TSMC founder Morris Chang

the podcast about great technology companies and the stories and play no no you said technology now we definitely have a cold opening all right I guess uh 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 is it you is it you who got the truth now is it you is it you is it you sit me down say it straight another story on the way got the TRU 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 synopsis and as we were thinking what's next in the World of chips unacquired we threw the Hail Mary we asked friend of the show Jensen hang if he would ask Dr moris Chang the 93-year-old founder of tsmc if he would be open to an interview with us yeah it is uh kind of insane and super cool that Jensen made time to help us with this it's uh 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 taipe 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 hinu science Park uh where many of tsmc's Fabs are located super cool to see totally so conveniently Dr changen just published Volume 2 of his autobiography A couple months ago after a 26-year Hiatus from volume 1 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not published in the Western World we managed to get our hands on an unpublished translation of the book to prepare and what you are about to hear focuses on a few crucial stories from tsmc's history that Dr Chang shares in his Memoir about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 baow who we were lucky to connect with after we set this up and who has been translating Morris's Memoirs with funding from Tyler Cowen and emergent Ventures right now the mem are not published in English and we will let you know if then when that happens yep all right listeners you can join our email list at acquire. fmil you'll get an email every time a new episode drops once a month and this is also where we announce past episode Corrections plus a fun little game where we give hints at uh what the next episode will be I uh always have fun writing those you do that's a clear David job this episode is

presented by our partners at JP Morgan payments yes just like how we say every company has a story every company story is powered by payments and JP Morgan payments is a part of so many of their Journeys from seed to IPO and Beyond yep 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 um my relationship with Jensen started with a letter that uh he sent to me uh I think it was 1997 and the letter was sent to the post office and I received it in s uh uh and the letter said that um they were Nvidia the company that uh Jensen was the CEO of was a small company but they had developed some really uh promising uh chips but uh they were looking for a Foundry and uh they had approached the tsmc's uh San Jose office but uh they really uh got no answer from San Jose office would I please contact Jensen because Nvidia really wanted to do business with uh tsmc so uh I was going to the US in the next week anyway so the letter uh frankly uh raised my U curiosity and also uh

uh irritated me a little bit because uh you know I had always uh told our sales people that uh that we should never be um negligent in U talking to Future customers even if uh the customer seems to be a very small one and at this point Nvidia was four years old they were facing bankruptcy I think yeah and they had uh maybe 50 or 60 employees so tsmc I think at that time already had the a few thousand employees and we we had exceeded I remember we had exceeded uh1 billion US doar in Revenue in '95 and this was 97 so we were relatively speaking we were a pretty big company yeah 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 uh uh California and uh uh I called him back without advanced notice I I called Jensen I looked up I think there was telephone number on the stationary 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 his he he was arguing something with uh uh his people uh but as soon as I introduced uced myself said this Mar he immediately shouted to those people that were making noises is quiet Mar CH is calling me so so uh I then proceeded to make an appointment with him uh to visit him to visit mvidia uh uh the next day or something like that and uh uh that was our first uh visit our first meeting and uh he uh immediately impressed me with um his um articulateness and also uh he impressed me with his uh optimism while he was also very Frank he told me that Enid here was in financial difficulties but the chip that he wanted now to have bed would not only uh save the company it will also uh make Nvidia a major customer of tsmc and mean that was you know actually quite a bold statement you know we were we a billion dollars and to be a major uh

customer of ours he would have to produce revenue for us of at least uh 50 million a year okay was that chip the Reva 128 uh I forgot the number but it was a very successful chip yeah I don't think it was Riva anything uh it was uh a uh a games chip of course it was successful in fact back his prediction came true not only did it solve uh idious financial problems uh it uh prevented from being bankrupt you know not only did it do that it also started to make them a major customer of tsmg within two or three years they were they did become one of the biggest five uh customers wow yeah very successful chip yeah so there was a a great partnership forged there tsmc would Fab the chips would manufacture them Nvidia would design them that is true all the way to today at imense scale but it hasn't always been easy and 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 PMC 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 uh decided to um give the CEO job uh to uh a potential successor of of mine while I will still retain the chairmanship in Taiwan usually the chairman is the top man anyway even though U uh uh CEO is another person so uh the problem you just mentioned uh happened during the period when someone else was the CEO apparently it was uh a manufacturing problem it was also a quality problem and uh it was the quality problem that uh the CEO first reported to me but the CEO insisted that uh our people uh we we had a director of quality uh insisted that we were not tsmc was not a fought and so on that basis on the basis of our quality uh um manager arguments he had not offered

envidia anything um now as far as the manufacturing problem was concerned it was a you problem and everybody was suffering from it and of course Nvidia at that time was the perhaps the biggest customer of that node the 40 nanometer note 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 um problem apparently you know just continued and I I I was even though I was not the CEO I was getting a little impatient uh and then of course some other problems popped up other problems than this 40 nanometer Nvidia problem other so I decided to uh take the Z position back so in 209 I I did that and uh there were several um priority problems that I had to deal with uh when I took the co job back on and one of them was this continuing problem

continuing argument controversy with Nvidia anyway uh I remember uh in the first few days uh after I took back the uh CEO ship uh I called all the major customers including Jensen and Qualcomm was a I believe in that qualcom was also yeah and qualcom the top customers uh didn't changeed very much uh since except for maybe one yeah apple apple yeah apple came later yeah uh and uh in my call with Jensen um uh he he was uh still uh very friendly with with me uh but he also uh 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 but uh give me a couple weeks and I will get back with you and um as I said uh I did have uh several problems uh aside from the uh 40 nomer manufacturing problem and the uh problem with the argument that we were having with uh Nvidia aside from that uh

uh we also had the uh the problem of uh uh the pricing uh was dropping faster than the cost you know I mean you don't want to see that you know your gross margin percentage kept dropping you know because you had 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 uh another problem was uh was the immediate one that trigger me to retake the Coos ship because um the previous CEO had um laid off except he didn't use the term layoff you know he used the B performance review the worst performance view people and there were about six or 700 of them you know and he laid them off um uh on the basis of their uh poor performance and well we never did that you know I mean we the worst we would do was to put them on place them on probation for 6 months and quite often you know at the end of the 6

months everybody will go back to the to his or his or her old job and some of them would get um transferred because they were in the wrong jobs you know 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 who to lay out right yeah and I I actually you know uh have told the managers that you know but uh and well in uh 208 of course there was uh a financial crisis and uh the semiconductor business in fact got affected and uh our Revenue dropped our business dropped pretty seriously yeah I was not a you I was a chairman but I just knew that uh anyone any general manager any CEO General Manager uh without very much experience uh what he or she would do in a situation like that it's a kind of a kneejerk kind

of reaction know oh he says oh this is my test I got to save you know all the money possible and and I got to you know lay off people you know but this is the semiconductor industry and Mo's law means no matter what happens you will always need people well I know I know but well semiconductor but semiconduct injur people actually think the same way as I describe you know I mean they all lay off they are they all people too I had a lot of experience at Texas in but at Texas instuments I was not a CEO I was just one of the top managers under the co level and when the company decided to have a layoff the CEO convered with the top managers uh who included me and their first reaction was exactly the same and I'm talking about uh the 70s early' 70s their first reaction on who to they off was exactly the same as what our TSM CCO did in 20 late 208 209 which was you know go by performance I mean well now I was the

only one at Texas Instruments in the early 70s that said no that would not be uh credible uh 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 very subjective it's not something that uh people will respect if in a year you have to hire people back you have to hire the laid off people back then you shouldn't lay off because the lay of 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 have you

shouldn't lay off 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 uh Invidia yeah yeah well to finish the employment issue the laid-off employees as I said there were 700 of them six or 700 of them uh came to my home uh to demonstrate and protest now uh the company tsmc was pre-warm war that hundreds of people would appear uh in front of my home so they notified the police department uh in my district so the police department sent 50 60 police officers to uh try to maintain the order now uh more than 100 protesters appeared and uh the neighbors my neighbors you know they trouble getting in out that was only the first time a month or so later uh the problem was uh still not uh solved I was still not the CEO so they appeared again some protesters about 25 of them decided to spend the night sleepover in the little park

