt to go build the fabs to make this happen. But yeah, I know, I don't know about the company, but I didn't think I will lose, you know. You sound like Jensen? We sound like Jensen. Exactly what Jensen said.

And so, all right, but I think that the financial discussion with Apple had already happened when Apple, when Jeff Williams called me in February of 2012, we're talking about two 11 now. And he said, it was a very short conversation. We said, we need to pause our discussions for two months, because the highest level of Intel has approached Tim Cook and has asked Tim Cook to consider Intel. And at this time, Intel was the major supplier for

all Macs. Apple's Mac line was all Intel. Yeah, yeah, yeah, that wasn't an issue, of course. I mean, in February of 2011, Jeff Williams was talking about the iPhone, yeah. But they had a close existing relationship. Yeah, I don't know what relationships they really have, you know, well, anyway, it must be

close, you know. So that was all he said. And I wasn't all that worried, because in 2011, Intel was no longer a name that you would, when you're here, it would stand up and bow. Interesting. I mean, you know, in the 90s, in the late, in the late, 20th century, I mean, they were a name in semiconductors, when you're here, of course, I'm exaggerating the concentration. More is live. It's their intel. Yeah, intel. If you hear the name, if you hear

that day in competition with you, you know, my goodness, you'll be charming with fear, you know. I mean, this is why you started TSMC as a pure play foundry business, because you didn't want to compete head to head. You said we should not be an integrated design manufacturer of the design of the chips and the manufacturing we have to compete on a different vector, because we'll never catch Intel. I didn't play so either. We never catch it.

Yeah. So we're in our in 2025. Okay. Yeah. Anyway, so, so I, of course, had to accept Jeff Williams request. All right. But again, you know, as I just told you, I wasn't all that worried, because

my way, by building my mind or the characteristics that Apple is looking for in a supplier, you know, technology. At that time, we thought we were almost apart within two almost. In fact, I thought we were, I think I thought we were apart within two manufacturing. I thought we were better than Intel. And customer trust, we thought that our customers trust us more than Intel's customers, just Intel. So I will do it. But then indeed, and I also thought that when when Jeff Williams

told me the highest level of Intel, I thought he was talking about somebody like Andy Goveen, who was retired, of course, but you know, but it turned out that he was only talking about the CEO of Intel. Yeah. But I knew that only later. Would that have been Bob Swan or Paula Leany? No, it was the Italian guy. Oh, to lean. Oh, to me. Yeah. So today, Intel doesn't make the

chips in the iPhone. What happened? And in fact, TSMC makes all of Apple's tips. Yeah. All right.

I wasn't too worried, but you know, I still was in my mind. So a month passed, I think was about the middle of February when Jeff called to tell me to pause for two months. So almost exactly a month later, March, middle of March, sometime, I decided I would pay them a visit and ask them what's going on, you know, any progress. So I emailed Jeff and the appointment as I was coming to this Silicon Valley anyway, which was pretty normal. And I will stop in at your place on such and such a day.

It's okay. And Jeff replied by saying that, yeah, come here, but I won't be here. I have asked Jim Cook to see you. I mean, this freedom, Jeff's freedom of delegating his boss to see a visitor, it was a privilege that I seldom had in my career. Yeah, normally someone says someone on my team will see you, not my boss will see you. I know, I know it was usually that way. It was usually the

other way. But in this case, it was Jeff S. Well, anyway, so I showed up and the team was very nice to me and took me to lunch to the cafeteria, I guess, where there was a lot of food, we each picked our food and carried our tray back to his office. And anyway, he told me there's nothing to worry about, because Intel just does not know how to be a function. That's very short, but a very satisfactory answer to me. Yeah. What is your interpretation of the meaning behind that statement?

I was explaining to you, and then we had on technology or manufacturing. Subconsciously, I think I interpreted Jeff's explanation to me to be the third one, customer trust, I mean, they were always superior, Intel. Before this Apple thing, Apple and we, before Apple became our customer, I knew a lot of Intel's customers in Taiwan, all the PC makers are Intel's customers. None of them liked Intel. No, no, Intel always acted like they were the only guy, they were the only guy, you know, for the microprocessors.

Yeah. And that's for their microprocessor business. But here we're talking about the Foundry business where TSMC at their extreme core does not compete with customers. And even if Intel is trying to do business in good faith, they do have the conflict where they also design ships, which is competing with Apple's chip designers or Nvidia's chip designers or any other. I really don't think Tim meant that. I think Tim meant that the customer asked a lot of things.

We have learned to respond to every request. Some of them were crazy, some of them were irrational. We had to respond to each request, courtesy, which we do, you know, Intel has never done that. I mean, I said I knew a lot of customers of our Intel's here in Taiwan. And none of them be all wished that there were another supplier. None of them either trusted Intel or liked Intel.

