Dr. Morris Chang
Appearances
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TSMC Founder Morris Chang
That's right, yeah. And I actually have told the managers that. And well, in 2008, Of course, there was a financial crisis. And the semiconductor business, in fact, got affected. And our revenue dropped. Our business dropped pretty seriously. I was not a CEO. I was the chairman. But I just knew that anyone...
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TSMC Founder Morris Chang
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, you know, lay off people, you know.
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TSMC Founder Morris Chang
Well, I know, I know. Well, semiconductor industry. But semiconductor industry people actually think the same way as I described, you know what I mean? They all lay off. They all lay off people, too. I had a lot of experience at Texas Instruments Center. But at Texas Instruments, I was not a CEO. I was just one of the top managers under the CEO level.
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TSMC Founder Morris Chang
And when the company decided to have a layoff, the CEO conferred with the top managers, who included me. And their first reaction was exactly the same. And I'm talking about the company early 70s, their first reaction on who to lay off was exactly the same as what our TSM CCO did in late 2008, 2009, which was, you know, go by performance. Well, now I was the only one at Texas Instruments
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TSMC Founder Morris Chang
in the early 70s that said, no, that would not be a credible way of doing it. People would not respect us if we lay off by performance ratings. And why is that? Because it's very subjective. Performance reviews... The performance ratings are done by everyone's own supervisor. So 700 worst performing people in the company. And who gave the 700 people the bad ratings? 700 supervisors, you know.
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TSMC Founder Morris Chang
Very subjective. It's not something that people will respect. If in a year you have to hire people back and you have to hire the laid off people back, then you shouldn't lay off. Because the lay off, the separation expense is usually half a year, about half a year. And it takes at least half a year to train a person. So if you need the people back, Within a year, you shouldn't lay off.
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TSMC Founder Morris Chang
You mean customer issue being NVIDIA? Yeah. Well, to finish the employment issue, they laid off 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-warned that hundreds of people would appear in front of my home. So they notified the police department in my district. So the police department said,
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TSMC Founder Morris Chang
50, 60 police officers to try to maintain the order. Now, more than 100 protesters appeared. And the neighbors, my neighbors, you know, they had trouble getting in and out. That was only the first time. A month or so later, the problem was still not solved. I was still not the CEO. So they appeared again. Some were protesters.
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TSMC Founder Morris Chang
About 25 of them decided to spend the night, sleep over in the little park that's about a block away from my home. My wife literally didn't sleep that night, you know. 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, got up and she took one of the
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TSMC Founder Morris Chang
bodyguards, and went to a neighborhood market and got the Chinese-style breakfast. Chinese bread, you know, fried bread, you know. I don't know whether you ever had it or not. Probably not. Yeah, yeah. Buns, you know, soybean milk. And take enough of that breakfast, enough for 25, 30 people. And back to the park and distribute them to the protesters. And they were thankful, you know. Yeah.
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TSMC Founder Morris Chang
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 my taking back the CEO job. Well, there's another thing. I told the previous CEO before he laid off the 600, 700 people.
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TSMC Founder Morris Chang
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 her to the board. I'll call a special board meeting. And I knew what I would ask the board to do, which was not to grant the permission.
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TSMC Founder Morris Chang
But he decided to circumvent that, the CEO, because he What he did, he did not consider it to be layoff. It was just punishment for the poor performers. Well, as far as the CEO is concerned, I did keep him. I had more than one nice talk with him. I intended to, and I told him that he was still a potential successor to me.
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TSMC Founder Morris Chang
So I kept him at the same job grade, we have job grades, and the same salary and bonus. But he was now the president of new businesses. And back then, you know, we had high hopes for the so-called new businesses, which was solar cells, and LED.
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TSMC Founder Morris Chang
Ended up the biggest marketing, biggest market opportunity. Why is it so ironic?
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TSMC Founder Morris Chang
I know. And I knew that. I did not really mean, I did not really think that solar or LED would really replace our integrated circuits business. But I knew the integrated circuits business was going to be great, 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.
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TSMC Founder Morris Chang
The solar business could have been pretty good, however, China ruined it. They subsidized the hell out of it. And they now control that business, solar cells. the prices were extremely low, still low, still low. So it didn't take off. TSMC service didn't take off. And LED did not take off either because LED, it's not, the market is not as big as solar. However, it's controlled the patents.
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TSMC Founder Morris Chang
are controlled by just a few companies. And they wouldn't let the few companies that control the patents of LED would not let up at all. So a few years later, the CEO that was put on the new businesses decided that his new assignment wasn't working out either, so he quit.
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TSMC Founder Morris Chang
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 the ambidea. As far as yields were concerned, we were doing our best. Because, you know, we had to do it anyway, you know. NVIDIA was just one of the customers.
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TSMC Founder Morris Chang
Yeah. And it was a very important node. 40 nanometer was a very important node in the progression of Moore's law, you know. Yeah. Only after 40 can we, if we do the 40 well, can we do the 28? 28 was the next one. And I called the salespeople that were in direct, that had been in direct contact with NVIDIA.
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TSMC Founder Morris Chang
And of course, I called everybody that was somehow involved, somewhat involved in the problem. So it was a matter of money. As far as the progress on the manufacturing lines, we were already doing what we could. As I just said, it wasn't just for NVIDIA. It's for TSMC. But NVIDIA, because they had borne the brunt of the the problem, the damage. It's a matter of money. I worked out a number.
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TSMC Founder Morris Chang
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 CEO job, I sent an email to Jensen. I said, I'm coming to Silicon Valley.
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TSMC Founder Morris Chang
Next week on this date, I will be at your home at 6 o'clock. Let's have just salad and pizza, which was something that we had had many times in the past. Now, immediately he sent back an email. He said, when do we discuss business then?