that's about a block away from my home my wife literally didn't didn't sleep that night you know I bet she wake up and went over to that window to take a look to see what was going on but uh then very early the next morning um uh my wife 6 6:00 the next morning my wife you know got up and uh uh she took one of the uh bodyguards and uh went to a uh Neighborhood Market and got the the Chinese star breakfast or Chinese bread you know fried bread you know I don't know whether you ever had it or not probably not yeah yeah in bun buns you know yeah so be milking and take enough of the breakfast in up for 25 30 people and back to to the park to the park and uh distribute them to the protesters and uh they were thankful you know yeah and they actually decided to not go to the president's uh uh Palace president Manion and they told my wife that they would not do that that day and all this uh kind of precipitated my U uh

taking back the CEO job well there's another thing you know uh I told the the previous CEO uh before he he laid off the 6700 people I said if you because I knew as I said I knew that it would be his neor reaction uh to confront a a crisis such as the crisis uh we had it be his knee-jerk reaction to lay off so I said to him if you want to lay off bring it to the board I'll for a special War meeting and I I knew what I would ask the bo to do which was not to Grant the permission but he decided to circumvent that the co because what he did he did not consider it to be layoff you know it was just punishment for the poor performers h well as far as 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 uh successor to me 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 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 didn't need any new businesses and up the biggest marketing uh biggest Market 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 and you know solar is a small fraction of that uh LEDs are a small fraction of that you were already in the best Market I know and I I knew that I I KN I did I did not really mean I did not really think that solar or LED would really replace our integr circuits business but I knew the integrated circus was going to be great you know but uh at that time which was uh

209 at that time we also thought that Sola and led was going to be very promising yeah but it didn't work out of course the solar business could have been pretty good however China ruined it they subsidized the hell out of it and uh they now uh control that business solar cells the prices were extremely low still low still low so it didn't take off tsmc didn't take off um and led did not take off either because LED it's not the the market is not as big as solar however it's controlled the pents are controlled by just a few companies and they they wouldn't let the the few companies that control the patterns of LED were not let up at all so a few years later the CEO that was put on the new businesses uh decided that uh uh his new assignment wasn't working out either so he quit and he's now running Media Tech is that correct he is now the uh a vice chairman uh and uh the CE of mediate Tech yeah so coming back to this moment in

2009 you rehi you offered to rehire anyone who was laid off that was interested in coming back and you're setting the new sort of vision and strategy as CEO or in many ways returning to the old one how did you resolve the Nvidia dispute yeah in the first four or five weeks after I retok the co job I probably spent almost half of the time on how to resolve the problem with Nvidia as far as youths were concerned but we were doing our best because you know we had to do it anyway you know I mean andbe there was just is one of the customers yeah not just imidia but yeah Qualcomm and Intel yeah and it was a very important note 40 nanometer was very important note uh in the progression of Mor law you know only after 40 can we if we do the 40 well can we can we do the uh uh 28 28 was the next one and I called uh the the uh sales people that were in direct that have been in direct contact with Nvidia and of course I called the

everybody that was somehow involv somewhat involved in the problem so it was a matter of money you know as far as the progress on U the manufacturing lines would already doing what we could I mean it was as I just said it wasn't just for Invidia it's for for tsmc you know but Nvidia because um they they had borne the brunt of the the the problem the damage so it's a matter of money I worked out in number I familiarized myself with all aspects of the problem and then I worked out a number and I I also knew that idious customers were were after them you know they had demands on Nvidia too so and I I use all the intelligence I could get and I think that was it turned out that it was 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 next week on this stage I will be at your home at 6:00 let's have just Salah and pizza which was

something we we had had uh many times in the past now uh immediatey uh you sent back uh 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 I anticipated that so I said 6:30 we start having pizza in the SAT 8:00 shop we'll go to your office at your home and we'll do discuss business so on the appoint of the date uh day I showed up and we followed the schedule exactly you know 6:30 show up we had the very present pizza and the S yeah thing is that you know uh his wife Lori would make the p uh the salad you and and the pizza was delivered from outside maybe maybe they made their own pizza too I forgot would not surprise me yeah anyway I I had I had had it many times at his home all right so at OST shop it was I who looked the watch said Jon why don't we go to your study you know and I gave him the offer it was on

the order of a 100 million dollars right yes more than 100 million yeah and I also said our offer is effective 48 hours if you do not there there is not going to be we are not going to argue we're not going to bargain if you don't accept the offer within 48 hours we have to go to an arbitrator which was what he had suggested to the previous CEO anyway that we go to the arbitrator you know but the previous CEO did not even give him a number you know the previous CEO gave him zero you probably don't want to go to arbitration with your best customer no I didn't want to yeah but uh you know I had to say that uh uh and uh and because I mean that number the number we offered him uh was arrived at after uh as I said weeks of work uh on my part and I thought it was fair to both sides you and Did Jensen accept the offer yeah he did uh in two 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 hundred million doar settle and then since then there have been many many many billions of dollars of business done together it's a great success of working out your differences and no I I like I liked it

too I that's why I included the story in my auto while now is a great time to thank our presenting partner JP Morgan payments you don't often hear stories of how important payments are to supply chain success but the last few years have really shown how critical it is to the global economy in our remastered tsmc episode you heard how JP Morgan's trade and working capital group helps companies manage risk can access liquidity for their global trade and we just got a new stat from them 18 of the top 20 largest corporates are payments clients so they have an unparalleled view into global trade flows so zooming in on supply chain think about a typical manufacturer they're trying to balance paying their suppliers quickly to keep good relationships while also optimizing their own working capital meanwhile their suppliers especially the smaller ones often struggle with cash flow while they wait 30 60 90 days to get paid so

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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 nmet well I had a lot of trouble at TI my Peak job at TI was uh the head of U worldwide semiconductors TI of course had many businesses defense business materials and controls so uh and also that origin which was geophysical uh and so on but TI's semiconductor business was their biggest and I was the head of that worldwide semiconductor business I wanted at that time when I was the head of uh 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 all every time I raised it now coming back to tsmc I wanted to set a a number a number a percentage of Revenue

number so we don't have to argue every year how much on the which is sp so at that at about that time about the time 20 89 uh when I came back I just almost like at that time we were running I think six or s% uh a year but it was negotiated every year between the R&D director and the CEO you know so I want to stop that I want to make him at ease you know I mean doesn't have to argue doesn't have to to request every year so I almost just literally picked a number our had we've been running 6 or 7% already so I said oh let's pick 8% okay yeah 8% regardless of uh whether there's a recession or not and just 8% off revenue and that was the the best news if you ask uh uh our and the director who was back then I think uh in in the second place of on the uh uh 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 Andi you so they were not concerned

the and director was not concerned at all about having his planned budget cut back his plann uh uh resource uh people uh allocation cut back you none of that so he has been working 8% and so has been like that you know and um that is what you know propelled our uh on the effort in this period in 2010 it wasn't just ramping the R&D budget was also the capital expenditures you you would had almost a decade of two to 2 and a half billion spent you know building the Fabs every year and in 2010 you you ramped that to 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 yeah I think it was a kind of a mutual feeding thing you know as I as I uh settled the um ond budget at 8% of Revenue I mean to the uh uh satisfaction of uh the Andi people they began to have big Ideas you know they began to to be telling me our 28 is going to be the term they they use and they have used it several times uh 20 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 know you hit you hit the ball with a sweet spot of your record yeah yeah do you play tennis I have played tennis not well good I was like you you know like 40 years ago I was like you I don't play anymore but you know I so I know the feeling of hitting board in The Sweet Spot you know 28 n is in The Sweet Spot and so I said I said