So to finish the Apple story, the short answer is it worked on 20 nanometer. Were there any trade-offs where did pursuing 20 nanometer and spending the billions of dollars cost to TSMC in any way? Well, it might have cost, but yeah, it's a story that's only the land here. All right, so I mean, it was pricing, you know, everything was not easy. Pricing and Jeff came himself and we talked about pricing and we, of course, we had done our homework also on the cost and what kind of price we were accepting. But Jeff came and he told us

just a number, you know, well, he gave us his reasoning. He had to make his component costs meet the certain goal also. Anyway, that was settled and that Jeff said, ah, and when the pricing was settled, I said, let's go out to dinner and go to a Taipei free-star restaurant for dinner. And Jeff jokingly said, ah, if you didn't like the pricing, we will probably be going to McDonald's. Which was never in my mind, but he said that.

Could you tell us a little more about what goes into considerations around pricing? I imagine things like the yields you think you'll be able to get hugely impacts that. Sure, the cost, yeah. But the main thing that goes into pricing, of course, is the cost. And then the second thing is, of course, whether your desired price will be accepted by the customer, you know. One thing that has occurred to me is TSMC now gets mid 50% gross margins,

called 5557 higher than your time. But many of your customers have 70 80% gross margins. Yeah. TSMC is creating a lot of value. The designer is creating a lot of value. How do you sort of

sort out who gets to capture the value? Well, I don't get the privilege of sorting it out now. CCC has the pressure and the duty of sorting that out. Yeah. Well, I mean, as a general principle, you try to find a kind of a middle ground, which is different for every CEO.

Even though every CEO who wants to protect his reputation, every CEO says, ah, I worry about the long range. But in truth, not everyone does. So it's a very personal, how to sort these things out. I think it's a very personal issue. For a lot of CEOs, there's really no choice. You have to, as a supplier, you will have to accept a certain price.

If it's a commodity, particularly, we have nothing to do with Apple yet. Please. Let's finish Apple. Yeah. Now, I think you were asking whether there was any trade offs. Trade offs. Well, the trade off, there was a pretty significant serious trade off.

And that was a detour that I said, you know, we talked at that time, back in the 2011, 2012 time, we, our auntie was not strong enough to do two notes at the same time. Now we are. But back then we went. So the trade off of accepting the 20 node technology was that we delayed our 16 node development. And then Samsung came up with the 16th. They lost the 20 business,

you know, so they, they were ahead of us in the 16 nanometer development. Because they got to skip 20. Yeah, because they didn't get the 20. Okay, they need to develop 20. So I got a shot. I mean, it was a real shot. When I heard that Apple had placed

their first orders of 16 with Samsung. Now that was a real shot. We invested so much, even though we took only half of their original demand, it was still tens of billions of dollars, I think. And we were counting on it being at least 80, 90% of the equipment being converted to 16. And now if Apple went to Samsung for the 16, where did that leave us? Do you understand what I'm

saying? Oh, yes, it sounds horrible. So I would feel like I got tricked. Well, I wouldn't say that. Okay, but I was, I was, I was, I was really shocked. That was, so I emailed Jeff Williams,

right away. And I said, you know, we invested in all these equipment and we were counting on you to take the 16 from us. But now, you know, we, we found out you were buying 16 at the first 16, anyway, from so on. Jeff replied immediately. Don't worry. I'll be here. I'll be there. I'll be

seen June next week and explained to you. So that made me that relieved me a little, but certainly not completely. But next week, he did show up and he explained to us, he said, well, as soon as you're, as soon as you're ready, will you succeed? Bye from you, bye all the needs from you. Well, you're ready. Now, of course, that completely relieves me, because that's what we're supposed to

do anyway, you know. So indeed, what he said was true. Now we, we developed, we had our own 16 about half a year later. And most of Apple's 16 nanometer requirements still belong to us. Yeah. Most, you know. I can imagine the shock that you must have had. At the same time,

this also again just illustrates the brilliance of TSMC and the pure play foundry business model. Samsung is Apple's chief competitor. Yeah. I know, I know it was, I said in the all about, you know, sitting in central being in the foundry business, I actually see a lot of things before they actually happen. So let me tell you the IBM Qualcomm.

Yeah, please. Now, Qualcomm, we consider the Qualcomm to be a prime candidate to be our customer. We really want to call because we knew a technology house. What year was this? This was way back, you know, when we started in the 90s anyway, yeah.

And they were part of that initial wave of fabulous companies. Yes. They started the, oh, when Jacob started the Qualcomm, actually before I started the TSMC, TSMC started in 87, Qualcomm, I think was a few years before that. Yeah. So we are in the 90s, early 90s, all the way up to 97, maybe 96, 97, all the way up to the latter part of the 90s. We wanted Qualcomm to be a customer. And, you know, I saw their operations VP,

that's what we call, that's what our customers call their purchasing people, operations VP, operations, senior VP. And I saw him often, and he was always pretty polite, but he was very little business. And I also knew that his, found me his main family was IBM. Now, sometime in the later 90s, I forgot whether it was only 7 or 98. Suddenly, he started, he first, he started to tell me that he would use us now.

