TSMC

“There's so much tied up here, but one of them is this is kind of the first venture capital business. Like we talked a lot on the TSMC episode about these massive fixed costs... And then it's all a volume game. Like how much can you get the plants at full capac…”

“If for some reason, you know, China moved to seize Taiwan or however, you know, it went into play and all of a sudden TSMC's fabs were shut down, then you really, the Western world would be, you know, set back at least five years, if not 10, just in terms of l…”

“And so this would be a company like companies we own in the head of the portfolio, be someone like a Microsoft or a TSMC where we're not looking for like value stocks or kind of like cheap companies. We're looking for companies that are healthy growers that we…”

“TSMC has lower margins than most of their gross margins than most of their customers. And so at any point they could probably take the margins from 50% to 60% and say, Hey, I'm obviously have a monopoly in this market, but the way, you know, Morris Chang archi…”

“TSMC fabs a quarter of the digital chips made in the world right now.”

“Intel has to fight TSMC on process technology, which, like, in itself is one of the hardest things, you know, any technology companies had to do over the last 20 years, and that's why Intel has been surpassed by TSMC, right?”

“Intel and TSMC and Samsung partnered and actually bought 25% of ASML to inject capital into ASML to develop EUV systems.”

“I mean, I guess it'll never be our, like, a 10% position for that reason as there is always this risk”

“Samsung is also doing logic, but it's, they have a different business model, right? They compete with their customers. So it's harder for their customers to trust them. Whereas TSMC doesn't have that conflict.”

“NVIDIA has got close to 70% gross margins and like, you know, low forties operating margins. I did really with very little cyclicality because TSMC offloaded all that cyclicality. Right. So it is just like one of the best business models besides I would say en…”

“They shipped the first EUV tool in 2010 to TSMC, and EUV didn't even really start high volume, and this was after, you know, a decade of R&D already, but then they didn't start high volume manufacturing on EUV until 2019. So they had, like, almost a decade of …”

“The next year, the two companies sign a huge multi-year deal for TSMC to become the primary foundry for NVIDIA and still are today.”

“That performance frontier is moving in sort of a kind of predictable way, and so being a leader in technology means that you are a cost and performance leader in the business, and so it makes a lot of sense to me to kind of give up current profits to guarantee…”

“I think Hopper is going to be the world's first four nanometer process chip using TSMC's new four nanometer.”

“Morris Chang was 56 years old when he founded TSMC, and TSMC is today, I believe, the 11th most valuable”

“We should say that it may be the thing keeping geopolitical tensions at rest. Like it may be the force that nobody wants to destabilize and therefore we have peace. Like, it's not just a company.”

“EUV has another five, six years, and then it's not super clear what's after that.”

“A core to their model, essential to the model of being so flexible, being so adaptive of incorporating new equipment of accommodating hundreds and hundreds or thousands of customers is all their engineering's in one place. And that. Place is Taiwan and that ha…”

“It's like Morris Chang and TSMC. It's like, he invented the notion of a fabulous semiconductor company before there was any demand for that, and then it turned out that his timing was exactly right, that, like, within a couple of years, a whole ton of, you kno…”

“And by NVIDIA bifurcating their chip architectures into a gaming segment that does not have this latest COWAS technology, this allows them to monopolize, like, a huge amount of TSMC's capacity to make the COWAS chips, specifically for these H-one hundreds, whi…”

“TSMC, in their last earnings, said that AI hardware currently only represents six percent of their revenue, but all indications over there is that they expect AI revenue to grow 50% per year for the next five years.”

“So COOS represents right now about 10 to 15% of TSMC's capacities, and many of the facilities are custom-built for exactly these types of chips that they're producing.”

“Due to a quirk of the extreme ultraviolet photolithography that we talked about, the EUV on the TSMC episode, chips are already the full size of the reticle. It's a physics and wavelength constraint. You really can't etch chips larger without some new inventio…”

“AMD doesn't have all this capacity reserved from TSMC, at least not for the 2.5 D packaging process for the high end GPUs. AMD doesn't have the developer ecosystem from CUDA.”

“Up until NVIDIA's current GPU generation, the hopper generation of GPUs for the data center, there was only one GPU architecture at NVIDIA, and that same architecture and those same chips from the same wafers made at TSMC, some of them went to consumer gaming …”

“Well, I don't like that as well as I like something with a real consumer brand of its own like Apple.”

“There is no amount of money you could spend to catch up next year. You can't. Because the engineering is so hard, and the learning curve takes decades to get to this point.”

“They have over 50% of the market for foundries, for all contract manufacturing of chips.”

“Other than that, I don't know that there is a stronger moat that any company has in the entire world than TSMC.”

“NVIDIA was started in 1993, only ever raised twenty million dollars.”

“I think the only thing that will unseat TSMC is a complete paradigm shift.”

“TSMC just announced they're going to spend a hundred billion dollars in capex over the next three years, thirty billion dollars this year, 60 over the next two.”