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TSMC Founder Morris Chang
He didn't ask that. So I anticipated that. So I said, 6.30 we'll start having pizza and salad. Eight o'clock shop, we'll go to your office at your home and we'll discuss business. So on the point of the date, the day I showed up, and we followed a schedule, exactly, you know, 6.30 I showed up. We had a very pleasant pizza and salad. Thing is that, you know, his wife,
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TSMC Founder Morris Chang
Laurie would make the pizza, the salad. And the pizza was delivered from outside. Maybe they made their own pizza, too. I forgot. Would not surprise me. Yeah. Anyway, I had had it many times at his home. All right. So at every car shop, it was I who looked at the watch and said, gentlemen, why don't we go to your study, you know? And I gave him the offer.
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TSMC Founder Morris Chang
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 argue. We're not going to bargain. If you don't accept the offer within 48 hours, you will have to go to an arbitrator. which was what he had suggested to the previous CEO anyway, that we go to the arbitrator. But the previous CEO did not even give him a number.
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TSMC Founder Morris Chang
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.
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TSMC Founder Morris Chang
I know, I liked it too. That's why I included the story in my autobiography.
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TSMC Founder Morris Chang
Yeah. It started, my relationship with Jensen, started with a letter that he sent to me I think it was 1997, and the letter was sent through the post office, and I received it in Hsinchu. 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 technology
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TSMC Founder Morris Chang
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 business. and also their origin, which was geophysical and so on. But TI's semiconductor business was their biggest, and I was the head of that worldwide semiconductor business.
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TSMC Founder Morris Chang
I wanted, at that time, when I was the head of worldwide semiconductors, 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 every time I raised it. Now, coming back to TSMC. I wanted to set a number a percentage of revenue number.
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TSMC Founder Morris Chang
So we don't have to argue every year how much R&D we should spend. So at about 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% a year. But it was negotiated every year between the R&D director and the CEO. So I wanted to stop that. I wanted to make him at ease. He doesn't have to argue. He doesn't have to argue.
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TSMC Founder Morris Chang
to request every year. So I almost just literally picked a number out ahead. 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 it's just 8% of revenue. And that was the best news, if you ask our R&D director, who was back then, I think, in the second place of R&D.
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TSMC Founder Morris Chang
He would tell you, I mean, he has told me many times in the last 10, 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 cut back or whatever. His planned resource, people, allocation, cutback, none of that. So he has been working 8% and so it has been like that.
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TSMC Founder Morris Chang
really promising chips, but they were looking for a foundry, and they had approached TSMC's San Jose office, but they really got no answer from the San Jose office. would I please contact Jensen because NVIDIA really wanted to do business with PSMC. So I was going to the U.S. in the next week anyway. So the letter, frankly, raised my curiosity and also my
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TSMC Founder Morris Chang
Yeah, I think it was kind of a mutual feeding thing, you know. As I settled the R&D budget at 8% of revenue, I mean, to the satisfaction of the R&D people, they began to have big ideas, you know. They began to be telling me, our 28 is going to be the term they use. And they have used it several times. But the first time I heard them using it is the 28. 28? It's going to be the sweet spot.
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TSMC Founder Morris Chang
It's just like tennis racket, you know. You hit the ball with the sweet spot of your racket. Yeah. Do you play tennis?
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TSMC Founder Morris Chang
Good. I was like you, you know. Like 40 years ago, I was like you. I don't play anymore. But, you know, so I know the feeling of hitting a ball in the sweet spot, you know. 28 nanometer is in the sweet spot. And so I said, why? He, you know, gave me a lot of technical reasons, 20 nanometer. So I decided I would believe him. And he now had the resources to push it, to do it as fast as he could.
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TSMC Founder Morris Chang
So, you know, now the capital spending. Now, of course, back then we had already built up a pretty good infrastructure, organizational infrastructure. We had a pretty good market forecasting And I had set up the business development department, which was like a marketing department. We always had a pretty strong sales effort. But to me, sales effort is just the tactical side with the customers.
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TSMC Founder Morris Chang
Marketing is the strategic side to the outside world now. Now, from all these inputs, the marketing, the business development department, which, as I said, was our strategic marketing group. And from the technical, from the R&D side, that 28 was going to be a sweet spot.
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TSMC Founder Morris Chang
I decided that, and I quote Shakespeare in my autobiography, that there's a tide in the affairs of man, which taken at its flood 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 nanometer was another, was the next sweet spot, the Andean people told me. And again, you know, reminded myself of,
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TSMC Founder Morris Chang
Taking it at the flood, yeah. So, I mean, that took, however, you know. I mean, setting the R&D at 8% did not invite any opposition from the board. But suddenly, increasing capital spending threefold, I think, did invite a lot of questions from the board. Our practice in the board meetings, because back then, or even now, most of the directors are from overseas. US and England.
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TSMC Founder Morris Chang
And we would email the agenda to them two weeks before the board meeting. Then the night before the board meeting, I would invite the independent directors to dinner. And that dinner, the conversation at that dinner was not on record. So the independent directors, actually three quarters of our directors were independent, are independent directors.
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TSMC Founder Morris Chang
Anyway, so in the night before and the evening before the meeting, they had the opportunity to ask me questions if they had any. But on this matter of vastly increased capital spending, they didn't even wait until they got to that point.
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TSMC Founder Morris Chang
Yeah. And so they called the chief general counsel. The general counsel is also the secretary to the board. They called him, at that time he was an American, the general counselor was an American, and said, we want to talk to the chairman. We don't like this idea at all. Anyway, so I talked to them on the phone. about a week or so before the board meeting.
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TSMC Founder Morris Chang
And, all right, you know, this is something that, of course, I told them what I have now just told you, inputs from market forecast, inputs from our R&D, inputs from our business department, the new business department. And of course, you know, they didn't believe it. You really can't convince anybody on something like this.
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TSMC Founder Morris Chang
So at the end, I had to say, well, look, I heard you, but I am still the guy that's responsible for the operation of the company. So you need to let me go ahead with this one. So they were satisfied with that.
