Early Career and Education of Morris Chang
- Morris Chang's early life was marked by significant challenges, including living through multiple wars.
- After fleeing to Hong Kong to escape the Second Sino-Japanese War, Morris and his family returned to Shanghai, only to leave again due to the Chinese Civil War.
- In 1949, Morris moved to the United States to attend Harvard University, but soon transferred to MIT to study mechanical engineering.
- He initially worked at Sylvania's semiconductor division but realized it was not the right place for his ambitions.
- Morris joined Texas Instruments (TI) in 1958, coinciding with the invention of the integrated circuit.
"Morris Chang joined Texas Instruments (TI) in 1958, coinciding with the invention of the integrated circuit."
This quote signifies the pivotal moment when Morris Chang joined a leading technology company at a time when a critical innovation in electronics, the integrated circuit, was being developed. His career at TI would be marked by significant contributions to the semiconductor industry.
Morris Chang's Innovations at Texas Instruments
- Morris Chang improved manufacturing yields at TI, making the company's semiconductor division very successful.
- He introduced learning curve pricing, which involved starting with low prices to drive volume and speed up the yield curve, thus capturing market share and expanding TI's market dominance.
- Chang's strategies contributed to making TI the biggest and most profitable integrated circuit business globally during his tenure.
"We would automatically reduce the price every quarter, even when the market did not demand it."
Morris Chang's quote explains his strategic approach to pricing, which was to proactively reduce prices to increase volume and market share. This approach was unconventional at the time but proved to be highly successful for TI.
Discrimination and Challenges
- Despite his successes, Morris Chang faced discrimination due to his ethnicity, which may have contributed to him being passed over for the CEO position at TI.
- He also acknowledges that TI's size and diversity of operations meant that his expertise in semiconductors might not have been enough to secure the CEO role.
- In 1978, Chang was moved to VP of consumer products, a struggling division at TI, indicating that the company recognized his managerial talents but perhaps did not see him as the next CEO.
"Morris is a great manager. He can fix it."
This quote, though not verbatim from the transcript, encapsulates TI's recognition of Morris Chang's managerial skills and their decision to place him in charge of a struggling division. It suggests that while he was valued for his ability to solve problems, it may not have translated into being chosen for the company's top position.
Morris Chang's Move to TSMC
- Morris Chang's shift from TI's semiconductor division to the consumer products division was a turning point in his career.
- The move may have been a catalyst for him to seek new opportunities, eventually leading to his founding of TSMC.
- TSMC would become a pivotal company in the global semiconductor industry, with Morris Chang playing a central role in its success.
"Morris Chang founded TSMC at age 56, retired at 74, then came back at age 78, inked the deal to make all of Apple's chips."
This quote highlights Morris Chang's entrepreneurial spirit and longevity in the industry. Founding TSMC at 56 and continuing to make significant deals well into his late 70s demonstrates his dedication and impact on the technology sector.
Conclusion
- Morris Chang's journey from an immigrant student to a technology industry leader is a testament to his resilience, intelligence, and strategic thinking.
- His time at TI laid the groundwork for his future success with TSMC, a company that would become critical to the global supply of semiconductors.
- Chang's approach to pricing and manufacturing at TI was innovative and set new standards for the industry.
- Despite facing discrimination and being passed over for the CEO role at TI, Morris Chang's legacy in the semiconductor industry is undeniable, as evidenced by his founding and growth of TSMC.
The comprehensive study notes provide a chronological summary of Morris Chang's life and career, emphasizing his contributions to the semiconductor industry and the strategic decisions that led to his eventual founding of TSMC.
Competency Differences in Business Management
- Different industries require unique sets of skills and understanding.
- Consumer business is distinct from the semiconductor industry, with a different customer base and market dynamics.
- Success in consumer technology relies not only on technological prowess but also on consumer appeal, which is less tangible.
- Effective management in one sector does not guarantee success in another due to these differences.
"Mark Shepard, then chairman and CEO of Ti, agreed with the prevailing wisdom at the time that a good manager could manage anything. In this case, I think he was wrong."
The quote suggests that the belief in universal management skills is flawed, emphasizing the unique challenges of managing a consumer business as opposed to a semiconductor business.
Morris's Career and the Semiconductor Industry
- Morris Chang's career at Texas Instruments (Ti) included building their semiconductor business.
- After failing to turn around the consumer business, Morris faced a demotion, which was a significant professional setback.
- Silicon Valley's rise in the semiconductor industry coincided with talent leaving Ti, such as LJ Sevin, who later became a venture capitalist.
- Ti's culture discouraged leaving the company, contrasting with Silicon Valley's more fluid job market.
"So in 1983, five years after he gets moved over to take over the consumer business, he hasn't turned it around, it's still struggling."
This quote highlights Morris's struggle to manage the consumer division of Ti, leading to his demotion and reflecting the challenges of applying semiconductor management skills to the consumer sector.