why you know he you know gave me a lot of technical reasons 20 n so I decided I I would believe him and uh he he now had the resources uh to push it to do it uh uh as fast as he could uh so you know uh now the capital spending now of course back then we had already built up a pretty good um infrastructure uh organizational infrastructure we had uh a pretty good uh Market forecasting group and I had set up the business development department which was like uh the marketing department now we always had a pretty strong sales effort but uh to me sales effort is just uh uh the Tactical side uh uh with the customers marketing is the Strategic side to the outside world yeah now from all these inputs the marketing The Business Development Department which as I said was our strategic Marketing Group um and from the technical from the R&D side that uh 28 was going to be spot I decided that and I I quoted the Shakespeare in my

autobiography that there's a tide in the Affairs of man which taken at its frot leads on to Fortune you know I decided this was 28 nm was going to be our our tide yeah our our next hide anyway there will be others seven n it was another was the the next Sweet Spot the and the people told me and again you know uh reminded myself of Shakespeare you know taking it the flood taking yeah uh so I mean that took that however you know and setting the R&D at 8% of uh uh did not invite uh any opper position from the board but suddenly increasing uh Capital spending threefold I think did invite a lot of questions from the board our practice in the board meetings and because back then well even now uh mostal directors are from uh overseas uh us and England and we would uh uh 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 uh that dinner the conversation at that dinner was not on record uh so so the independent directors actually more three quarters of our directors in were independent are independent directors anyway uh so in the in the uh night before and the evening before the meeting they had uh the opportunity to asked me questions if they had any but on this matter of uh vastly increased Capital spending they didn't even wait until uh until they get to that they got to that uh dinner because this was effectively betting a huge amount of the company's cash on this node this process this generation yeah and uh so they uh they called the the uh Chief U uh The General Counsel The General Counsel is also the secretary to the board yeah uh they called uh him at that time it was uh an American the general Council was an American and said we want to talk uh to the chairman we don't like this uh idea

no anyway so I talked to them on the phone uh about a week or so before the board meeting and uh all right uh you know this is something that of course I told them what I have now just told you uh inputs from a market forecast inputs from our aune 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 like this 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 and what was the result what happened around this era of 28 nanometer that created so much demand oh I think you know the result was good and that was the smartphone ERA coincided with 28 nanomer 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 I didn't maybe the business development guy that was another interesting story yeah maybe he knew maybe he or at least I I I now hope and I of course hoped at that time too that he had uh a more detailed uh visibility uh than I did uh uh but I I I mean of course this was was not the only uh it was not the only input you know I had a few other advisors too

yeah so that takes us to Apple could you share with us how you end up meeting Apple yeah but before we before we do that let me offer how we uh made uh CC actually the business development uh director ah the current CEO the current CEO the current chairman and CEO yeah when uh Rick was uh CEO between 205 and 209 he had split operations into two groups advanced technology and uh mainstream technology and uh CC was uh the head of the mainstream actually really I should say the Lesser one okay yeah and Mark Lou was 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 I never thought the split up of two groups was a good idea anyway in fact uh back in 1996 uh the president he was not a CEO but he was the president uh we didn't have the CEO title back in 1996 but the president who was American Don Brooks yeah right he wanted her

to spit he got a little I think he got a little tired of running this company uh he was going to be here for only a year at first but he winded up he end up staying spending six seven years in Taiwan towards the end he was getting little tired of running this thing and he thought that he would do it like uh TI for instance when TI had a germanium transition Department silicon trans department and IND circuit bipolar IND circuit MOS IND circuit you know it's the divisional org structure instead of a functional or structure right yeah but I really did not think that The Foundry business TSM CP uh was suitable for the divisional uh structure because you know we have almost the same group of customers how do you how do you divide up that group divide up the company if you want want the so-called divisional structure well you know you know D Brooks was going to divide it by Fab you know my goodness you know the customers

move from one FB to another the same customers you know not to mention tsmc has 21 two Fabs now and so what are you going to have 22 he only of course he only had three or four Fabs you know back then yeah but he he was not convinced he kept arguing and I said look why don't we get um a consultant uh McKenzie McKenzie why don't get McKenzie okay so we got McKenzie in and McKenzie after a month or two two months actually and a couple million dollars I guess well told us the same answer you know that functional is pass is best and then Don Brook said well tell me one company one big company that's functionalized and McKenzie immediately answered Bo boing which which is is a good answer you know yeah yeah of course except it's not true Boeing has commercial and and government uh well they they probably have have commercial and government but they don't have 707 747 7 57 you know they don't have they

don't divide and if we divide up by Fab it would be like dividing up 707 from 757 737 you know yeah anyway Don Brooks attempt was in 1996 and well by uh 205 Rick s you know decided to cheat the same ground well and he did uh this time you know I didn't I didn't stop him my idea my principle when I was uh the chairman and not the co uh was well sometimes you have let you have to let the CEO make his own mistakes and learn from them you know uh of course uh not if the whole company is going down the drain dra so you you you have to interfere then but only then well anyway um so that was uh the background uh two groups when I came back to be the CEO uh the advanced group and uh mainstream group and each group had a small business development section 30 or 40 people I think evance has had more a bigger group than uh mainstream all right so I wanted to combine the the two operation oops and I also wanted a real marketing

and I didn't call it marketing because I decide to use business development in English because has a good translation in in Chinese uh all right now I decided to combine the two uh groups operation groups uh now back uh in 2009 qu I decided to combine the two groups uh I think the uh Advanced group uh had uh something like 10,000 employees and uh the mainstream group had a little less but also 7 or 8,000 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 it's Coss sensors for cameras and and finding customers to keep the utilization high on those older Fabs from previous generations yeah uh right but also uh you quite often the same customers use both mainstream and Advanced Technologies yeah take qualcom I'm quite sure that

they use uh you know the most advanced uh and uh or even Apple I think they use yeah if you think about all the chips in an iPhone yeah you know the a16 pro is built on the Leading Edge but there many many other chips in there yeah right so you combine to one Business Development organization 80-ish people yeah we had the mark Lou in charge of the advance and the CCA in charge of the the question is you know who's going to be in charge of what you know the combined or you need only one for the combined operations you need only one person the truth is that we had a lot of operational talents you know operation meaning manufacturing taking the developed technology from R&D you know and uh converting into mass production we are a lot of talents there but um Business Development or marketing there and uh neither uh Mark nor uh CC had any real previous experience in marketing business development so that was my U my main

worry uh you know we need we need we combine the two groups we needed a combined uh uh operations manager uh but even more importantly in my mind we needed a some find market uh business development manager so I uh first offered the marketing uh Business Development job to the the guy who was in the bigger job evance Tech Mark 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 of being uh professed in that area but he de kind 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 it was always the end of that conversation and your goal was for him to become a well-rounded executive yeah in hopes of leading the company after he sort of did that tour of Duty and I explained to him that yeah not to mention it's a very

important or 70 people they're responsible for finding all the next business I know I know I know actually back in my mind I was Thinking of U 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 the Kissinger you know probably had couple hundred people reporting to him whereas 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 yeah and before this period you were doing the business development and marketing for the company right you were the one finding the nvidias the Jensen's the broadcom the next great customers and great markets for that's right that's right I Was You Were Always On A Plane meeting with the current top 15 customers and trying to find the next top 15 yeah except for those four years

when I was not the CEO yeah H yeah but you were right I was on the plan most of the time visiting customers I that that was my pleasure yeah I really liked it you uh well anyway uh so I then of course offered offered the business Department job to CC and he accepted I mean I I thought he accepted it uh uh even delightfully you know yeah so and he's now the chairman and CEO of tsmc yeah 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 uh 6:00 or later and uh uh I went home uh uh this was uh Tae uh we had uh our board meetings back at that time uh in in fact here in the in the you have you ever seen you have seen my conference from yes across the hall yeah yeah right yeah we we had all our all meetings in taipe in that conference room uh anyway it was uh 6:30 also when I got home and I think my wife

knew that uh I would not be home until around 6:30 because as soon as I uh she actually she met me at the door which wasn't very often you but this time she has something to tell me that's why she met me at the door she said uh uh Terry G called in the afternoon and said he was coming to dinner and who is Terry gal for listeners Terry gal is a relative is actually a uh second cousin of Sophie Sophie is my wife uh and uh they share the same grandparents that's what makes them second cousins I think yeah and for our Western listeners who this won't be obvious to Terry gal is the founder and CEO of foxcon right Terry gal is a second cousin of sophies and he's also uh he he is also he was also at that time the chairman of uh hanhai which Hong High Hong High yeah foxan to American the name slip my mind for what for for a second yeah onai which which is a a very important supplier to Apple uh and