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TSMC Founder Morris Chang
No, I didn't. Maybe the business development guy, that was another interesting story. Yeah, maybe he knew, maybe he, or at least I now hope, and I of course hoped at that time too, that he had a more detailed visibility than I did. But I mean, of course, this was not the only, it was not the only input, you know. I had a few other advisors too, yeah.
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TSMC Founder Morris Chang
irritated me a little bit because I had always told our salespeople that we should never be negligent in talking to future customers, even if the customer seems to be a very small one.
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TSMC Founder Morris Chang
Yeah. But before we do that, let me offer how we made CC, actually, the business development director. Ah, the current CEO. The current CEO. The current chairman and CEO. When Rick was the CEO between 205 and 209, he had split operations into two groups, advanced technology and mainstream technology. And C.C. was the head of the mainstream. actually really, I should say, the lesser one.
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TSMC Founder Morris Chang
And Mark Liu was the head of the advanced. And each group had a small business department section, maybe 30 or 40 people each. All right, so I came back to be the CEO, and I never thought the split up of two groups was a good idea anyway. In fact, back in 1996, The president, he was not a CEO, but he was the president. We didn't have the CEO title back in 1996.
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TSMC Founder Morris Chang
But the president, who was American. Don Brooks? Yeah, right. He wanted to... He got a little, I think, he got a little tired of running this company. He was going to be here for only a year at first, but he winded up, he ended up spending six, seven years in Taiwan. Towards the end, he was getting a little tired of running this thing. And he thought that he would do it like TI, for instance.
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TSMC Founder Morris Chang
TI had a germanium transistor department, silicon transistor department, integrated circuit, bipolar integrated circuit, MOS integrated circuit, you know. It's the divisional org structure instead of a functional org structure. Right, right, yeah. But I really did not think that the foundry business, TSM Seasprings, was suitable for the divisional structure.
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TSMC Founder Morris Chang
Because, you know, we have almost the same group of customers. how do you divide up the group, divide up the company if you want the so-called divisional structure? Well, You know, Don Brooks was going to divide it by a fab, you know. My goodness, you know. The customers moved from one fab to another. The same customers, you know.
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TSMC Founder Morris Chang
Back then, of course, he only had three or four fabs, you know. Back then, yeah. But he was not convinced. He kept arguing. And I said, look, why don't we get a consultant? McKinsey. McKinsey. Why don't we get McKinsey? Okay. So we got McKinsey in.
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TSMC Founder Morris Chang
And McKinsey, after a month or two, two months actually, and a couple million dollars, I guess, told us the same answer, you know, that functional is best. And then Don Brooks said, Well, tell me one company, one big company that's functionalized. And McKinsey immediately answered Boeing, which is a good answer, you know.
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TSMC Founder Morris Chang
Well, they probably have commercial and government, but they don't have 707, 747, 757. You know, they don't divide. And if we divide up by fab, it would be like dividing up 707 from 757, 737, you know. Well, anyway. Don Brooks' attempt was in 1996. And, well, by 2005, Rick Tsai, you know, decided to tread the same ground. And he did. This time, you know, I didn't stop him.
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TSMC Founder Morris Chang
Yeah. and they had maybe 50 or 60 employees. So TSMC, I think, at that time already had a few thousand employees. We had exceeded, I remember we had exceeded $1 billion in revenue in 1995, and this was 1997. So we were, relatively speaking, we were a pretty big company here.
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TSMC Founder Morris Chang
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. So you have to interfere then, but only then. Well, anyway. So that was the background. Two groups, when I came back to be the CEO, the advanced group and mainstream group.
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TSMC Founder Morris Chang
And each group had a small business development section, 30 or 40 people. I think advanced has had more, a bigger group than mainstream. All right. So I wanted to combine the two operation groups. And I also wanted a real marketing. And I didn't call it marketing because I decided to use business development in English because it has a good translation in Chinese. All right.
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TSMC Founder Morris Chang
Now I've decided to combine the two operations. Now, back in 2009, when I decided to combine the two groups, I think the advanced group had something like 10,000 employees. And the mainstream group had a little less, but also seven or 8,000 employees.
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TSMC Founder Morris Chang
Yeah, right. But also... Quite often, the same customers use both mainstream and advanced technologies now. Take Qualcomm. I'm quite sure that they use the most advanced, or even Apple, I think they use Qualcomm.
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TSMC Founder Morris Chang
Yeah, we had... Mark Liu in charge of the advance and C.C. Wei in charge of the, the question is, you know, who's going to be in charge of what, you know, the combined, or do you need only one for the combined operations? You need only one person. The truth is that we had a lot of operational talents,
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TSMC Founder Morris Chang
Operation meaning manufacturing and taking the developed technology from R&D, you know, and converting it into mass production. Really a lot of talents there. But business development or marketing there. And neither Mark Norris, nor CC had any real previous experience in marketing business development. So that was my main worry. We need, we combine the two groups, we need a combined,
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TSMC Founder Morris Chang
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.
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TSMC Founder Morris Chang
And this would, this new job, if he takes it, would give him the opportunity of of being professing 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?
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TSMC Founder Morris Chang
Yeah, right. So the following week, I went to California. And I called him back without advance notice. I called Jensen. I looked up. I think there was a telephone number on the stationery that he sent me the letter on. Jensen himself picked up the phone, and there was a lot of background noise. He was arguing something with his people.
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TSMC Founder Morris Chang
Actually, back in my mind, I was thinking of... The time when Kissinger was Nixon's national security advisor and somebody else, whose name I have even forgotten, was the Secretary of State. And Kissinger probably had a couple hundred people reporting to him. Whereas the Secretary of State had thousands of people all over the world reporting to him. And who had more power?
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TSMC Founder Morris Chang
Except for those four years when I was not the CEO. Yeah. Hmm. Yeah, but you were right. I was on the plane most of the time visiting customers. That was my pleasure. I really liked it. Well, anyway. So, I then, of course, offered the business development job to C.C. And he accepted it. I mean, I thought he accepted it. even delightfully, you know? Yeah.