The IBM PC and Ti's Missed Opportunity
- The semiconductor industry transitioned to metal oxide semiconductor (MOS) technology in the mid-70s.
- Ti failed to lead this transition, and key personnel left, weakening the company's position.
- A crucial moment came in 1980 when Ti missed the chance to provide the microprocessor for IBM's secret PC project, losing out to Intel.
- This loss marked a significant turning point, as the industry standardized on Intel's x86 architecture, sidelining Ti.
"IBM puts out a secret RFP bid proposal for a secret project that they're working on... This is the RFP to be the microprocessor, the CPU, for this secret project."
The quote discusses Ti's missed opportunity to supply the CPU for IBM's PC project, which would have had profound implications for the company's future in the industry.
Morris Chang's Post-Ti Career and Founding of TSMC
- Morris Chang resigned from Ti and considered CEO positions and venture capitalism.
- He chose a COO position at General Instrument, which proved to be a poor cultural fit, leading to another resignation.
- Morris was recruited to run the Industrial Technology Research Institute (ITRI) in Taiwan, which was a significant career shift.
- The Taiwanese government's desire for technological advancement led to the founding of TSMC, a pure-play semiconductor foundry, despite the initial lack of a clear market.
"After these two setbacks at Ti and Gi, I did not think that my aspiration to be the CEO of a major US company was in the cards."
This quote reflects Morris's feelings of a stalled career and the unexpected path that led him to Taiwan and the eventual founding of TSMC.
TSMC's Founding and Business Model Innovation
- TSMC was established to capitalize on Taiwan's potential in semiconductor manufacturing.
- The pure-play foundry model was initially seen as a solution looking for a problem, with no stable market.
- Morris Chang foresaw the rise of fabless companies, which would need manufacturing partners, thus anticipating a market shift.
- TSMC's strategy was to provide manufacturing services to these emerging fabless companies, fostering a new industry segment.
"The conventional conclusion at the time was that there was no market. That's why the pure play foundry idea was so poorly thought of... very few people saw... the rise of the fabless industry."
The quote captures the skepticism towards the pure-play foundry model and Morris Chang's foresight in recognizing the potential demand from fabless semiconductor companies.
TSMC's Evolution and Semiconductor Industry Dynamics
- Morris Chang's role in evangelizing TSMC to designers and startups as a manufacturing option.
- The rise of companies like Qualcomm, Broadcom, Marvell, Nvidia through TSMC's services.
- Nvidia's growth with limited capital raised and reliance on TSMC for chip manufacturing.
- The concept of TSMC as the AWS for chip companies, enabling the fabless model.
- TSMC's financial strategy with high gross and operating margins, allowing reinvestment into advanced machinery and technology.
- The company's catch-up and eventual surpassing of competitors in technology within a decade.
"Yeah. And so Morris is now going out and evangelizing and he's like all these great designers, like, we're an option for you. Like you want to leave, you want to start your own company, you don't need a fab. We'll be your know, it takes a couple years. For a couple years, TSMC has to survive on the dregs from the idMs, the big guys. But after a couple of years, these startups get going. Little companies like Qualcomm, Broadcom, Marvell, Nvidia. These are all started with TSMC."
The quote highlights Morris Chang's strategy to attract designers and startups by offering TSMC as a manufacturing partner, thus fostering the growth of the fabless model in the semiconductor industry.
The Flywheel Effect and Market Leadership
- TSMC's flywheel effect, where growth in the fabless market leads to increased revenue and further technological advancements.
- The reinforcing cycle of TSMC's revenue growth and investment in technology, leading to better performance for customers and attracting new business.
- TSMC's dominance in the industry, with only Samsung as a significant competitor in leading-edge technology.
- The potential future scenario where TSMC could be the sole provider of the next-generation 3 nm process.
"This flywheel, it's just like unreal what happens here. They run the table in the whole industry."
This quote summarizes the impact of TSMC's business strategy, where the company's growth and investment cycle has led to a dominant position in the semiconductor industry.
The Shift from Vertical to Horizontal Integration
- The semiconductor industry's shift from vertical to horizontal integration, where specialization became necessary due to the pace of technological advancement (Moore's Law).
- The necessity for companies to focus on specific aspects of the semiconductor production process, leading to the rise of specialized foundries like TSMC.
- The importance of continuous investment in capital expenditure (CapEx) to maintain a lead in manufacturing technology.
"It is interesting. The industry went from vertical to horizontally integrated, where the very best products in the market became horizontally integrated."
This quote points out the significant industry shift from companies doing everything in-house to a more specialized and horizontally integrated market structure, which TSMC capitalized on.
Strategic Importance and Challenges in Semiconductor Manufacturing
- The strategic importance of semiconductor manufacturing and the challenges governments and companies face in establishing new foundries.
- The specialized knowledge and experience required to operate advanced semiconductor manufacturing equipment.
- The geopolitical considerations of manufacturing locations and the role of governments in supporting the semiconductor industry.
"The semiconductor business is like a treadmill that speeds up all the time. If you can't keep up, you fall off."