pretty big company and in fact Terry G uh uh is reputed to be one of the richest men in Taiwan H and she said Sophie uh is lovely but she doesn't uh know too much of my business I don't think she understood the uh significance of uh of uh Terry G coming to dinner bringing a vice president from Apple uh she I don't think she quite un quite really she didn't really 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 win Apple's business the smart the the iPhone seems to be working yeah I mean strategize well strategizing is probably too uh strong a word you know I mean I mean just thinking thinking Al also knowing that we we just can't do anything we can't do anything about it app is a very close mouth company if you try to talk to them if you offer you know your service I mean they were just

tell tell you to go away you know 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 you know yeah all right all right so uh 8:00 now Sophie did know that uh I would not be home until after 6 o' so he had told she had told uh Terry that and Terry had set the time of of arrival of their arrival uh at 8:00 so 8:00 was a a bit late for my dinner but I I said what the heck wait so they showed up uh I didn't ask Sophie just said a vice president and uh I just thought to myself it wouldn't be just an ordinary vice president yeah so uh because you know there was no reason for uh Terry to just bring any uh Apple vice president to my home with then it must be something special it must be someone special uh for tsmc you know all right so Jeff Williams came he was uh not just a a vice president he was the chief operating officer of

Apple and uh you know they Jeff was a pretty straightforward person he didn't spend much time in the in uh ordinary uh uh chitchat there wasn't the same Pizza and Salad uh period before it wasn't but it wasn't formal either you know my my wife Sophie just added we we we have a cook you know we had a cook uh and uh pretty good cook uh uh so uh Sophie just told the cook to add a few dishes she's a Chinese cook she doesn't do any Western food and you know Terry obviously he grew up on Chinese food and I would imagine that that the Apple guy that he bought uh would also like uh Chinese food anyway so she just asked the cook to cook okay a few more dishes but uh you know it wasn't important the food was not important either the quantity or the quality was not important because almost Jeff almost uh immediately started his pitch you know almost soon as uh he sat down to dinner and what is the pitch from

someone like Jeff Williams like we would like you to p y wavers something like that pretty straightforward I mean so I was I I I listened that that night I think Jeff talked uh maybe 80% and I talked 20% uh if if you don't count the uh the relative to relative talk between Sophie and the Terry you know which was very which was not very much either yeah and Jeff had proposed economic terms at this first dinner right no uh not not nothing so concrete okay he just say that we would let you have 40% course margin and I I think well I didn't say anything I didn't answer him I didn't respond to that but our margin at that time was already 45% and I was trying to push it up to 50% was a announced effort in the company to push the G mod uh and I had that uh uh effort for many years uh after I came back to be the CEO and I really didn't even didn't succeed even at my retirement now of course uh what

happened later was that there was covid and so on and also we began to have leadership technology leadership uh uh so our margin you know uh jumped up to over 50% but when I retired I was still short of 50% slightly short of 50% I was almost there when retired in in technology leadership you're saying that around this time the 28 nanometer node you were you're talking about uh 20 20110 yes you were still a select few at the Leading Edge but there was fierce competition whereas once you got to seven net or so that's when you really you neglecting I think when you said that you were neglecting Intel okay yeah at 28 nanometers we were very definitely the leader among foundaries yeah and maybe among a few other companies such as Texas Instruments and so on but not Intel okay and apple was considering Intel no apple uh was not actively considering inil that came later later yeah but uh uh uh know I'm I'm quite sure we we have time

to cover that yeah well take us there now so after no member of 2010 you had the initial conversation with Jeff Williams yeah he said that he would let us at 40% and my thought was my goodness you know we're already at 45% you know uh 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 uh now is not this dinner is not the time to go into a pricing discussion we have a lot of other things to discuss anyway so I said um no we were about to go into production we were almost in production with 28 n me at that time uh the initial stage anyway 28 so I said I thought it was going to be 28 28 nope what what node uh do you want uh plny he said now that was a surprise to me and Frank it was also a disappointment because the most law progression after 28 was going to be 16 h now Apple Jeff Williams wanted a 20 a half step a half step but half step

a half step is a detour you know uh you you we had to we would have to my thought at the dinner there was that we have to spend effort on the 20 uh which of course will help us on the natural next note which was 16 but still it was a detour from 28 you know from 28 if we had if we could go directly to if Rd would go to uh 16 it will be less time than the first do 20 and then no the point is that back then on D did not have enough resources to do two noes 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 as customer it wasn't that serious it wasn't that serious uh because when we figured uh a very big market for 28 uh and therefore uh 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 the president surprise yeah anyway for the company in total but not for 28 you know 28 28 yeah we didn't have we didn't include Apple in our 28 planning but it's still the question of are you are you willing to go do this huge distraction and spend on the order of 10 billion over the the next few years doing 20 nanometer for Apple when you weren't planning on doing 20 nomer at all that's right that is where our connection with uh Roman sex came in you know you know remember I I planted a lot of seats in when I ran tsmc um I knew that one of these days will probably need uh top level Investment Bank uh advice so we we establish a good

relationship with Comm sax uh very early in our existence I was in fact a board director of Comm sex did you know that I did yeah yeah yeah uh we did uh the uh uh ADR with uh Comm sex yeah uh which uh uh opened up a a good relationship with K it was your New York New York public listing of of the stock yeah ADI is American deposit re receipts yeah it's New York yeah it's tra it's it's a separate Market you know it's in fact right now the tsmc price uh ADR price uh is has a 20% premium over really wow however you know you need tsmc board permission to convert your shares to ad yeah otherwise you'd be able to Arbitrage yeah we don't want that so as I said as I was saying that the board has to approve any conversion of uh ordinary Taiwan TSM stock to ADR and the board does not give such permission easily anyway okay yeah so

you had planted this seed with Goldman Sachs for when you knew you would need them right this this was very early in our history now uh we we need uh funds I mean this apple thing came after we had already decided to increase uh Capital spending now you know Apple uh requires even more Capital spending and we have to figure out where the cash is going to come from so now there were several possibilities of course we're paying a dividend not not a a big dividend back then but uh uh a modest dividend then we could cut the the dividend and uh then we we also could could sell stock you know new stock offering either in in Taiwan or in the US we have the adrs you know uh or we can borrow money yeah uh cob bonds you know or you could only fill part of Apple's order right and uh we in fact we we did we did that I you know uh what we first we first did our financial planning and um we decided not to cut

dividend we decided not to sell new stock we decided to just borrow and uh I this was also with consultation with K sex we chose following 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 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 of you spending all the money I know I know well back uh in the '90s in the first uh say 15 year first 10 12 15 years of our existence we were short of capacity almost all the time uh and what you just said happened all the time you know and so we figure out that we will require a deposit from the customer and will even confiscate the deposit if the time comes him comes for him to to take the waers and he doesn't you know and everybody Delights in the word

confiscate so 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 you know it's our money and it's only their words you know uh they may not want the uh Wafers when the time comes and uh I told the salesman tell the customer they will confiscate the deposit and ah the salesman never heard anything like that before you know and uh so they were they were they were you know upro in in happiness you know I mean now you know they could they could actually stand up and tell the customer that we might even confiscate your money but of course uh it really we never confiscated any money no it it it did happen quite often uh particularly in the 2000 uh 2000 we had uh I think it was called internet uh yeah recession I think yeah because in in internet was you know people were were starting companies uh