He didn't even tell me who our competitor was, who our competitor happened, but I, I kind of knew that it was IBM from other sources of intelligence. And our business with Qualcomm, the business that Qualcomm gave us pretty rapidly increased after that, after 97, 98 years. So, I immediately knew that IBM semiconductor was in trouble. Because I mean, they had their own fabs and so on. But their main business was really supplying to Qualcomm. And if you other,

very small companies, very small fabulous companies. So, I immediately knew IBM was in trouble because they were losing Qualcomm. All right. So, the next step that IBM took was not a surprise to me. The next step they took was to ask us TSMC to co-develop the next generation of technology, which is 513 micron, 113 nanometer in 1999. And since I anticipated that,

it was no problem at all for us to refuse to. And in fact, even if I didn't anticipate that, we will never, never have accepted that kind of co-develop. I mean, IBM was still, you know, they still consider themselves to be the senior partner in any partnership, they established the senior partner. So, we were, they accompanied that co-develop something with them, was sent its engineers to IBM. And when we do that, we lose our ability to, to develop our own process.

We'll have to depend on this co-development thing. And the co-development thing is going to have a lot of difficulties, you know, and heck, you know, our people, you know, we're being a different culture. So, we declined without having to think about it at all. We declined to the IBM. And IBM, in fact, was quite angry, you know, I mean, they thought, we were still a small Taiwan backward place, you know, Taiwan company, and they own big IBM. So, they immediately went to

UMC and UMC accepted only to regret seriously their acceptance a few years later. And UMC, at that point in time, was it fair to call it a peer of TSMC here in Taiwan in terms of volume and size? Not by 1999. They were already smaller. Smaller. They were smaller already.

That was what I meant when I said that, saying here, I can see something like this IBM thing. This might be a good time to go back to the learning curve. Speaking about the importance of owning your own technology and process at the leading edge and controlling your own destiny, you develop the learning curve. I really did not develop. I certainly did not initiate it. I think

I had a role, a TI, I had a role in refining it to the point where a semiconductor company can use it effectively. That's my role. So, how would you explain it to an artist? Well, explaining the learning curve theory is simple. But one would be foolish if one just takes the simple explanation, you know, and thinks that's all I did. So, the simple explanation of learning

curve is that as you make more of one thing, anything actually starts with refrigerators and the cars, if a company makes more cars, then it costs per car, unit cost, it goes down. That's why it's also called experience curve. You can more experience, you become more efficient. That's a simple explanation. But if one just takes that simple explanation and thinks that's all it is about, then you know, then you really haven't learned anything at all. Anyway, the learning curve. Well, Bruce Henderson,

who is now considered the father of strategies founded Boston Consulting Group. He was the founder of Boston Consulting Group. And now, I mean, there's a branch in business economics that's called competitive strategy or something, competitive strategy, I guess. And Michael Porter was at one time considered a big figure in this competitive strategy. I mean, he wrote three or four books, you know, big books, you know, 700 pages, you know, I have all the his original competitive strategy memo. I think it's like 20 pages is still some of the best business

writing ever, just Michael Porter. Oh, well, it was a director of TST at one point, right? Yeah, yeah, I had a story about him in my autobiography, too, which because of time we probably won't go into not Michael Porter. But Bruce Henderson, we will talk about him. He is now considered to be the father of the competitive strategy. He came to Texas Instruments one day in, I think, around 1970.

I should say he first called the TICO Mark Shepard and told him that Boston Consulting Group, he had founded the Boston Consulting Consulting Group. And we have a concept called B. C.G. has a experience curve theory that would benefit semiconductor industry. And T.I. was the largest company in the

semiconductor industry then, and would Mark Shepard like a presentation of this theory. Mark Shepard said, yes. So, Bruce Henderson brought Bill Baine. You probably know that name. With him and came to Dallas and made a presentation. Mark Shepard invited the C.O. and me to attend

the presentation. And it was a very eloquent presentation because, you know, Bruce Henderson was a very eloquent man. And Bill Baine was on the side, apparently, Bruce Henderson's purchasing. Anyway, Mark Shepard was impressed. And he decided that T.I. worked with B.C.G. on this learning curve theory. And

Bruce Henderson then assigned Bill Baine to work most of the time at T.I. You know, most of my, like three days a week. And Mark Shepard assigned me as T.I. guy. So, Bill Baine and I became partners.

And I assigned Bill Baine. A small office, very close to my office at T.I. in the same building. And a small office because he needed a lot of things for me. He needed permission to get our costs, our prices. We had a lot of families, integrated circuits and transistors. I mean, he had a lot

of requests. So it was easier if he was nearby. And every time when he arrived at some interesting, useful conclusions, he was also discussing with me. So we had a very present association for, I would think, two years, maybe even more. And he would, you know, fly to Dallas every Monday and go back to Boston either Wednesday night or Thursday night. And of course, every time he

went back to Boston, it would be to tell Bruce Henderson what he had done that week. So this happened, this went on for, I think, two years. And then finally, Bill Baine came to see me one day. And it was in those two years that I absorbed a lot of learning curve stuff, which I used up to now. I found it highly, highly fruitful. Just as a thinking tool.