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TSMC Founder Morris Chang
That's right. The board meeting had ended and it was, uh, six o'clock or later. And, uh, I went home. This was Taipei. We had our board meetings back at that time in, in fact, here. Have you ever seen my conference room? Yes, across the hall. Yeah, yeah, right. Yeah, we had all our board meetings in Taipei in that conference room. Anyway, it was 6.30 also when I got home, and I think...
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TSMC Founder Morris Chang
My wife knew that I would not be home until around 6.30 because as soon as I, she actually, she met me at the door, which wasn't very often. But this time she had something to tell me. That's why she met me at the door. She said, Terry Gao called in the afternoon. and said he was coming to dinner. And who is Terry Gao for listeners?
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TSMC Founder Morris Chang
Terry Gao is a relative, is 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, yeah.
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TSMC Founder Morris Chang
Right. Terry Gao is a second cousin of Sophie's, and he was also at that time the chairman of Foxconn.
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TSMC Founder Morris Chang
The name slipped my mind for a second. Hanhai, which is a very important supplier to Apple. And a pretty big company. And in fact, Terry Gao is reputed to be one of the richest men in Taiwan. Hmm. 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.
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TSMC Founder Morris Chang
I don't think she quite understood, quite very, she didn't really, she wasn't very interested either in the significance of that.
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TSMC Founder Morris Chang
Yeah, I've been strategizing, well, strategizing is probably two things. strong a word. I mean, just thinking. Also knowing that we just can't do anything about it. Apple is a very close-mouthed company. If you try to talk to them, 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.
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TSMC Founder Morris Chang
But as soon as I introduced myself, I said, this is Morris Stern. He immediately shouted to those people that were making noises. He said, quiet! Morris Chang is calling me. So I then proceeded to make an appointment with him to visit him, to visit NVIDIA the next day or something like that. And that was our first meeting.
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TSMC Founder Morris Chang
And I know the same thing now, you know. All right, so 8 o'clock. Now, Sophie did know that I would not be home until after 6 o'clock. So she had told Terry that, and Terry had set the time of their arrival at 8 o'clock. So 8 o'clock was a bit late for my dinner, but I said, what the heck, we'll wait. All right. So they showed up. I didn't ask her. Sophie just said, a vice president.
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TSMC Founder Morris Chang
And I just thought to myself, it wouldn't be just an ordinary vice president. Yeah, so. Because, you know, there was no reason for 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 the chief operating officer of Apple.
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TSMC Founder Morris Chang
And Jeff was a pretty straightforward person. He didn't spend much time in ordinary chit chats.
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TSMC Founder Morris Chang
It wasn't, but it wasn't formal either. You know, uh, my, my wife, Sophie just added, and we, we, we have a cook, you know, we, we had a cook, uh, and, uh, pretty good cook. Uh, uh, so, uh, Sophie just told the cook to add a few dishes, uh, She's a Chinese cook. She doesn't do any Western food. And, you know, Terry obviously, she grew up on Chinese food.
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TSMC Founder Morris Chang
And I would imagine that the apple guy that he bought would also like Chinese food. Anyway, so she just asked the cook to cook a few more dishes But, 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.
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TSMC Founder Morris Chang
would like you to foundry our waivers." Something like that, pretty straightforward. I mean, so I listened. That night, I think Jeff talked to Maybe 80%, and I talked 20%. If you don't count the relative-to-relative talk between Sophie and Terry, which was not very much either.
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TSMC Founder Morris Chang
No, nothing so concrete. Okay. He just said that we would let you have 40% gross margin. And I think, I didn't say anything. I didn't answer him. I didn't respond to that. But our margin at that time was already 45%. And I was trying to put it up to 50%. It was an announced effort in the company to push the gross margin. And I had that effort for many years after I came back to be the CEO.
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TSMC Founder Morris Chang
And I really didn't even succeed even at my retirement. Now, of course, what happened later was that there was COVID and so on. And also, we began to have leadership, technology leadership. So, our margin, you know. jumped up to over 50%. But when I retired, I was still short of 50%, slightly short of 50%. I was almost there when I retired.
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TSMC Founder Morris Chang
visit the first meeting and he immediately impressed me with his articulateness and also impressed me with his optimism. Well, he was also very frank. He told me that Nvidia was in financial difficulties, but the chip that he wanted now to have foundried would not only... save the company, it will also make NVIDIA a major customer of TSMC. I mean, that was actually quite a bold statement.
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TSMC Founder Morris Chang
I think when you said that, you were neglecting Intel. Yeah. At 28 nanometers, we were very definitely the leader among foundries. Yeah. And maybe among a few other companies, such as Texas Instruments and so on. But not Intel, okay.
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TSMC Founder Morris Chang
No, Apple... was not actively considering Intel. That came later. But I'm quite sure we'll have time to cover that.
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TSMC Founder Morris Chang
Yeah. He said that he would let us at 40%. And my thought was, my goodness, we're already at 45%. But I also thought that he was trying to be generous when he said that he would let us have 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.
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TSMC Founder Morris Chang
Nope. 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 slow progression after 28 was going to be 16. Now, Apple, Jeff Williams, wanted 20.
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TSMC Founder Morris Chang
A half-step. But a half-step is a detour, you know. My thought at the dinner there was that we would have to spend effort on the 20. which of course would help us on the natural next note, which was 16. But still, it was a detour from 28, you know. From 28, if we could go directly to, if R&D would directly go to 16, it would be less time than the first do 20 and then.
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TSMC Founder Morris Chang
No, the point is that back then, R&D did not have enough resources to do two nodes at the same time. Later, we did.
Acquired
TSMC Founder Morris Chang
It wasn't that serious. It wasn't that serious. Because when we figured a very big market, 428, 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. We didn't include Apple in our 28 planning.
Acquired
TSMC Founder Morris Chang
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 would probably need top-level investment bank advice. So we established a good relationship with Goldman Sachs very early in our existence. I was, in fact, a board director of Goldman Sachs. Did you know that? Yes. Yeah. Yeah.