called pets.com or something you know yeah it was anyway so we had the recession which trickled all the way back to semiconductors tsmc's revenues uh it was four years years after the com bubble before they were back at the yeah at those rates yeah yeah uh was was it five it was almost four years yeah uh 20 I remember recovered only in 203 yeah it started in 2000 no started in 2001 the first quarter of 2001 and recovered in the third quarter of 2003 so it was three years yeah three years H 01 02 uh the third fourth quarter of 03 three years uh anyway the customer a quite a few customers had plac deposits uh to anticipate normal good times during those years and we did build the plant uh in fact we bought we we purchased or I should say uh uh yeah we bought uh uh a couple of other companies and uh so their plants their faps became ours and the customer didn't need the Wafers anymore didn't need the outputs

of those FBS anymore and uh we didn't uh come 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 you know that would come you know and so then back to at this point early 2011 with apple you go to them and say uh we are prepared to serve half yeah the number that you told us well first uh of course uh the new or relatively new business development director CC he he had the uh privilege of first telling the lower level uh purchasing people uh at Apple and he got he got he got a response back you must be crazy you know uh so CeCe did not comment on that uh at least he said he didn't comment that he brought it back to me and then I went to uh Apple myself and talked to Jeff Williams so I said to him we have to issue corporate bonds I think I use the word prudent after all the prudent financial planning

we decided that we will take half of what you ask for now he he was very uh uh very quiet about 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 well the fact is I I had looked into that I mean that's that's also a reason for you know having a high level Consulting uh uh advice um about onethird of our investors shareholders are very seriously interested in the dividends so if if we do what the Jeff whim said our stock is going to drop like hell you know trigger a sell off right oh anyway but but um uh when I talked to to Jeff Williams and I I I went to see him in uh uh what's the placeo yeah copertino I mean he was he took it uh fairly willingly you know know no no no big problem all the only suggestion that he made was uh the elimination of dividend you know and I said no and he he then

let it just uh lie there you know okay uh but so then uh then the issue was settled I mean how much demand do we we would take and how we will get we still had to borrow billions of dollars even with the with half of uh the demand all right listeners this is a great time to reintroduce a good friend of the show service now last year we shared their incredible story from founding through becoming one of the best performing public software companies in history well today we want to share a more recent story in November of 2022 chat GPT was released we all lived through that moment and it totally changed everything and so predictably what happened next is that there was an explosion of oneoff B2B tools that let people uh do some specific department or function thing with AI to get more done faster yep but then again predictably all of this just created what Bill McDermot the CEO of service now calls

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this really was especially after the the investment in 28 nanometers that depleted your reserves this is a bet the company move you're you're you're taking on a bunch of debt to go build yeah the Fabs to make this happen but yeah I know better a company but I I didn't I didn't think I would lose you know you sound like Jensen we sound that's exactly what Jensen said yeah and so um all right but I think that uh the financial discussion with apple had already happened when Apple when Jeff Williams call me in February of 20 we're talking about who 11 yeah he said was see very short conversation well um said uh we need to um 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 uh in

February uh of 20 11 Jeff Williams was talking about the iPhone yeah but they had a a close existing relationship yeah yeah I don't know what relationship they really have you know well I it must be closer to me so that was all he said and I wasn't all that worried because in 2011 um 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 in the 90s in the late in the late uh uh 20th century I mean they were a name in semiconductor that when you hear it of course I'm exaggerating the situation Mo's law I mean it's they're Intel yeah Intel yeah if you hear the name if you hear that they're in competition with you you know my goodness you'll be trembling with fear you know I mean this is why you started tsmc as a PurePlay Foundry business because you didn't want to compete head-to-head you you said we should not be an integrated design

manufact of the design of the chips and the manufacturing we have to compete on a different Vector CU we'll never catch Intel I didn't quite say that we never catch fair enough look where we are in 2025 okay yeah uh uh anyway so so uh I I I I I of course had to accept uh Jeff Williams request all right um but again you know uh as I just told you I wasn't all that worried because uh you know why why reviewed in my mind all the characteristics uh that uh uh Apple is uh looking for in a supplier you know uh technology at that time we thought we were almost at par with Intel almost in fact I thought we were I think I thought we were at part with Intel at that time manufacturing I thought we were better than Intel and customer trust we thought that our customers trusted us more their intels customers trust Intel so I will do wor it but uh then indeed and I also thought that when when Jeff Williams told me the highest level of

Intel I thought he was talking about U somebody like Andy goo you know who was retired of course but you know but it turned out that he was only talking about the CEO of Intel that yeah but I knew that only later would that have been uh Bob Swan or Paul adini no it was uh uh the Italian guy oini got yeah so today Intel doesn't make the chips in the iPhone what happened and in fact tsmc makes all of Apple's chips yeah all right I wasn't too worried but uh you know I it still was uh 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 uh so almost exactly a month later March middle of March sometime I decided that I would uh pay them a visit and and asked them what's going on you know any progress so I emailed Jeff and uh asked for an appointment and I said I was coming to the Silicon Valley anyway uh which was pretty normal

uh and uh will stop in at your place on such and such a day is that okay and uh Jeff uh replied by saying that uh 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 dedicating his spouse to see a visitor it was a privilege that I seldom had in my career you know 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 yeah but but in this case it was Jeffs well anyway so I showed up and uh uh Tim was uh 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 Carri our tray back to his office you know and uh anyway he told me there's nothing to worry about because uh Intel uh just does not know how to be a found H that's a 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 that we had the uh on technology on manufacturing subconsciously I think I interpreted Jeff's uh explanation to me to be the third one customer trust you know 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 customer customers in Taiwan you know all the PC makers uh are Intel's customer they none of them liked Intel none of them yeah in you know act always acted like they were the the only guy they were the only guy you know the for the uh 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 yeah I I but I really don't think Tim meant that I think Tim meant that uh the customer asks a lot of things we have learned to respond to every request some of them were crazy some of them were some of them were irrational we to respond to each request courteously which we do you know Intel has never done that yeah in I mean I I I said I knew a lot of uh customers of uh intels here in Taiwan and uh none of them they all wished that there were another supplier H yeah none of them either trusted the Intel or lik Intel so to to

finish the Apple Story the short answer is it worked on 20 nmet were there any tradeoffs where uh that did did pursuing 20 nanometer and spending the billions of dollars cost tsmc in any way well it might have cost but uh mean yeah the story certainly does not end here all right so I mean there was pricing you know every everything was not easy pising and and Jeff came himself and um we talked about pricing and we of course we had done our homework also on the cost and uh what what what kind of price we accept but Jeff came and uh he told us to say number you know well he he gave us his reasoning he had to make uh his component costs meet the certain goal also you but anyway um that was settled

and the Jeff said ah and when when the pricing was settled I said let's go out to dinner go to a taipe three star uh restaurant for dinner and Jeff jokingly said ah if you didn't like the pricing we will be we probably could be going to a McDonald's which was never in my mind but you 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 impact that sure the course yeah but the main the main thing that goes into pricing of course is the cost and then the second thing is of course um where uh your desired price will be accepted by the customer you know one thing that has occurred to me is uh tsmc now gets mid 50% gross margins call it 55 57 uh higher than your time but many of your customers have 70 80% gross margins yeah tsmc is creating a lot of value Val the designer is creating a lot

of value how do you sort of sort out who gets to capture the value well I I I don't get the privilege of sorting it out now you know CC CC way I think has the pleasure and the duty of sorting that out yeah well I mean as a general principle you know uh you try to find uh a kind of a middle ground which is different for every CEO you know uh even though every CEO uh who wants to protect his reputation every CEO says Ah I worry about the long range and but in truth uh not everyone does so it's a very personal how to sort these things out I think is a very personal issue now for a lot of cosos there's really no choice

you have to ex you 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 yeah please let's finish Apple yeah now I think you were asking uh whether there was any U uh tradeoffs tradeoffs well the tradeoff uh there was a pretty significant serious F off and that was a detour that I said you know we took uh we at that time back in the uh 201 11 2012 time we our R&D was was not strong enough to do two notes at the same time now we are but back then we weren so the tradeoff of accepting the 20 node technology was that we delayed our 16 node development H and then Samsung came up with the 16 they had lost the tronic business you know so they they they went ahead of us in the 16 nanometer Department because they got to skip 20 yeah because they didn't get 20 okay they need to develop 20 so I got a shock I mean it was a real shock when