“That, to me, absent an enormous computing paradigm shift, is the way that TSMC has an enormous risk in the business.”

“It was zero dollars. Morris Chang got no equity in the company. Zero.”

“And for TSMC, it meant an initial investment of nine billion dollars, Fabs are expensive to build, and devoting 6000 employees to building a dedicated plant for Apple in just 11 months.”

“They make the primary chip inside every MacBook and iPhone shipped today. They're powering the AI wave, manufacturing all of NVIDIA's chips.”

“Well, what he did as TSMC started to work, he basically put all of his money into buying. He bought his own shares. In the company. I don't know if it was privately before they went public on the Taiwan Stock Exchange in 1994 and then the New York Stock Exchan…”

“So they put up 28% of the capital. Government puts up 50%. It ends up being two hundred twenty million in total.”

“There is a thing that you have to raise 10 to 20% of the capital that you otherwise would have needed to raise if TSMC exists.”

“And because they have 50% gross margins and 40% operating margins, they can take that profit and buy more advanced machinery.”

“So it is true that the value that TSMC will create in the world over the next year, two years, three years, is probably more than the entire silicon industry leading up to this point combined.”

“They're gonna have to go to TSMC, though, in the next generation, because you want three nanometer.”

“When you combine these two things, the Moore's Law and Moore's Second Law, it implies that the leading company, that most profitable company, will become a monopoly.”

“And I do think the implication was go start an Intel, or go start an IBM. It wasn't go start the very first pure play foundry.”

“They and Saudi Aramco are the only trillion dollar companies in the world that are not located on the west coast of the United States.”

“Within about 10 years, they catch up and then they start to exceed everybody else.”

“Assembling an iPhone is completely, completely different than taking a brand new design for a next generation chip and manufacturing that chip. One is manufacturing and one is alchemy. The alchemy can only be done by alchemists.”

“TSMC's market cap has doubled since then, From five hundred and fifty billion to over a trillion dollars.”

“It's TSMC's insane capital operating cash flow production that enables them to spend capex above anybody else that allows them to buy more ASML equipment than anyone else.”

“So, very likely in the next process, it's just going to be TSMC.”

“Since the first IPO in Taiwan in 1994, TSMC has had compound annual revenue growth of 17.4% for 27 years.”

“They are spending, I think, twelve billion dollars this year to start a plant in Arizona, which will not be the three nanometer, I don't even think it'll be the five nanometer.”

“They make the most advanced chip manufacturing machines in the world. They're the only company that makes them. They're located still in the Netherlands. Their biggest customer is TSMC.”

“Morris Chang is Founded TSMC at age 56, retired at 74, then came back at age 78, inked the deal to make all of Apple's chips”

“In the five nanometer, Samsung has like five, 10% market share, and TSMC has 90 plus percent.”

“So I said to him, if you want to lay off, bring it to the board. I'll call a special board meeting. And I knew what I would ask the board to do, you know, which was not to grant the permission. That's right. But he decided to circumvent that, the CEO, you know…”

“It would take decades to recreate the ecosystem that they have in the science parks.”

“Because when we figured a very big market for 28 and therefore when we planned to increase vastly our capital spending, we didn't have Apple in mind. We didn't include Apple. Apple came strictly as a present surprise.”

“We, our R&D was not strong enough to do two nodes at the same time. Now we are. But back then we weren't. So, the trade-off of accepting the 20 node technology was that we delayed our 16 node Development.”

“The company that co-developed something with them will send its engineers to IBM, you know. And when we do that, we lose our ability to develop our own process. We'll have to depend on this co-development thing.”

“They are truly the only foundry at the leading edge that does not in any way compete with their customers. They don't have their own end product division, they don't design their own chips, it is truly they only serve their customers, and they do not compete a…”

“I mean, it was a real shock when I heard that Apple had placed their first orders of 16 with Samsung.”

“Fabs two and three were the first TSMC specific fabs that they built, and they're still running from the late eighties.”

“Since TSMC was founded in 1987, the world's semiconductor market has grown from twenty six billion to five hundred and twenty seven billion last year.”

“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 par with Intel at that time. Manufacturing. I thought we were better than Intel. And customer trust. We thought that our cus…”

“We developed, we had our own 16 about half a year later, and most of Apple's 60 nanometer requirements still belonged to us.”

“People would not respect us if we lay off by performance ratings. [1196] Ben Gilbert: And why is that? [1198] Morris Chang: Because it's very subjective. Performance reviews, the performance ratings are done by everyone's own supervisor. So, the 700 was perf…”

“LED did not take off either, because LED, it's not, the market is not as big as solar. However, it's controlled, the patents are controlled by just a few companies. And they wouldn't let the few companies that control the patterns of LED were not let up at all…”

“Yes. More than a hundred million. And I also said, our offer is effective, 48 hours. If you do not, there is not going to be, we are not going to argue, we are not going to bargain. If you don't accept the offer within 48 hours, we will have to go to an arbitr…”

“Setting the R&D at eight percent of did not, Invite any opposition from the board, but suddenly increasing capital spending, threefold, I think, did invite a lot of questions from the board.”