Acquired
TSMC Founder Morris Chang
We did the ADR with Goldman Sachs, which opened up a good relationship with Goldman Sachs.
Acquired
TSMC Founder Morris Chang
Yeah, ADI is American Deposit Receipts. It's New York. It's a separate market. In fact, right now, the TSMC price, ADR price is... has a 20% premium over. Really? Oh, wow. However, you know, you need TSMC board permission to convert your shares to ADR. Otherwise, you'd be able to arbitrage? Yeah. We don't want that. So, as I said, as I was saying, the board has to approve any conversion of...
Acquired
TSMC Founder Morris Chang
ordinary Taiwan TSMC stock to ADRs. And the board does not give such permission. Easily anyway, okay, yeah.
Acquired
TSMC Founder Morris Chang
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 spending. And now, you know, Apple requires even more capital spending. And we have to figure out where the cash is going to come from. So, you know, there were several possibilities, of course. We're paying a dividend, not a very big dividend,
Acquired
TSMC Founder Morris Chang
back then, but a modest dividend. We could cut that dividend. And then we also could sell stock, you know, new stock offering, either in Taiwan or in the US. We have the ADRs, you know. Or we can borrow money. Corporate bonds, you know.
Acquired
TSMC Founder Morris Chang
Right. And in fact, we did that. You know, we first did our financial planning. And we decided not to cut dividend. We decided not to sell new stock. We decided to just borrow. And this was also with consultation with Goldman Sachs. We chose borrowing. How much? I looked at the numbers and just as you said, I decided to take half of what Apple said. What Apple said they needed.
Acquired
TSMC Founder Morris Chang
We're over a billion dollars now. To be a major customer of ours, he would have to produce revenue for us of at least $50 million a year, okay?
Acquired
TSMC Founder Morris Chang
I know. I know. Well, back in the 90s, in the first, let's say, 15 years, first 10, 12, 15 years ago, of our existence, we were short of capacity almost all the time. And what you just said happened all the time. And so we figured out that we will 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.
Acquired
TSMC Founder Morris Chang
And everybody delights in the word confiscate. It was first used by me. I told the salespeople in San Jose, I said, tell the customer that we need a deposit from them because just as you said, It's our money, and it's only their words. They may not want the wafers when the time comes. And I told the salesman, tell the customer they will confiscate the deposit.
Acquired
TSMC Founder Morris Chang
And the salesman never heard anything like that before. And so they were in 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. No, it did happen quite often.
Acquired
TSMC Founder Morris Chang
I forgot the number, but it was a very successful chip. I don't think it was Riva or 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 helped. prevented from being bankrupt, you know. Not only did they do that, it also started to make them a major customer of TSMC.
Acquired
TSMC Founder Morris Chang
Particularly in the 2000, we had, I think it was called an internet recession, I think. Because internet was, you know, people were starting companies called pets.com or something, you know. Yeah.
Acquired
TSMC Founder Morris Chang
I remember it recovered only in 2003. It started in 2001, the first quarter of 2001, and it recovered in the third quarter of 2003. So it was three years. Three years. 2001, 2002, the third, fourth quarter of 2003. 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.
Acquired
TSMC Founder Morris Chang
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, didn't need the outputs of those fabs anymore. And we didn't, confiscate their deposits. But we let them delay, you know, demand. And eventually, every one of them, they all used up their deposits.
Acquired
TSMC Founder Morris Chang
Well, first, of course, the new or relatively new business development director, C.C., he had the privilege of first telling the lower level purchasing people at Apple. And he got a response back. You must be crazy, you know. So C.C. did not comment on that. At least he said he didn't comment on that. He brought it back to me. And then I went to Apple, myself, and talked to Jeff Williams.
Acquired
TSMC Founder Morris Chang
So I said to him, we have to issue corporate bonds. I think I used the word prudent. After all the prudent financial planning, we decided that we would take half of what you asked for. 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 I'll.
Acquired
TSMC Founder Morris Chang
Well, the fact is, I had looked into that. I mean, that's also a reason for, you know, having a high-level consulting firm. advice. About one-third of our investors or shareholders are very seriously interested in the dividends. So if we do what the Jeff Williams said, our stock is going to drop like hell, you know. Trigger a sell-off. Right.
Acquired
TSMC Founder Morris Chang
Anyway, but when I talked to Jeff Williams, and I went to see him in – What's the place? Cupertino. Yeah, Cupertino. I mean, he took it fairly willingly, you know. No big problem at all. The only suggestion that he made was the elimination of dividend, you know. And I said no. And he then let it just lie there, you know. Okay, but then that issue was settled.
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TSMC Founder Morris Chang
I mean, how much demand we would take and how we would get. We still had to borrow billions of dollars, even with half of the demand.
Acquired
TSMC Founder Morris Chang
Within two or three years, they were, they did become one of the biggest five customers of TSMC. Yeah, very successful chip, yeah.
Acquired
TSMC Founder Morris Chang
Yeah, I know. Bet the company, but I didn't think I would lose. You sound like Jensen. That's exactly what Jensen said. All right, but I think that the financial discussion with Apple had already happened when Apple... when Jeff Williams called me in February of 2011. And he said, it was a very short conversation. He said, we need to...
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TSMC Founder Morris Chang
pause our discussions for two months because the highest level of Intel has approached Tim Cook and has asked Tim Cook to consider Intel.
Acquired
TSMC Founder Morris Chang
Yeah, yeah, yeah. That wasn't an issue, of course. I mean, in February of 2011, Jeff Williams was talking about the iPhone, yeah.
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TSMC Founder Morris Chang
Yeah. I don't know what relationship. really have. Well, it must be close. So that was all he said. I wasn't all that worried because in 2011, Intel was no longer a name that you would, when you hear it, you would stand up and bow, you know? Interesting. I mean... Heck, you know, in the 90s, in the late 20th century, I mean, they were a name in semiconductors.