Yeah. Yeah. It seems so fundamental to the industry that you want to get through the low volume period as fast as you can. And ideally, you spend no time in the low volume period. And it seems like over time, all the returns in the industry, the winner is the one with all the volume because they'll just have the lowest prices and there's a flywheel. Or once you have the lowest prices, you get all the

business, then you can reinvest that in the next node. It's almost, I couldn't have told you that TSMC was going to be the winner, but once you internalize the learning curve and globalization, you can sort of into it. Then in the future, there will be one winner in semiconductor manufacturing. But one day after a couple of years, Bill Baine came to me in Dallas, said, you are the first one I tell this to outside the Boston consulting group. I am leaving Boston consulting group to start my own consulting company. So I said, why? I said, you know,

opposite Bruce Henderson, things very highly of you. And Bill Baine said, yes. But there is the world's imperative. That's the first time I heard that term, you know, world's imperative. He meant for him personally. Yeah. Well, him personally. Well, anyway, that was that.

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whether you're at a firm or in-house, go to Lagora.com slash acquired and be sure to tell them that Ben and David sent you. As our time comes toward a close, one question David and I wanted to ask you is, TSMC is essentially the only trillion dollar company in the world not on the west coast of the United States. It is this incredibly important thing in the world. It's this unlikely success of grand scale. Unlike in your opinion. I mean, you started it when you were 56.

There are many things. I'm not going to argue with you. I merely asked as a point of curiosity. I didn't realize. I didn't think it was that unlikely. It did exceed my expectations. TSMC's

size and importance exceed my expectations, but not by an order of magnitude. But wasn't the original plan to stop building after Fab2? Yeah, that was only the very initial plan. We were never going to stop there. We were just talking about learning code. You know that. How can we plan to,

if I didn't know anything about learning code, I would say, yeah, maybe we'll stop after perhaps it's not. But I was a serious student of learning code and I would never stop at just two perhaps. Here's why I say unlikely success. There were so many reasons why the original incarnation of TSMC was kind of a bad business. Fabulous was not a thing yet. And so all of your

initial customers were the integrated device manufacturers, the Intel's of the world, and you were taking their worst, you know, excess, you were their second source supplier for manufacturing on the stuff that they didn't want to make on their own. Did you see Fabulous coming or was that a very lucky thing? No, I saw it coming. And the, in fact, I just said dinner or two months ago. I did not with the first guy, Gordon Campbell, Gordon Campbell.

Hmm. Do you have any heard of this thing? Anyway, Gordon Campbell came to see me in general instrument in my final months as general instruments. He came to see me. He did not know that I was leaving.

Well, I did not know when I saw him that I was leaving yet. But the reason he came to see me at general instrument was that he wanted the funding. He wanted investment from general instrument. Fifty million dollars, he said, he wanted to start a new company. Fifty million dollars.

So I said, do you have a business plan? No, it's all in my head. So I said, well, I need a lease a business plan. I mean, I have to go to the board of general instruments. So he said, all right, I'll send it to you, we're going through weeks. Three weeks later, there was no business plan.

And I was interested because I knew that he had a good reputation of starting companies. So I caught him and he said, I'm sorry, I didn't send you anything because I don't need you anymore. I said, how come? He said, I don't need 50 million dollars more anymore. I need only 5 million dollars and 5 million dollars I can gather up for easily. I said, why do you need only 5 million dollars?

He said, I'm not going to build a FAP. See, that was the start for me that there will be fabulous companies. Another guy came to general instrument and said he had already started a company which was called AppMEL, A-T-M-E-L. And they did not have any FAPs. And this guy wanted the general instrument to make it wait for them. And back then, general instrument had empty FAPs. So I said,

I told the semiconductor manager of general instruments, I said, go ahead and work with him. Don Valentine, who I'm sure you knew. I knew him. 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. Well, at least I had a counsel that, you know. So AppMEL, and they were still fighting. I mean, AppMEL, he wanted the FAP to be run his way. Now, of course, the general instrument semiconductor manager wanted to run the FAP his way. I mean, general instrument

owned the FAP anyway, if I haven't taken that. So that was just a very early situation in which the difficulty and the advantage of running a founded business already appeared. The difficulty was, you know, you have to satisfy a lot of customers, you know, and everyone, you know, wanted the FAP to be run his way, you know. But you can only run FAP one way, you know, which will satisfy more or less all the customers. And the advantage, of course, is you have a lot of customers, you know.

Well, we can't thank you enough, Dr. Chang. Dr. Chang, thank you. All right, very good.