I heard that Apple had placed the first orders of 16 with Samson now that was the real shock we invested so much even though we took only half of the 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 convert converted to 16 and now if Apple went to Samsung for the 16 where did that leave us do you understand what Happ Oh Yes 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 I was really shocked that was so I emailed U Jeff Williams right away uh and in I said you know uh we we investigating all these equipment and we were counting on you to take the uh the six 16 from us uh but now you know we we found out you were buying 16 at the first 16s anyway from Sam so uh Jeff replied immediately don't worry I'll be here I'll be there I'll be in s j next

week and explain to you so that um made me uh that relieved me a little uh uh but uh so certainly not completely but uh next week uh he did show up and he explained to us he said well you know as soon as you as soon as you're ready with your 16 we buy from you who buy all the needs from you when you're ready now of course that completely relieves me you because that's what we're supposed to do anyway you know so uh indeed what he said was true now we we developed we had our own 16 about uh half a year later and uh most of apples 60 nanometer requirements still belonged to us yeah most yeah I I can imagine the shock that you must have had at the same time this also again just illustrates the Brilliance of of tsmc and the the Pure Play Foundry business model uh Samsung is Apple's cheap competitor yeah I know I know it was uh

I said in the autobiography you know I mean sitting in suu being in The Foundry business uh I actually see a lot of things before they actually happen uh uh so let me tell you the IBM ccom Story please um now corcom uh we consider the qu comp to be a uh Prime uh uh candidate uh to be our customer uh we we really wanted to qu because we knew they were a technology house what year was this this was uh way back you know when we started in the '90s anyway yeah and they were part of that initial wave of fa companies yes they started the irn Jacobs started a qualcom uh actually before uh I started uh tsmc tsmc started in 87 quom I think was uh a few years before that yeah so we um in the 90s early 90s all the way up to 90 7 maybe 96 97 all the way up to the lat part of the '90s we want to quam to be a customer and um you I saw their operations VP that's what they call that's what our customers call their

purchasing people operations VP operations senior VP and I I saw I saw him often and he was always pretty polite but he gave us very little business and I also knew that his Foundry his main Foundry was IBM uh now sometime in the later 90s I forgot where that was uh 97 or 98 uh suddenly uh 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 had been but I I kind of knew that it was IBM from other sources of intelligence and uh our business with qualcom the business that qualcom gave us pretty rapidly increased after that after 97 998 period so I immediately knew the IBM semiconductor was in trouble H because I mean they had their own FBS and so on but their main business was really supplying to uh uh quom and a few other very small companies very small fabulous company so I immediately knew uh IBM Wasing in trouble because

they were losing qualcom uh 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 .13 Micron 130 nanometer okay in 1999 and since I anticipated that it was no problem at all for us to refuse the and in fact even even if I didn't anticipate that we would never never have accepted that kind of of cod develop I mean IBM was still you know a they still consider themselves to be the senior yeah partner in any partnership they establish the senior part so we were the the the company that co- developed something with them was send its Engineers to IBM you know and when we do that we will lose our ability to to develop our own process we have to depend on this Co development thing and the Cod development thing is going to have a lot of difficulties you know oh heck you know our people you know will be a different

culture so we declined without having to think about it at all we declined the the IBM of and IBM in fact was uh quite uh Angry you know I mean they thought we we still a small Taiwan uh backward place you know Taiwan company and they are big H so they uh immediately went to uh uh UMC and UMC accepted them only to regret seriously their acceptance if you yes and UMC at that point in time was was it fair to call it a peer of tsmc here in Taiwan in terms of volume and size not by 1999 they were already smaller smaller they were smaller already yeah that what's what I meant when I said that the sitting here as Foundry I mean I I I can see some things that uh uh like this IBM thing this might be a 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 developed the learning curve I really did not develop I certainly did not initiate it I'm I I think I had a role at TI yeah I had a role in refining it to the point where a Semiconductor Company can use it effectively that's my my RO yeah so uh how would you explain it to the novice well explaining learning curve theory is simple uh but one will be foolish if one just takes the simple explanation you know and thinks that that's all it is the simple explanation of learning curve is that uh as you make more of one thing anything uh actually started with refrigerators and the cars you know if a company makes more cars then its cost per 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 uh if one uh just takes that simple explanation and thinks that's all it it is about you know you really haven't learned anything at all all right anyway um uh the learning C well Bruce Henderson who is now uh considered uh the father of uh uh strategies founded Boston Consulting Group yeah he he he was the founder of Boston Consulting Group and uh uh now you know I mean there's a branch in U um in uh business economics uh uh that's uh that's called uh uh competive strategy or something yeah competitive strategy I guess um uh and Michael Porter was at one time uh considered uh a big figure in this competitive I mean he wrote three or four books you know big books you know 700 page each you know I I have all of them his original competitive strategy memo I think it's like 20 pages is still some of the best best business writing ever just who Michael Porter

oh well good who was a director of TSC at one point right why yeah yeah and I had a story about him in my autobiography too which because of time we probably won't go into not not Michael Porter but Bruce Anderson uh we will talk about him uh he was uh he is now considered to be the father of uh the compet comptitive strategy he came to Texas Instruments one day in I think around 1970 uh or I should say he he first called the ti zo Mark shepher and told him that uh Boston Consulting Group he he had founded a Boston cons Consulting Group and we we have cons B CG has uh a experience curve theory that would benefit semiconductor industry and TI was the largest company in the semiconductor industry then and with Mark shepher uh like a presentation uh of this uh Theory the Mark sheeper said yes so Bruce Henderson brought Bill bang uh you probably know that name uh with him and came to uh Dallas and made a

presentation and Mark sheeper invited the the co the c o and me to attend the presentation and it was a a very uh eloquent uh presentation uh because you know Bruce Henderson was a very eloquent man and uh Bill Bane was on the side apparently Bruce Henderson's poy uh anyway Mark sheeper was uh impressed and he decided that uh TI would work with uh B PG on this uh learning curve Theory and uh Bruce Henderson then uh assigned Bill bang uh to work most of the time at TI you know most of my like three days a week and Mark assigned me as TI's guy so Bill b and I became partners and I assign Bill bang a small office uh very close to my office uh at TI in the same building and small office because he needed a lot of things from me he needed permission to get out costs our prices we had we had a lot of families of integrated circuits uh and transs you know I mean he had a lot of requests so it was uh easier if

he was nearby and uh every time when he arrived at some interesting useful conclusions she will also discuss them with me so we had a very present Association for I would think two years maybe even more and uh he would you know uh fly to uh Dallas every Monday and uh go back to Bing either Wednesday night or Thursday night and uh of course every time he uh went back to Boston it would be to tell uh Bruce Henderson what he what he had done that week so this happened this went on for I think two years and then finally uh Bill bang came to see me one day uh and it was in those two years that I absorbed uh uh a lot of uh learning Cur stuff which uh I used up to now you know I mean I I found it uh highly um highly fruitful uh just as as a thinking tool you know yeah yeah it

seems so fundamental to the industry that you want to get through the low volume period as fast as you can ideally you spend no time in the low volume period and it seems like over time all the returns in the industry all the the winner is the one with all the volume because they'll just have the lowest prices and there's a flywheel where once you have the lowest prices you get all the business then you can reinvest that in the next node right it's almost yeah yeah right 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 that in the future there will be one winner yeah in semiconductor manufacturing but one day after a couple years uh B bang came to me in Dallas said you are the first one I tell this to outside the Boston Consulting Group I am leaving B concerning group to start my own consulting

company so I said why I said you know obviously Bruce Henderson thinks very highly of you and the bill bang said yes but there is the world imperative that's the first time I heard that term you know World imperative he meant for him personally yeah for him personally oh anyway that was that all right listeners now was a great time to thank friend of the show fundrise we've gotten to know fundrise CEO Ben Miller and the folks there quite well over the last several years and they're huge acquired listeners just like all of you and since we first worked together three years ago fundrise itself has gone through quite a transformation longtime listeners may remember that they have a growth stage Venture that they actually first launched here via an acquired sponsorship back in 2022 at the time fundrise was primarily known as the US's largest real estate investment platform for retail investors and it wasn't