Acquired
TSMC Founder Morris Chang
Yeah, intel. If you hear their name, if you hear that they are in competition with you, you know, my goodness, you'll be... trembling with fear, you know.
Acquired
TSMC Founder Morris Chang
Okay, yeah. Anyway, so I, of course, had to accept Jeff Williams' request. All right. But again, as I just told you, I wasn't all that worried because I reviewed in my mind all the characteristics that Apple is looking for in a supplier company. Technology, at that time, we thought we were almost at par with Intel. Almost. In fact, I think I thought we were at par with Intel at that time.
Acquired
TSMC Founder Morris Chang
Manufacturing, I thought we were better than Intel. And customer trust, we thought that our customers trusted us more than Intel's customers, customers Intel. So, I wasn't too worried. But then indeed, and I also thought that when Jeff Williams told me the highest level of Intel, I thought he was talking about somebody like Andy Grove, who was retired of course.
Acquired
TSMC Founder Morris Chang
But it turned out that he was only talking about the CEO of Intel at that time. Yeah. But I knew that only later.
Acquired
TSMC Founder Morris Chang
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.
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TSMC Founder Morris Chang
No, it was the Italian guy. Ottolini. Paul Ottolini. Ottolini. Got it.
Acquired
TSMC Founder Morris Chang
Yeah. All right. I wasn't too worried, but it still was in my mind. So a month passed. I think it 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 that I would pay them a visit. and ask them what's going on, any progress. So I emailed Jeff and asked for an appointment.
Acquired
TSMC Founder Morris Chang
I said I was coming to the Silicon Valley anyway, which was pretty normal. and stop in at your place on such and such a day. Is that okay? And Jeff replied by saying that, yeah, come here, but I won't be here. I have asked Tim Cook to 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, you know.
Acquired
TSMC Founder Morris Chang
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 Tim was very nice to me and took me to lunch or to the cafeteria, I guess, where there was a lot of food. We each picked our food and carried our tray back to his office, you know.
Acquired
TSMC Founder Morris Chang
And anyway, he told me, there's nothing to worry about because Intel just does not know how to be a fountain. That's a very short, but a very satisfactory answer to me.
Acquired
TSMC Founder Morris Chang
I was explaining to you that we had on technology, on manufacturing. Subconsciously, I think, I interpreted Jeff's explanation to me to be the third one, customer trust. I mean, they were always very superior, you know, Intel. Before this Apple thing, Apple and we, before Apple became our customer, I knew a lot of Intel's customers in Taiwan. You know, all the PC makers are Intel's customers.
Acquired
TSMC Founder Morris Chang
None of them liked Intel. None of them. Intel always acted like they were the only guy. They were the only guy for the microprocessors.
Acquired
TSMC Founder Morris Chang
Yeah, but I really don't think Tim meant that. I think he meant that the customer asks a lot of things. We have learned to respond to every request. Some of them were crazy. Some of them were irrational. We had to respond to each request courteously, which we do. Intel has never done that. Intel, I mean, I said I knew a lot of customers of Intel's here in Taiwan.
Acquired
TSMC Founder Morris Chang
And none of them, they all wished that there were another supplier. None of them either trusted Intel or liked Intel.
Acquired
TSMC Founder Morris Chang
Well, it might have cost, but yeah, the story certainly does not end here. All right, so there was pricing. Everything was not easy. Pricing, and Jeff came himself, and we talked about pricing. And we, of course, we had done our homework also on the cost and what kind of price we would accept. But Jeff came and he told us just a number, you know. Well, he gave us his reasoning.
Acquired
TSMC Founder Morris Chang
He had to make his component costs meet a certain goal also, yeah. But anyway, that was settled. And Jeff said, ah. And when the pricing was settled, I said, let's go out to dinner. go to a Taipei three-star restaurant for dinner. And Jeff jokingly said, ah, if you didn't like the pricing, we will probably be going to a McDonald's. Which was never in my mind, but he said that.
Acquired
TSMC Founder Morris Chang
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.
Acquired
TSMC Founder Morris Chang
Well, I don't get the privilege of sorting it out now, you know. CC, CC way, I think, has the pressure and the duty of sorting that out. Yeah. Well, I mean, as a general principle, you know… 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.
Acquired
TSMC Founder Morris Chang
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 insist that we were not, TSMC was not at fault. And so on that basis, on the basis of our quality manager's arguments, he had not offered NVIDIA anything.
Acquired
TSMC Founder Morris Chang
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. Now, for a lot of CEOs, there's really no choice. You have to, as a supplier, you have to accept a certain price. If it's a commodity particularly, you know. We have not finished with Apple yet.
Acquired
TSMC Founder Morris Chang
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 we took at that time back in the… 2011, 2012 time, our R&D was not strong enough to do two nodes at the same time. Now we are, but back then we weren't.
Acquired
TSMC Founder Morris Chang
So the trade-off of accepting the 20-node technology was that we delayed our 16-node And then Samsung came up with the 16. They had lost the 20 business, you know. So they were ahead of us in the 16 nanometer development. Because they got to skip 20. Yeah, because they didn't get the 20, okay. They need to develop 20. So I got a shock. I mean, it was a real shock.
Acquired
TSMC Founder Morris Chang
when I heard that Apple had placed their first orders of 16-worth Samsung. Now, that was a real shock. We invested so much, even though we took only half of their original demand. It was still tens of billions of dollars, I think. And we were counting on it being at least 80, 90% of the equipment being converted to 16. And now, if Apple went to Samsung for the 16, where did that leave us?
Acquired
TSMC Founder Morris Chang
Well, I wouldn't say that, okay, but I was really shocked. So I emailed Jeff Williams right away, and I said, you know, we invested in all this equipment, and we were counting on you to take the, 16 from us. But now, you know, we found out you were buying 16, the first 16, anyway, from Samsung. So Jeff replied immediately, don't worry, I'll be here, I'll be there, I'll be in Hsinchu next week.