It's my pleasure. Even though it's the first time in a long, long time I have taught so long. We appreciate it. Thank you for doing it with us. All right, listeners. Well, David and I are

coming at you now from our home studios back in Seattle and San Francisco. And we wanted to do a little post game on that interview, a little bit of analysis, kind of our conclusions, the things that are still sitting with us a few days later after we've crossed the ocean. And David, this felt essential to me because it felt like we were just recording history there with Morris. I didn't want to interrupt him to try to 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. Yeah, totally. And fortunately, we have a model for

doing analysis at the end of story. Oh, please, our playbooks. So let's do it. Okay. So the first thing that I can't shake that just keeps sitting with me is this idea that is genius in hindsight of not competing with your customers being the dedicated pure play foundry, which we actually saw in the TSMC Museum of Innovation. They have more as his original pitch, like his original slide down.

It's original business plan that he picks to the time of these government. The government and then to investors, there's like two different versions of this extremely simple pitch deck. And one of the bullet points is right in there of BA dedicated pure play foundry. At the time, I get the sense it was actually much more about what can we win at versus what will be the most important and valuable semiconductor company in the world in the future. 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. So it was impossible for them to compete with customers. This was all they could do. 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. And it's almost like an accident of history. The pure play foundry ended up being the best way to do this. I guess best as evaluated on market cat versus other foundries and integrated device manufacturers such as Intel. Well, and best that this is the path that has led them to

being essentially alone operating at the leading edge. They have surpassed technology wise, all of the other integrated and quasi integrated chip foundries out there. Yeah. I guess that's my first thing is that you can connect the dots looking backwards, as Steve Jobs said, and that famous quote, but forwards is difficult. This primarily, I think, was the main reason why TSMC has worked so well.

But they don't compete with customers. 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. It is truly they only serve their customers and they do not compete at any other part of the value chain with them. Right. Okay. 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 the Kain's or synopsis. So they're not Nvidia, they're not Arm, they're not Kain's synopsis, they're not ASML, they're not their own equipment vendor. So what enabled this? 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, 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.

But the fact that there was an architecture, as we talked about on our ACQ2 episode with Renee, from Arm, this architecture that became dominant in phones and then computers and then servers and now is coupled with all these AI chips, you open the door to have a dedicated foundry for Arm chips in a way where if it's state x86, it's not like you could start a new foundry for all the fabulous x86 companies, for the longest time Intel was the only x86 company and then AMD of course is the second source, so AMD is a TSMC customer, so that's sort of the one edge case, 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, it would have been fully integrated Intel. Yeah, I mean, one super straightforward and enormous example of this just is Apple, like if Arm hadn't become such a viable CPU architecture platform and Apple hadn't standardized their Apple Silicon on Arm, probably Intel would be making all of the chips that go into your iPhone, all the leading chips that go into your iPhone, like they already had the Intel relationship,

Max were running on x86 Intel chips. Yeah, you have to keep feeling the onion because this of course supposes that the Intel actually could have gotten their act together and made a chip for mobile phones that was performant, but maybe all the baggage from x86 actually prevented them from structurally doing that. It wasn't like a competency thing, it never could have happened that x86 could run on phones. Yeah, I think all this is true. But if Arm hadn't existed, like there would have been nowhere else for this vector of innovation to go. Right, the point that we're driving out here

is this world where there's a standalone architecture company, there's a standalone big manufacturing company, there are standalone EDA companies, there are standalone designers, you know, Apple and Vidya. In a large part, that's due to Arm. 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? Yes, totally. The mid to late 80s were like

an absolute golden period for all these companies getting started, not only TSMC, Arm, Synopsys, Cadence and ASML all founded right within a couple years of each other, which brings us to Hinchu Science Park, going there in person. 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. 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 in a physical way. The entire ecosystem, it's like Silicon Valley, we're all in one, you know, kind of government sponsored industrial park, which it sort of was at Silicon Valley as we talked about in our Lockheed Martin episode. Oh, that early Lockheed? Yeah. Yeah, they're 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. You know, we're driving by and this is a Cadence

building there and that's an synopsis building there and that's an arm building there. There's Qualcomm. There's MediaTac right there headquartered right there right across the street. The craziest thing to me, we saw there are two universities that are just like there in the science park. 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. The thing that really jumped out to me is you always hear people talk about how integrated this ecosystem is with each other, that you know, synopsis has to be closely tied with TSMC to understand what the next node will look like so that they can make it easy for people who are using synopsis's tools to design ships to, you know, actually manufacture using TSMC's process. 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. Not to mention David, both of our flight experiences kind of felt like, oh, there's a bunch of chip design fabulous companies that are making the pilgrimage over to Taiwan to meet with people in this ecosystem.