“The previous CEO did not even give him a number, you know. The previous CEO gave him zero.”

“Within two or three years, they were, they did become one of the biggest five customers.”

“Not only TSMC, ARM, Synopsys, Cadence, and ASML all founded, Right within a couple years of each other.”

“Well, as far as the CO is concerned, I didn't keep him. I had More than one nice talk with him. I intended to, and I told him that he was still a potential, ah, successor to me. So I kept him at the same job grade, we have job grades, and the same salary and b…”

“My principle, when I was, ah, The chairman and not the CEO, ah, was, well, sometimes you have to let the CEO make his own mistakes and learn from them, you know. Ah, of course, ah, not if the whole company is going down the drain, drain, so you have to interfe…”

“So, I, ah, first offered the marketing, ah, business development job to the guy who was in the Bigger job, advanced technology, 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 …”

“And anyway, he told me there's nothing to worry about because Intel just does not know how to be a Foundry.”

“The difficulty was, you know, you have to satisfy a lot of customers, you know, and everyone, you know, wanted the factory to run his way, you know. But you can only run for one way, you know, which will satisfy more or less all the customers. And the advantag…”

“The solar business could have been pretty good. However, China ruined it. They subsidized the hell out of it. And they now control that business, solar cells.”

“The insight is that like the goal that you are playing for is to be the largest volume player kind of at the end of the game. So if you take that as a given of like, if we get to be the largest volume player, this is a fixed cost business. This is a scale econ…”

“I had always told our salespeople that that we should never be negligent in talking to future customers, even if the customer seems to be a very small one.”

“The point is that back then, R&D did not have enough resources to do two notes at the same time. Later we did. Later we did.”

“About one-third of our investors, shareholders, are very seriously interested in the dividends. So if we do what the Jeff Williams said, oh, a stock is going to drop like hell, you know.”

“At 28 nanometers, we were very definitely the leader among foundries. Yeah. And maybe among a few other companies such as Texas Instruments and so on, but not Intel.”

“Eventually it will cost 40,000,000,080 billion, a hundred 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 charact…”

“Well, we never did that, you know. I mean, the worst we would do was to put them on, place them on probation for six months, and quite often, you know, at the end of the six months, everybody would go back to the, to his or his or her old job, and some of them…”

“Now, of course what happened later was that there was COVID and so on, and also we began to have leadership, technology leadership. So our margin, you know. Jumped up to over 50%, but when I retired, I was still short of 50%, slightly short of 50%. I was almos…”

“Apple is a very close mouthed company. If you try to talk with, if you offer, you know, your service, I mean, they will just tell you to go away, you know. They will come to see you when they are ready, you That's what I knew about Apple, even then, and I knew…”

“TSMC's size and importance exceeded my expectations, but not by an order of magnitude, you know.”

“No, I didn't. Maybe the business development guy, I mean, that was another interesting story. Yeah, maybe he knew. Maybe he, or at least, I now hope and I, of course, hoped at that time, too, that he had a more detailed visibility than I did”

“Another problem was the immediate one that triggered me to retake the CO ship because the previous CO had laid off, except he didn't use the term laid off, you know. He used the bad performance review, the worst performance review people, and there were about …”

“We had exceeded, I remember we had exceeded the one billion U.S. Dollars in revenue in 95, and this was 97.”

“What we first did our financial planning and we decided not to cut dividend. We decided not to sell new stock. We decided to just borrow. And I mean, this was also with consultation with Goldman Sachs, you know, we chose following. How much? I looked at the nu…”

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

“I really did not think that the foundry business, TSMC's business Was suitable for the divisional structure. Because, you know, we have almost the same group of customers.”

“So we declined without having to think about it at all. We declined the IBM office. And IBM, in fact, was quite angry, you know. I mean, they thought we're still a small Taiwan backward place, you know. It's a Taiwan company, and they are going to pick IBM. So…”

“Intel It 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 othe…”

“I decided to use business development in English because it has a good translation in, in Chinese.”

“You know, we always had a pretty strong sales effort. But to me, sales effort is just the tactical side with the customers. Marketing is the strategic side to the outside world now.”

“So I almost just literally picked a number out ahead. We've been running six or seven percent already. So I said, oh, let's pick eight percent. Okay. Yeah. Eight percent, regardless of Whether there's a recession or not. And it's just eight percent of revenue…”

“He did say that we will let you have a 40% gross margin, and I think, well, I didn't say anything. I didn't answer him. I didn't respond to that, but our margin at that time was already 45%, and I was trying to put it up to 50%.”

“We were sitting down with Morris Chang, and he was talking about TSMC, and he told us that one of the ways that they aired was trying to exit the integrated circuit market, or diversify from that market, and go into solar. Memories, and there was one other thi…”