Acquired
TSMC Founder Morris Chang
and explain to you. So that made me, that relieved me a little, but certainly not completely. But next week, he did show up, and he explained to us. He said, well, as soon as you are ready, when you are 16, who will buy from you? Who will buy all of you? the needs from you when you're ready. Now, of course, that completely relieves me because that's what we're supposed to do anyway, you know.
Acquired
TSMC Founder Morris Chang
So indeed, what he said was true. We developed, we had our own 16, about half a year later, and most of Apple's 60 nanometer requirements still belonged to us. Yeah, most, yeah.
Acquired
TSMC Founder Morris Chang
I know. I know. It was, I said in the autobiography, you know, I mean, sitting in Hsinchu, Being in the foundry business, I actually see a lot of things before they actually happen. So let me tell you the IBM Qualcomm story.
Acquired
TSMC Founder Morris Chang
Now, Qualcomm, we consider Qualcomm to be a prime company. candidate to be our customer. We really wanted Qualcomm because we knew they were a technology house. What year was this? This was way back, you know, when we started in the 90s anyway.
Acquired
TSMC Founder Morris Chang
Now, as far as the manufacturing problem was concerned, it was a U problem, and everybody was suffering from it. And of course, NVIDIA at that time was perhaps the biggest customer of that node, the 40 nanometer node.
Acquired
TSMC Founder Morris Chang
Yes. They started, Irwin Jacobs started Qualcomm actually before I started Qualcomm. TSMC. TSMC started in 1987. Qualcomm, I think, was a few years before that. So we are in the 90s, early 90s, all the way up to 1997 maybe. 96, 97, all the way up to the latter part of the 90s. We wanted a to be a customer. And I saw their operations VP.
Acquired
TSMC Founder Morris Chang
That's what they 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 gave us very little business. And I also knew that his main foundry was IBM. Now, sometime in the later 90s, I forgot whether it was 97 or 98, suddenly, he started, first he started to tell me that he would use us now.
Acquired
TSMC Founder Morris Chang
He didn't even tell me who our competitor was, who our competitor had been, but 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 period. So I immediately knew that IBM Semiconductor was in trouble. Because, I mean, they had their own fabs and so on.
Acquired
TSMC Founder Morris Chang
But their main business was really supplying to Qualcomm and a few 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.
Acquired
TSMC Founder Morris Chang
The next step they took was to ask us, TSMC, to co-develop the next generation of technology, which is 0.13 micron, 130 nanometer. In 1999. And since I anticipated that, it was no problem at all for us to refuse the... And in fact, even if I didn't anticipate that, we would never, never have accepted that kind of code development. I mean, IBM was still, you know...
Acquired
TSMC Founder Morris Chang
they still consider themselves to be the senior partner in any partnership they establish. The senior partner. So we were, the company that co-developed something with them would send its engineers to IBM, you know. And when we do that, we lose our ability to develop our own processes. We'll have to depend on this co-development thing.
Acquired
TSMC Founder Morris Chang
And the co-development thing is going to have a lot of difficulties, you know. Heck, you know, our people, you know, will be in a different culture. So we declined without having to think about it at all. We declined the IBM office. And IBM, in fact, was quite angry, you know. I mean, they thought we were still a small Taiwan backward place, you know.
Acquired
TSMC Founder Morris Chang
It's a Taiwan company, and they are going to pick IBM. So they immediately went to UMC. And UMC accepted it. only to regret seriously their acceptance a few years later.
Acquired
TSMC Founder Morris Chang
Smaller. They were smaller already, yeah. That's what I meant when I said that sitting here at the Foundry, I can see some things like this IBM thing.
Acquired
TSMC Founder Morris Chang
But the problem apparently just continued. And I was, even though I was not the CEO of I was getting a little impatient. And then, of course, some other problems popped up. Other problems than this 40 nanometer NVIDIA problem. So I decided to take the CO position back. So in 2009, I did that. And there were several problems. priority problems that I had to deal with when I took the CEO job back.
Acquired
TSMC Founder Morris Chang
I really did not devolve. I certainly did not initiate it. I think I had a role at TI. I had a role in refining it to the point where a semiconductor company can use it effectively. That's my role.
Acquired
TSMC Founder Morris Chang
So how would you explain it to a novice? Well, explaining the learning curve theory is simple. But one would be foolish if one just takes the simple explanation and thinks that that's all it is. The simple explanation of learning curve is that as you make more of one thing, anything, Actually, it started with refrigerators and the cost. If a company makes more cost, then it's cost.
Acquired
TSMC Founder Morris Chang
per car, unit cost goes down. That's why it's also called experience curve. You gain more experience, you become more efficient. That's a simple explanation. But if one just takes that simple explanation and thinks that's all it is about, then you really haven't Learn anything. All right. Anyway, the learning curve. Well, Bruce Henderson, who is now considered the father of strategies.
Acquired
TSMC Founder Morris Chang
Yeah, he was the founder of Boston Consulting Group. And now, you know, 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, big books, 700 pages each. I have all of them.
Acquired
TSMC Founder Morris Chang
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, or I should say he first called the T.I.
Acquired
TSMC Founder Morris Chang
CEO, Mark Sheppard, and told him that Boston Consulting Group, he had founded the Boston Consulting Group, and we have BCG has a experience curve theory that would benefit semiconductor industry. And TI was the largest company in the semiconductor industry then, and would mark Shepard like a presentation of this theory. Mark Shepard said yes.
Acquired
TSMC Founder Morris Chang
So Bruce Henderson brought Bill Bang, you probably know that name, with him and came to Dallas and made a presentation. And Mark Shepard invited the COO 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 Bain was on the side, apparently Bruce Henderson's protégé.
Acquired
TSMC Founder Morris Chang
Anyway, Mark Shepard was impressed and he decided that TI would work with BCG on this learning curve theory. And Bruce Henderson then assigned Bill Bang to work most of the time at TI, you know, most of my, like, three days a week. And Mark Hibbert assigned me as TI's guy. So Bill Bain and I became partners. And I assigned Bill Bain a small office very close to my house.