My plane felt like the semiconductor version of the tech buses that go from San Francisco down to Silicon Valley every day. The backpacks that I saw on the plane, like there's a Google backpacks, there's an Amazon backpacks, there's an Armbackpack, there's a Marvell backpack. Yeah, which does raise the point of this Arizona fab and the sort of outside of Taiwan fabs. You know, why is TSMC doing it? Because it's not their leading edge, it's not big volumes, it's not leveraging this really close geographic ecosystem that they have in, I believe there's three science parks in Taiwan. We saw the original, but there's one that's even bigger, I think it's the

Tynon one in the south, but it just kind of becomes clear that it's, there are customers and government reasons to build fabs in other countries, but you're not going to be able to recreate the magic of that ecosystem, like physically instantiated right there. Yeah, it would take decades to recreate the ecosystem that they have in the science parks, which is, you know, funny on that front, you and I were saying, as we were driving around there, this has got to be the single most successful government funded industry initiative of all time, like anywhere in the world, at least to spur innovation with this particular of a mandate, totally the land grant university is here at America, but like this was like a, like a rifle shot, like, you know, we are going to spur semiconductor industry innovation in this industrial park in this location, and it worked, and there you have one of the 10 most valuable companies in the world and the only, I guess one of two trillion dollar companies there not in the west coast of the United States, I would say it worked.

Yeah, it worked, it worked. And the scale too, we drove by a construction site where it looked like a quarter of the building was done, this is where they're making the two nanometer process, which presumably will be in the next iPhone, I'm sorry, anyone said anything about that, but geez, I wonder after five nanometer and then three, and three E and N3P when they have this two nanometer process, I wonder what they're going to make on that. Lots of N3P GPUs and lots of iPhone chips. Massive building, phase one was open, which I think is a quarter of the building, but then there's three other phases for this two nanometer facility that are not even ready for prime time. Yeah, 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. Like you said, the scale of the physical

buildings of these fabs smacked me in the face. I felt like I was looking at Sphinx in Egypt. I mean, it's huge. It's like many football fields of size, like, you know, just per phase of the fab. These are enormous buildings. Yep. Okay, so back to things I've been noodling on since the

conversation with Dr. Chang. I felt a little bit bad for saying, hey, your original business plan was kind of a bad one that basically taking the excess capacity from Intel and other IDMs and giving them a place to manufacture their least critical, least leading edge, least interesting chips. But that is true. I mean, he believed that Fabless was going to be a thing, but for the first, I don't know, at least five years, the only real business that they had was IDMs who were willing to say, how cheap can you give me some of your manufacturing capacity? And it's not strategic at

all. But here you go. Here's some revenue. This is a major difference in Intel's fab strategy versus TSMC. Intel is constantly taking their existing fab footprint and repurposing it and upgrading it for the leading edge, which, you know, on one hand is great at utilizing their assets, you know, for the most valuable, highest valuable products. On the other hand, though,

they then lose the manufacturing capabilities for older process, no generations. And it's not like demand goes away for those chips and those products. It does. It just does slowly. It does slowly. Yeah.

I mean, like replacement parts is a great example. Like, you know, there are technology systems and products and 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. So this is the business that TSMC started in. Right. So that is the fundamental philosophical difference is I think fab, so fab one belonged to it tree, the government where Morris was president of that organization before taking the helmet TSMC. Fab's two and three 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. If you're in this world of, you know, 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, CMOS sensors are great examples of that. The cameras that we're talking into right now that have these great Sony sensors, those don't require a two nanometer process, but they do require etching the same way that you would edge a chip. And so that's a specialty use case of TSMC's older fabs, which by the way, on an accounting basis are fully depreciated.

So they're almost like free to run. Right. Right. All the capital expenditure. Now, there's maintenance. CapEx that you go into and of course, but like the initial CapEx,

yes, fully depreciated. You're just getting like essentially very, very high margin dollars out of those old fabs. Right. 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 Intel is going to keep closing the old stuff so they can own a smaller footprint and keep all the equipment and everything focused on making the latest and greatest just not what TSMC does. Totally. Totally.

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

Right. To be there when the fabulous revolution happened. And I don't know, you know, I think he was within 12 months of when he thought it would happen, but it is crazy that when especially in his memoir, you're reading the story about the early customers, year five, year six, year seven, the majority of the business is still not fabulous. It's someone else's you know, worse orders, which that actually gets to the heart of learning curve pricing that we spoke about with Morris. We brought it up sort of like tangentially with him, but it's probably worth dwelling on what is the learning curve? Yeah, the core insight of learning curve from

BCG, Bill Bain and Bain and Morris that they all developed together, which by the way, how crazy is it that 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? Totally. The insight is that like, the goal that you are playing for is to be the largest volume player kind of at the end of the game. 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, 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? 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. Like you can even start unprofitable with your prices in the early days in a given no generation because the goal is to create out of the competition, become the industry dominant number one player, get all the customers once you aggregate that demand, then you get the scale and then you can get the economies of scale pricing, but just like get to that as fast as possible as the name of the game. Yeah, it works backwards from it actually involves a lot of market sizing. At maturity on this node, what do we think demand will be for, you know, call it 40 nanometer, how many orders of individual chips will there be in 40 nanometer? Okay, well, to have the

cheapest price for customers, we need to do the biggest ordering. And so then it's just a matter of like, how fast can we get into volume production? 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, when do you decide to take on debt? When do you not? When do you decide to take on more shareholders? It's this incredible orchestration to make it

happen. It's almost Costco like in the ballet that has to go into this. Right. I mean, the example from Apple, we are about to go get the absolute whale customer and we have to balance taking on all of their order, which the learning curve would tell you, you want to get the deepest down the learning curve possible, we should go take all their order. But 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? You got to be so precise and