The quote by Morris Chang metaphorically describes the relentless pace of advancement in the semiconductor industry and the consequences of failing to keep up with technological progress.
TSMC's Relationship with Apple and Market Expansion
- Morris Chang's return to TSMC and the identification of "golden opportunities" in mobile and cloud computing.
- TSMC's critical deal with Apple to manufacture chips, marking a significant bet for both companies.
- The evolution of Nvidia from a GPU manufacturer for gaming to a key player in machine learning and AI, highlighting the importance of specialized chips.
"Morris is coming back. Why does Morris come back?"
The discussion around Morris Chang's return to TSMC as CEO suggests his recognition of new market opportunities and the potential for TSMC to capitalize on them, particularly in the mobile and cloud sectors.
TSMC's Financial Growth and Investment
- TSMC's consistent revenue growth over 27 years and its status as one of the world's most valuable companies.
- The company's aggressive investment strategy, with plans to spend $100 billion in CapEx over three years.
- TSMC's market share dominance in leading-edge semiconductor manufacturing.
"They took 17 of the $20 billion in operating profit and plowed it all back into capex last year."
This quote demonstrates TSMC's commitment to reinvesting profits into capital expenditures to maintain and expand its technological lead in the semiconductor industry.
Counter Positioning
- TSMC's business model was a form of counter positioning where they focused on being a pure-play manufacturer, which was different from incumbents who integrated design and manufacturing.
- Incumbents like IDM (Integrated Device Manufacturers) would not adopt TSMC's model as it seemingly offered less gross margin.
- TSMC's approach disrupted the traditional IDM model by not demanding rights to market products under their brand, unlike IDMs who did.
"And by saying, nope, we're going to be a pure play manufacturer, TSMC theoretically was saying, no, we're going to take less gross margin and we're just going to make it up in volume."
This quote highlights TSMC's strategic positioning that differentiated them from incumbents by not integrating design and focusing on volume.
Scale Economies
- Scale economies are a significant factor in TSMC's success, allowing them to make up for lower gross margins through volume.
- TSMC's scale economies are considered one of the top two advantages alongside process power.
"Scale economies. Absolutely. That is the biggest. It's one of top two with process."
The quote emphasizes the importance of scale economies as a critical component of TSMC's business strategy and success.
Switching Costs
- Switching costs are high in the semiconductor industry, making it difficult for customers to move away from TSMC, especially if they want to remain at the leading edge.
- The deep integration required with TSMC's processes means switching to a competitor like Global Foundries would take years.
"You can't switch off TSMC... You can't just call up global foundries and be like, hey, I'm porting over. Expect my business on Monday. It takes years because you're so deeply integrated with the process."
This quote explains the high switching costs associated with moving away from TSMC due to the deep technical integration required.
Network Economies and Ecosystem
- Network economies are not traditionally applicable to TSMC's business model, as customers do not benefit from other customers being on the same platform.
- However, there is an ecosystem aspect where companies like IP and EDA are deeply integrated with TSMC, creating a sort of "open innovation" network.
"Not in the traditional, know, this is not Facebook here... But there is like an ecosystem aspect here because the EDM companies and the IP companies are so deeply integrated with TSMC."
The quote suggests that while TSMC does not have traditional network economies, there is an ecosystem integration that benefits customers and TSMC.
Process Power
- TSMC's process power is a result of 40 years of history, intellectual property, know-how, and relationships, making it nearly impossible for competitors to replicate.
- Process power is so entrenched that only a complete paradigm shift in computing could potentially unseat TSMC.
"It takes all 40 years of TSMC's history to have arrived at where they are today... no amount of money can replicate it."
The quote underscores TSMC's process power, which is deeply rooted in its history and expertise, making it a formidable force in the semiconductor industry.
Geopolitical Risks
- TSMC's location in Taiwan presents geopolitical risks, such as potential actions by China regarding Taiwan's sovereignty.
- TSMC's response to pressure includes diversifying geographically by opening plants in other countries, although this is not primarily due to geopolitical risks but also due to financial incentives.
"So how do you define... So this is... I think it's a good time to enter our geopolitics discussion because I was thinking about the other way that TSMC could fail would be that China decides the moment is right to go and assert our force and take over Taiwan."
The quote addresses the geopolitical risk that TSMC faces due to its location in Taiwan and the implications for the company's operations and global semiconductor supply.
Intel's Missed Opportunity
- Intel missed a significant opportunity by not providing chips for the iPhone, which was considered a lowball offer at the time.
- Strategic decisions based on pricing rather than long-term opportunities can lead to missed growth and market dominance.
"In the mid 2000s, as Apple Inc. Was preparing for the release of its new smartphone, Steve Jobs approached then CEO of Intel Otellini about providing the chips for the iPhone... but jobs made what Otellini considered a lowball offer."
The quote illustrates a pivotal moment where Intel missed the chance to be part of the iPhone's success due to a focus on short-term economics rather than strategic positioning.