Acquired
TSMC Founder Morris Chang
office at TI in the same building and small office because he needed a lot of things from me. He needed permission to get our costs, our prices. We had a lot of families of integrated circuits and transistors. I mean, he had a lot of requests. So it was easier if he was nearby. And every time when he arrived at some interesting, useful conclusions, he would also discuss them with me.
Acquired
TSMC Founder Morris Chang
So we had a very pleasant 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.
Acquired
TSMC Founder Morris Chang
And then finally, Bill Bang 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 that highly fruitful. Just as a thinking tool.
Acquired
TSMC Founder Morris Chang
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's ship, I called all the major customers, including Jensen.
Acquired
TSMC Founder Morris Chang
But one day, after a couple of years, Bill Bang came to me in Dallas. He said, you are the first one I tell this to outside the Boston Consulting Group. I am leaving Boston Consulting Group to start my own consulting company. So I said, why? I said, you know, obviously Bruce Henderson thinks very highly of you. And Bill Bain said, yes, but there is the world's imperative.
Acquired
TSMC Founder Morris Chang
That's the first time I heard that term, you know, world's imperative. He meant for him personally. Yeah, for him personally. Well, anyway, that was that.
Acquired
TSMC Founder Morris Chang
There are many things. I'm not going to argue with you. I merely ask as a point of curiosity. I didn't realize. I didn't think it was that unlikely. Well, it did exceed my expectations. TSMC's size and importance exceeded my expectations, but not by an order of magnitude.
Acquired
TSMC Founder Morris Chang
Oh, yeah. Qualcomm was also, yeah. And Qualcomm, the top customers didn't change very much since then, except for maybe one. Apple. Apple, yeah. Apple came later, yeah. And in my call with 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.
Acquired
TSMC Founder Morris Chang
That was only the very initial plan. We were never going to stop there. I mean, we were just talking about learning. You know that. How could we plan to stop? If I didn't know anything about learning curve, I would say, yeah, maybe we'll stop after two perhaps, you know. But I was a serious student of learning curve. And I would never stop at just two perhaps.
Acquired
TSMC Founder Morris Chang
No, I saw it coming. And in fact, I just had dinner, oh, two months ago, at dinner with the first guy, Gordon Campbell, Gordy Campbell. Have you heard his name? Mm-hmm. Anyway, Cordy Campbell came to see me in General Instruments in my final months at General Instruments. He came to see me. He did not know that I was leaving. Frankly, I did not know when I saw him that I was leaving yet.
Acquired
TSMC Founder Morris Chang
But the reason he came to see me at General Instruments was that he wanted to Funding, he wanted investment from General Instruments. $50 million, he said. He wanted to start a new company. $50 million. So I said, do you have a business plan? No, it's all in my head. So I said, well, I need at least a business plan. I mean, I have to go to the board of General Instruments.
Acquired
TSMC Founder Morris Chang
So he said, all right, I'll send it to you within three weeks. Three weeks later, there was no business plan, and I was interested because I knew that he had a good reputation of starting companies. So I called him, and he said, ah, Morris, 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 anymore.
Acquired
TSMC Founder Morris Chang
I need only $5 million, and $5 million I can gather up very easily. I said, why do you need only $5 million? He said, I'm not going to build a fab. See? That was the start for me. that there will be fabulous companies. Another guy came to General Instruments and said he had already started a company, which was called Atmel, A-T-M-E-L. And they did not have any fabs.
Acquired
TSMC Founder Morris Chang
And this guy wanted General Instruments to make the wafers for them. And back then, General Instrument had empty fabs. So I said, I told the semiconductor manager of General Instrument, I said, go ahead and work with him.
Acquired
TSMC Founder Morris Chang
Well, at least I had a glimpse of it, you know. So, Atmel, you know, and they were still fighting. I mean, Atmel, he wanted the fab to be run his way. Now, of course, the General Instrument Semiconductor Manager wanted to run the fab his way, you know. General Instrument owned the fab anyway, for heaven's sake, you know.
Acquired
TSMC Founder Morris Chang
So that was just a very early situation in which the difficulty and the advantage of running a foundry business already appeared. The difficulty was, you know, you have to satisfy a lot of customers, you know. And everyone, you know, wanted the factory to run his way, you know. But you can only run FAP one way, you know, which will satisfy more or less all the customers.
Acquired
TSMC Founder Morris Chang
And the advantage, of course, is you have a lot of customers. Well, we can't thank you enough, Dr. Chang.
Acquired
TSMC Founder Morris Chang
All right. Very good. It was my pleasure. Even though it's the first time in a long, long time that I have talked so long.
Acquired
TSMC Founder Morris Chang
All right, so I said I knew that, and it's one of my priority problems. Give me a couple weeks, and I will get back with you. And as I said, I did have several problems aside from the 40-nanometer problem. manufacturing problem and the problem with the argument that we were having with Nvidia. Aside from that, we also had the problem of the pricing. It was dropping faster than the cost.
Acquired
TSMC Founder Morris Chang
I mean, you don't want to see that. The gross margin percentage kept dropping.
Acquired
TSMC Founder Morris Chang
All right, so that was one problem. Another problem was the immediate one that triggered me to retake the CEO-ship because the previous CEO had laid off, except he didn't use the term lay off, you know. He used the bad performance review, the worst performance review people, and there were about 600 or 700 of them. And he laid them off on the basis of their poor performance review.
Acquired
TSMC Founder Morris Chang
Well, we never did that, you know. I mean, the worst we would do was to put them on, place them on probation for six months. And quite often, you know, at the end of the six months, everybody would go back to his or her old job. And some of them would get... transferred because they were in the wrong jobs, you know. So some of them would get transferred.
Acquired
TSMC Founder Morris Chang
But we almost never really fired people even after the probation period.