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

Yep. Because if you're off by 5%, 10%, that's going to tank your entire profitability for that node generation, which is going to tank your free cash flow, which is going to mean you can't play the game in the next turn. To this point, though, if you actually are good at all of this, and you are good at forecasting and the execution is flawless, what's you internalized the learning curve? The story of TSMC goes from one where it's surprising and unlikely and it becomes an inevitability. Of course, the company that is taking on all the orders to have the lowest prices. Right. Of course,

this will be the end state of this industry is to have a dominant player. Like right now, it costs on the order of $20 billion to build a new fab. Eventually, it will cost $40 billion, $80 billion, $100 billion. How many players are really going to be left standing with the ability to deploy $100 billion to build a building with some machines in it? This market has natural monopoly characteristics.

Yep. And that's just the CapEx side of the equation, as we talked about with Dr. Chang. There's also the R&D side of the equation that needs to go into creating the next process node that can be built on that CapEx. Yeah, it is crazy that if you just look at every year the CapEx versus the net income of this company, they basically spend all the money, not all the money, but their CapEx grows in a very similar way if you look at the bar graph to their net income from the year. And so that is even before R&D,

David, to your point, if they're looking around at competitors at other foundries and saying, okay, how much can we invest? They can invest more than anyone else because they have the most volume. And then on top of that, they are also spending in a separate bucket of R&D on the technology for their manufacturing processes. And that's how you get co-hosts, which is the technology that they use for packaging for AI chips that's their proprietary thing, which by the way, once you have proprietary packaging, that it's even harder for customers to go and double-source, double-manufacture elsewhere. They have a similar technology for packaging of mobile chips that doesn't use co-hosts. But it seems like this is a market where those in the lead are only going

to get further in the lead over time, absent some big strategic mishaps or some big execution mistakes. Yep, totally. And then I think the last playbook thing here for me and for us is just that Moore's law is undefeated. I mean, at the end of the day, back from starting all the way back, Morris's career at TI, being a contemporary of Jack Kilby and Bob Noise, the invention of the integrated circuit. Once the integrated circuit was invented, the compounding growth of that industry is all that mattered. Everything else is just downstream of the fact that the world is going to

demand more computing at this monotonic, exponentially increasing pace every 18 to 24 months. And of course, the technical definition of Moore's law expired a long time ago. But spiritually, the world demands roughly 2x, the computing power that it had two years ago every two years. And that has continued for 50, 60 years at this point and shows no signs of slowing down. And as a result, well, no signs of slowing down except that they keep hitting theoretical physics limits.

Well, I said the demand side of the equation shows no signs of slowing down. Well, sure. But the demand side is far more than 2x. Moore's law has always been about how much can happen on the innovation side of getting better at designing manufacturing. And that is getting harder than ever because we're having to like call more things Moore's law. Packaging was never a part of

the original Moore's law and software improvements and proprietary interconnects. My point is that it's a self-reinforcing system as long as the demand is there that the world wants twice as much compute as it had yesterday. There are going to be market incentives to drive the supply side. And that is why people were so hard to make it happen. Alright, 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 they wrote a ridiculous tailwind. A ridiculous tailwind where as the industry reorganized away from the vertical integration of the Intel world, you could build a trillion dollar value foundry. The scale of the numbers are so staggering. I keep thinking about the fact that they can go spend $20 billion to build a building and the stuff that they spit out is so valuable that that $20 billion was a profitable investment in a matter of, I don't know how many years it's three, five, seven, whatever the payback period is, like they know for sure that it's a worthwhile investment to do that. The whole thing comes down to,

oh my God, silicon has become really valuable. Integrated circuits are the fabric of our world today. Well, then what an amazing experience. So glad we did this. Went to Taiwan, got to see this in person, got to spend the special time with Dr. Chang. What a great way to start the year.

Alright listeners, now is a great time to talk about one of our favorite companies, StatSig. Yes, there is a reason why the best product teams rely on StatSig, whether they are iterating on their core product features or shipping AI-powered experiences at scale. Yeah, in the crazy speed of today's AI world, shipping fast is just table stakes now. It's basically trivial to build and deploy your app constantly. The real advantage is how quickly you learn what changes actually created value for customers and how fast you can use that signal to guide what you ship next. This is where

StatSig comes in. It brings experimentation, feature flags and product analytics into one unified system, so teams can ship safely, test rigorously and directly link what they changed to how users actually behaved. So if you want to make learning your competitive advantage, whether you're building new AI experiences or just evolving your existing core product, go to statSig.com slash acquired to get started. Should we do car bouts? Car bouts. Alright, I have two. One is a,

kind of a hilarious, I can't believe it's 25 and this is my recommendation. For anyone who's not a AAA member, I highly recommend it. I had a spectacular AAA experience where I went to fill up the air in my tires before a road trip and 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. 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 to an I have a baby in the backseat and my wife and I are trying to figure out what to do. And we have to call it tow truck to tow us to. And so I signed up for AAA while I'm

just sitting there in the gas station parking lot. And within I think an hour and a half, they had a mobile tire inflator on a long weekend, like a holiday weekend when other people aren't working, drive out and fill up the air in my tires so we could be quickly on our way, not ruin the weekend. Amazing. And it was like a hundred bucks or something. It's really not a bad price and you get, this was 100 bucks we can remember, whatever, it's 150. And then the service is actually free for

something as trivial as this and you get three of them a year. So I'll take it. It was a phenomenal experience. All right. AAA, here we go. My second one is a YouTube channel called defunct land.