necessarily obvious that Ben fundrise Ben that is that his kind of crazy idea to bring their model to venture capital would work well fast forward to today and Incredibly they have demonstrated they could break into the Venture industry in a big way Ben Miller and fundrise have invested in data bricks anthropic canva Ander ramp and uh fellow Friends of the show vanta and also service Titan which just went public in December in a successful IPO yep it's genuinely awesome what fundrise has done here which is something that many have tried over the years but no one else has actually been able to accomplish in Venture they've taken a retail platform that any American can invest in and gotten pre-ipo access to some of the best private companies in the world it's democratized access to all the value creation that otherwise has been locked in these private companies over the last decade plus as these growth companies

are delaying IPOs and staying private longer yep so when the service Titan IPO happened thanks to fundrise tens of thousands of regular investors got to celebrate along alongside the VC's LPS and employees yep we'll be talking about fundrise all season long and you can go check out the full portfolio that Ben and the fundrise team are building at fundrise.com Venture and if you're a growth stage founder looking for a great series C or later investor just get in touch and 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 doll 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 unlikely in your opinion that yeah I mean you started it when you were 56 yeah yeah there are many things I'm not going to argue with you okay I merely asked as a point of curiosity you know I didn't realize I didn't think it was that unlikely you know yeah well it it did exceed my expectations tsmc's size and importance exceed the my expectation but not by an order of magnitude you know but wasn't the original plan to stop building after Fab too no that was never that that was only the very initial plan okay yeah we were never going to stop there you know I mean we were just talking about learning you know that you know I mean how could we plan to if I

didn't know anything about learning I would say yeah maybe we stop after two two BS you know but I I was a serious student of learning C and I would never I would never stop uh at just two baps here's why I say unlikely success there

were so many reasons why the original incarnation of tsmc was kind of a bad business fablous was not a thing yet and so all of your initial customers were the integrated device manufacturers the intels of the world and you were taking their worst you know excess you were their Second Source supplier for manufacturing on the stuff that they did didn't want to make on their own did you see fabas coming or was that a very lucky thing no I saw it coming uh and uh the in fact I just had dinner or two months ago at dinner with the first guy Gordon Campbell gordi Campbell do you have you heard his name anyway Cy Campbell came to see me in general instrument in my uh 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 but the reason he came to see me at General instument was that he wanted the funding he want the

investment from General instrument $50 million he said you want 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 I need at least a business plan I mean I have to go to the board of jne so he said all right I'll send it to you within 3 weeks 3 weeks later there was no business plan and I was interested because I knew that he had a good reputation of starting MH companies so I called him and he said ah Mars 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 more anymore 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 FB see that was the start for me that there will be fabulous companies another guy uh came to General instrument and said he had already started a company which was called ATM

ATM and they did not have any faps MH and this guy wanted the general instrument to make the wers for them and back then General instrument you know had the empty FBS uh so I said I told the cic conductor manager of generalis and I said well go ahead and work with him Don Valentine yeah who I'm sure you you knew yeah I knew him yeah he had a great great quote when asked about starting seoa 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 I had a glimpse of it you know yeah uh so M you know uh and they were still fighting I mean at M he wanted the Fab to be run his way now of course the J semiconductor manager wanted to run the Fab his way you know I mean andent owned the Fab anyway For Heaven's Sake you know so that was just a very early situation in which the difficulty and the advantage AG of running a Foundry business already appeared you

know the difficulty was you know you you have to satisfy a lot of customers you know and everyone you know wanted the FB to be run his way you know uh but you can only run f one way you know which will satisfy more or less all the customers and the advantage of course is you have a lot customers you know well we can't thank you enough Dr Chang Dr Chang thank you all right very good was my pleasure even though uh it's the first time in a long long time that I have talked 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 uh we wanted to do a little post game on that interview a little bit of uh uh analysis kind of our conclusions the things that are still sitting with us a few days later after we've crossed the ocean and uh 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 uh we should let him talk and then we could do our part after yeah totally and uh fortunately we have a model for doing analysis at the end of story which is Playbook our Playbook 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 yeah Morris's original pitch like his little original slide original business plan that he pitched to the taies 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 it's 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 and didn't exist in Taiwan to be able to design chips and products so like 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 the Pure Play Foundry ended up being the best way to do this I guess best as evaluated on market cap versus other foundaries and integrated device manufacturers such as Intel well and best that like this is the path that has led them to being essentially alone operating at the Leading Edge like they have surpassed technology-wise all of the other integrated you know integrated and quasa integrated uh chip foundaries out there yeah I guess that's my first thing is the this uh connect you can connect the dots looking backwards as as Steve Jobs said and that famous quote but uh forwards is difficult this primarily I think was the main reason why tsmc has worked so well that 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 ships 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 could have a trillion dollar company that doesn't do any design that doesn't do any architecture that doesn't do any uh Eda tools like Cadence or synopsis um so they're you know they're not Nvidia they're not arm they're not Cadence synopsis they're not asml like they're not their own equipment vendor so what what enabled this one of the things that I think is under appreciated and I I we didn't talk that much about with Morris but the rise of arm if 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 aq2 episode with Renee uh from arm this architecture that became dominant in phones and then computers and then servers and you know now is coupled on with all these AI chips you open the door to have a dedicated Foundry for armed chips in a way where if it had stayed x86 it's not like you could start a new Foundry for all the fabulous x86 companies for the longest time intel was the only x86 company and then AMD of course is the the second source and AMD is a tsmc customer so that's sort of the one Edge case is 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 you know their apple silicon on arm probably Intel would be making all of the chips that go into your phone all the leading Ed 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 peeling the onion because this of course supposes that the that Intel actually could have gotten their act together and made a chip for mobile phones that was performant but maybe uh all the baggage from x86 actually prevented them from structurally doing that it wasn't like a competency thing it was like a that it never could have happened that 86 could run on phones yeah I I think all this is true but if arm hadn't existed like there would have been nowhere else for you know this Vector of innovation to go right the point that we're driving at here is this world where there's a standalone architecture company there's

a standalone big Manufacturing Company there are Standalone Eda companies there are Standalone um uh designers you know Apple Nvidia in a large part that's due to arm yes and arm and tsmc are sort of like coupled at the hip of History uh 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 arms synopsis Cadence and asml all founded right within a couple years of each other which brings us to hinu

Science Park going there in person we talked about this on our original t MC 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 if Silicon Valley were all in one you know kind of government sponsored you know Industrial Park uh which it sort of was and was Silicon Valley you know as we talked about in our locky Martin episode oh the early locked yeah yeah the early locked 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 a synopsis building there and that's an arm building there there's

Qualcomm there's mediatech right there headquartered right there and right across the street the craziest thing to me we saw there are two universities that are just like there 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 uh you always hear people talk about how integrated this ecosystem is with each other that you know synopsis has to be closely uh 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 uh tools to design ships to you know actually manufacture using tsmc's process uh 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 uh not to mention David

both of our flight experiences kind of felt like oh there's these are a bunch of Chip design uh fabulous companies that are making the pilgrimage over to uh to Taiwan to meet with people in this ecosystem my plane felt like the semiconductor version of the tech buses that go from you know San Francisco down to Silicon Valley every day I mean the backpacks that I saw on the plane like there's a Google backpack there's an Amazon backpack there's an arm backpack there's a marll backpack yeah which does raise the point of this uh 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 yes Taiwan we saw the original but there's one that's even bigger I think it's the tyan 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 universities here in America but like this was like a a like a 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 uh I guess one of two uh trillion dollar