You and I were talking about this. Oh, yes. This is so good. You turned me on to this. Yeah, it is an entire YouTube channel that I actually don't watch in a while, but I only remembered it from our conversation. And now I need to go back and watch older ones that talks

about defunct theme parks. So if you like acquired and you wish you had something acquired like that's kind of visual that's about history and intellectual property and people trying crazy stuff, some of the most crazy entrepreneurs and executives within companies decided to build theme parks. And it is very fun to see the weird old Nickelodeon hotels or action park in, I think it's New Jersey, they're like wildly unsafe park from the 60s, 70s and 80s. Oh, man, those were the days. Yes.

You could get lost for hours and hours and hours watching defunct land. So I highly recommend the YouTube channel. I'm really glad that even I grew up as kids in the era where we could still take unreasonable amounts of risk and nobody thought that that was anything wrong with that. Yes. Oh, good. My car about speaking of, you know, being 2025, how are we talking about this?

On the plane, on the way over to Taipei, I finally watched everything everywhere all once for the first time. I can't believe I hadn't seen it before, but you know, two kids under three and a half, a lot of time for movies. It's okay. It's okay. I think this was your car about it when it came out a couple years ago. Just so so so good. Truly enjoyed it lived up to the hype, deserves every award

that it won. All right. 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 Synopsis had a great conversation with us. Well, first publicly with Sasing Dazi, the current CEO of Synopsis on an ACQ2 episode a little while back. And then we chatted to prep for this episode and basically asked the question,

well, what should we be asking Dr. Ching about? We got some similar notes from Renee Haz, who is the CEO of ARM, great conversation with Sir Peter Bondfield, a current TSMC board member and former CEO of British Telecom. David, I know you've got a few also. Also to Wally Rines, the former CEO of Mentor Graphics. Wally is a legend in the semiconductor industry, almost on par with Dr. Chang. They

were contemporaries at TI back in the day and to John Bathgate and Britain Johns from NCS Capital are go to folks on anything semiconductors. They were, I think they were more excited, even more excited than we were that we were doing. We got to talk about it. Yes. Also, Pastor Choir, yes. I think that episode holds up really well where we did

semiconductor and complexity theory with them. Totally. And actually, John is the one originally who explained to me how EV lasers work, which is still one of the most impressive accomplishments in human history, to John from the Asian-ometry YouTube channel. This is just an incredible channel all about semiconductors and about how all of this stuff works. I mean, I learned so much about CMOS sensors, about how they make the actual silicon wafers themselves. That's a sophisticated

process before the etching even starts. He's just got some awesome, awesome videos on the Asian ometry YouTube channel and very kindly bought David and I dinner and hung out with us the night before the interview, which was very fun to do in Taipei. Very fun. Also to Tim Colpin, a former Bloomberg journalist who now has a sub stack called Colpium. Also give us some great topics to chat about.

And lastly, as always, to Arvind Navaratnam at Worldly Partners. He did a great, great write-up on TSMC that he'll be posting publicly right before we post this episode. So you all can see it. It was great last minute prep for me after reading the memoir to get someone else's take on what makes this company so special and actually some of the stats that we threw out in our playbook came straight out of his write-up. So if you want a more and kind of a more analytical view of how to TSMC become TSMC, he's got a great study on that that we'll link to in the show notes. So if you

like this episode, go check out other semiconductor episodes. NVIDIA, we've got four of them at this point, one of them's interview with Jensen and then we've got a whole history of the company across three different episodes. We did a great live episode several years ago on Qualcomm, which I think is a sleeper pick. That's right. That's right. Total sleeper pick. Amazing story. Erwin Jacobs,

one of the greatest entrepreneurs in American history. Yes, and our diving into how CDMA works was one of the most fun technical explanations I've ever done on an acquired episode. 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. I don't know how you got this far without listening to that, but you should go listen to that. After this

episode, check out ACQ2. We've been talking about this episode with Synopsis. There's one with Renee Hollis from Arm Holdings that we did. It's our most recent episode. So it's spectacular and if you're interested in semis, go check that out. Come talk about this episode with us in the Slack,

acquired.fm slash Slack. And if you want to know when a future episode drops, you can find out sign up at acquired.fm slash email and you'll also get episode corrections and hints at what the next episode will be. So without listeners, we'll see you next time. We'll see you next time.