companies that are not on the west coast of the United States I would say it worked yeah it 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 2 nanometer process which presumably will be in the the next iPhone um it's not like anyone said anything about that but it gez I wonder after 5 nanometer and then three n3e and n3p when they have this two nomor process I wonder what they're going to make on that lots of Nvidia gpus and lots of iPhone chips massive building f one was open which I think is a quarter of the building but then there's three other phases for this uh 2 Nom facility that are not even you know ready for prime time yet but I think they're actually doing the small production runs getting ready to ramp in the second half of this year on the 2 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 a sphinx in in Egypt I mean like it's huge it's like many football fields bus 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 uh conversation with Dr changen 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 uh but that is true I mean he he believed that fabus 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 the one hand is great it's 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 processed node 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 and I mean like replace Parts is a great example like you know there are technology systems and products you know manufacturing things even automobiles built 10 20 30 years ago that have specific chips that were made with old processed 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 I think Fab so fab one belonged to itri the the government uh where Morris was president of that organization before taking the the helmet tsmc uh Fabs 2 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 this world of you know 40 nanometers and up and you know one micron and I don't know all the names of the previous generations but the the less high resolution etching on Silicon uh camos sensors are a great examples of that the the cameras that we're talking into right now that have these great Sony sensors uh those don't require a 2 nanometer process but they do require etching the same way that you would etch 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 there almost like free to run right right all the capital expenditure now there's maintenance capex that needs to go into it 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 great just not what tsmc does totally totally but that point of I'm obsessed with this idea that uh 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 uh I think he even said to Jensen uh 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 I think he yeah 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 worst 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 I mean the core Insight of the learning curve from BCG and Bill Bane and Bane and Morris that they all developed together which by the way how crazy is it the the founders of BCG and Bane are the ones who sort of co-develop 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 economy's 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 and also starting low with your prices like you can even start unprofitable with your prices in the early days in a given node generation because the goal is out the competition become the industry dominant number one player get all the customers once you aggregate that demand yeah 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 that's 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 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 it's just a matter of like how fast can we get into volume production y 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 you know 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 you want to get the deepest down the learning curve possible we should go take all their order but you all that kind of exposes you to existential risk in your business business when you're not you know 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 customer 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 you know these are this is kind of a crazy thing for a manufacturer to have to do to have that uh crystal ball into the End Market um markets you know the end their customers markets but they really do need to make bets on how big those markets are going to be yep 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 to this point though if you actually are good at all of this and you you are good at forecasting and the execution is Flawless once you internalize the learning curve the story of tsmc goes from one where it's surprising and

unlikely and it becomes an inevitability of course the company that is taking on all the orders to have the lowest price right of course this will be the end state of this industry is to have a dominant player like right now it costs I don't know on the order of$ 20 billion to build a new Fab eventually it will cost 40 billion 80 billion 100 billion how many players are really going to be left standing with the ability to deploy a hundred billion dollars to build a building with some machines in it this Market has natural monopoly characteristics yep yep and that's just the capex side of the equation as talked about with Dr changen like there's also the R&D side of the equation that needs to go into creating the next process node that can you know be built on that capex 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 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 were looking around at competitors at other foundaries and saying uh okay how much can we invest they in 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 Coos which is the technology that they use for packaging for AI chips that's their you know proprietary thing uh which by the way once you have proprietary packaging then it's even harder for customers to go and you know double Source double manufacturer elsewhere they have a similar technology for um uh packaging of mobile chips that that doesn't use Coos 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 theme here for me and for us is just that uh Mo's law is undefeated I mean at the end of the day back from starting all the way back Morris's career at TI and being a contemporary of Jack Kilby and Bob noise and 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 you know and of course like the technical definition of Mo's law expired a long time ago but like spiritually the world demands roughly 2x the computing power that it had two years ago every two years 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 shows no signs of slowing down well sure but the demand side is far more than 2x mors law has always been about how much can happen on the Innovation side of getting better at design and Manufacturing and that is getting harder than because we're having to like call more things Moors law you know packaging was never a part of the original Moors law and software improvements and uh 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 you know Market incentives to drive the supply side and that is why people work so hard to make it happen all right here's the

stat since SMC was founded in 1987 the world's semiconductor Market has grown from 26 billion to 527 billion last year so they rode a ridiculous Tailwind ridiculous Tailwind yep a ridiculous Tailwind where as the industry reorganized away from the vertical integration of the Intel world you could build a trillion doll value Foundry yep 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 if it's three five seven whatever the payback period is like they know for sure that it's a worthwhile investment to do that yeah the whole thing comes down to oh my God silicon has become really valuable like graded circuits are the fabric of our world today ah well Ben what an amazing experience so glad we did this went to

Taiwan got to see this in person got to spend this special time with Dr Chang what a great way to start the year should do carve outs carve

outs all right I have two one is a uh kind of a hilarious I can't believe it's 2025 and this is my recommendation for anyone who's not a AAA member I highly recommend it oh I had a spectacular AAA experience where I went to fill up the air in my tires before a road trip and uh uh 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 and I was like crap I I can't even go get the other car to and I had my baby in the back seat and my wife and I are trying to figure out what to do and we're like do we have to call a tow truck to like tow us to and so I um signed up for AAA while I'm just sitting there in the gas station parking lot and within I think an hour hour and a half they had a mobile tire inflator on a long weekend like a holiday weekend when

other people aren't working drive out and uh fill up my the the air in my tire so we could be quickly on our way not ruin the weekend amazing and it was like hundred bucks or something it's really not a bad price and you get this was see 100 bucks to become a member whatever is 150 and then the service is actually free for something as trivial as this and you get three of them a year wow so I'll take it it it was a it was a phenomenal experience all right Triple A there 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 haven't watched 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 you know acquired like that's kind of

visual that's about uh 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 the like wildly unsafe Park from the 60s 70s and 80s ah 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 uh you and I grew up as kids in the era where uh we could still take unreasonable amounts of risk and nobody thought that that was there was anything wrong with that yes oh um my carve out uh speaking of you know it being 2025 how are we talking about this on the plane on the way over to Taipei um I finally watched everything everywhere all at 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 not a lot of time for movies it's so good it's so good I think this was your car out when it came out a couple years ago um 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 to folks who helped us prepare for this episode so first uh to our sponsors JP Morgan payments our presenting partner service now and fundrise you can click the links in the show to learn more and then some special shoutouts to Art deas the co-founder and executive chair of synopsis had a great conversation with us uh well first publicly with um cine gazi the current CEO of synopsis on an aq2 episode a little while back uh and then uh we chatted to prep for this episode and basically asked the question what should we be asking Dr Chang about we uh got some similar notes from Renee H who is the CEO of arm great conversation with sir Peter Bonfield a

current tsmc board member and former CEO of British Telecom David I know you've got a few also also to Wall-E Ry the former CEO of Mentor Graphics Wally is a legend in the semiconductor industry uh almost on par with uh with Dr changen they were contemporaries at TI back in the day uh and to John Bathgate and Britton John's from nzs 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 this that we got to talk to them about it yes also past acquired guest I think that episode holds up really well where we did uh you know semiconductor and complexity Theory with them totally and actually joh is the one originally who explained to me how euv lasers work which is still one of the most impressive accomplishments in human history uh to John from the asianometry 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 camos sensors about how they make the actual um silicon Wafers themselves that's a sophisticated process before the etching even starts Arts uh he's just got some awesome awesome videos on the asianometry YouTube channel and uh very very kindly bought David and I dinner and hung out with us the night before the interview which was very fun to do in Taipei very fun also to Tim kulpin a former Bloomberg journalist who now has a substack called cium also gave us some great topics to chat about and lastly as always to arvind Navar ratnam at worldly partners he did a great great write up on tsmc that he'll be posting publicly um 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 um Playbook came straight out of his write up so if you want more and kind of a more analytical view of how did tsmc become tsmc uh 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 uh one of them is an interview with Jensen and then we've got the whole history of the company across three different episodes we did a great live episode several years ago on qualcom which I think is a sleeper pick that's right that's right total sleeper pick Amazing Story Irwin 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 uh 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 aq2 we've been talking about this episode with synopsis there's one with Rene H 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 acquire.

fm/ slack and if you want to know when future episode drops you can uh find out sign up at acquire. fmil and you'll also get episode Corrections and hints at what the next episode will be so with that listeners we'll see you next time we'll see you next time who got the truth is it you is it you is it you who got the TRU now