Jan 27, 2025 · 2h 54m · acquired
TSMC founder Morris Chang · Acquired
Morris Chang · 1h 36m spoken Ben Gilbert · 36m spoken David Rosenthal · 16m spoken Intro Theme Singer · 10s spoken
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gold bands on the timeline = statements, start to end. Hover to read, click to jump. CC turns on captions
Acquired hosts Ben Gilbert and David Rosenthal travel to Taipei to interview 93-year-old TSMC founder Dr. Morris Chang about the company's origins, high-stakes customer negotiations, and the pure-play foundry model that transformed the semiconductor industry.
How this conversation actually went
Every chapter scored 0–10 on four independent dynamics. Hover any point for the reasoning behind the score. Ben and David hold 33% of the talking time here. How this is scored →
Ben and David as informed peer 3.7 Guest teaching 3.3 Guest disagreement 1.1 Ben and David pushing back 0.4
speaking balance: gold is Ben and David, purple is the guest (3 minute bins)
Sharpest disagreement ▶ 2:14:40 Morris rejects the premise of TSMC being an unlikely success
Dr. Chang immediately pushes back when Ben characterizes TSMC as an unlikely success, dryly noting it was only unlikely in Ben's opinion.
Hardest push from Ben and David ▶ 56:58 Ben challenges McKinsey's Boeing exampleBen directly interrupts and challenges the validity of McKinsey's Boeing example by pointing out that Boeing is organized into distinct commercial and government divisions.
Biggest teaching moment ▶ 1:16:01 Morris corrects Ben on Intel's process leadershipMorris firmly stops Ben's assessment of TSMC's technology standing at 28nm, correcting him for overlooking Intel's continued process dominance at the time.
Ben and David hold their own ▶ 56:58 Ben demonstrates domain knowledge on organizational structuresBen exhibits deep operational knowledge by challenging the McKinsey functional model citing Boeing's internal divisional lines.
the scores for every segment, with the reasoning behind each
| Chapter | Topic | Ben and David as informed peer | Guest teaching | Guest disagreement | Ben and David pushing back | Why |
|---|---|---|---|---|---|---|
| Setting up the Morris Chang Interview in Taipei | 0 | 0 | 0 | 0 | Introductory monologue setting up the trip to Taipei, Morris Chang's background, and his unpublished autobiography. | |
| How Morris Chang Met Jensen Huang and Rescued NVIDIA | 6 | 4 | 1 | 0 | The hosts prompt Dr. Chang about Jensen Huang's letter and NVIDIA's initial engagement; Chang provides historical context on NVIDIA's early survival. | |
| The 2009 40nm Node Crisis and Morris Chang's Return | 5 | 5 | 2 | 1 | Chang explains the 40nm node crisis, gross margin pressures, and his fundamental management philosophies on layoffs derived from Texas Instruments. | |
| Managing Layoff Protests and Reassigning TSMC Leadership | 4 | 5 | 1 | 0 | Morris describes handling worker protests outside his residence and reassigning the former CEO to new business ventures. | |
| The Failure of TSMC's Solar and LED Ventures | 5 | 4 | 3 | 1 | Chang challenges Ben's premise about the irony of non-core ventures, explaining how Chinese subsidies undermined the solar sector. | |
| Settling NVIDIA's $100 Million Dispute Over Pizza | 6 | 4 | 2 | 1 | Chang explains resolving the $100M+ dispute with Jensen Huang over pizza with a non-negotiable 48-hour arbitration ultimatum. | |
| Sponsor Segment: JPMorgan Payments | 0 | 0 | 0 | 0 | Sponsor read for JPMorgan Payments. | |
| Establishing a Fixed 8% R&D Budget at TSMC | 5 | 5 | 1 | 0 | Chang details how he fixed TSMC's R&D budget at a non-negotiable 8% of revenue to eliminate internal budgeting friction. | |
| Betting Big on 28nm and Overcoming Board Opposition | 6 | 4 | 2 | 1 | Chang discusses tripling capex for the 28nm node and pushing past skeptical board members by asserting executive authority. | |
| Reorganizing TSMC and the Divisional Structure Debate | 6 | 5 | 2 | 3 | Chang and Ben debate corporate organization models; Ben points out that Boeing maintains distinct divisions, but Chang maintains functional alignment is vital. | |
| Elevating C.C. Wei to Head Business Development | 5 | 5 | 1 | 0 | Chang explains assigning C.C. Wei to lead business development to broaden his executive experience for future succession. | |
| Terry Gou and Apple COO Jeff Williams Visit Morris Chang | 5 | 5 | 1 | 0 | Chang recounts Foxconn founder Terry Gou unexpectedly bringing Apple COO Jeff Williams to his home for dinner. | |
| Apple's Request for 20nm and the Capex Dilemma | 6 | 6 | 3 | 1 | Chang corrects Ben regarding industry leadership at 28nm and details the complication of Apple requesting a custom 20nm node. | |
| Financing the Apple Expansion with Goldman Sachs | 6 | 5 | 1 | 1 | Chang explains financing Apple's capacity by issuing bonds and capping supply at 50% of Apple's requested volume. | |
| Sponsor Segment: ServiceNow | 0 | 0 | 0 | 0 | Sponsor read for ServiceNow. | |
| The Intel Threat and Tim Cook's Assessment of Foundries | 6 | 5 | 2 | 1 | Chang details his meeting with Tim Cook, where Cook stated Intel did not know how to operate as a customer-focused foundry. | |
| Finalizing Apple Pricing and the 16nm Samsung Threat | 5 | 5 | 2 | 0 | Chang recounts the shock of Apple briefly placing initial 16nm orders with Samsung and Williams personally reassuring TSMC in Hsinchu. | |
| Winning Qualcomm and Rejecting IBM's Partnership | 6 | 5 | 1 | 0 | Chang discusses securing Qualcomm's business away from IBM and refusing IBM's patronizing co-development proposals. | |
| Mastering the Learning Curve with BCG and Bill Bain | 6 | 6 | 2 | 0 | Chang reflects on developing learning curve frameworks directly with BCG founder Bruce Henderson and Bill Bain at Texas Instruments. | |
| Sponsor Segment: Fundrise | 0 | 0 | 0 | 0 | Sponsor read for Fundrise. | |
| Playbook Analysis: The Pure-Play Foundry Model and ARM | 0 | 0 | 0 | 0 | Host analysis segment exploring the pure-play foundry model and its symbiotic structural relationship with ARM architecture. | |
| Playbook Analysis: Hsinchu Science Park and Ecosystem Density | 0 | 0 | 0 | 0 | Host monologue reviewing the physical density, university pipelines, and ecosystem strength of Hsinchu Science Park. | |
| Playbook Analysis: Learning Curve Economics and TSMC's Moat | 0 | 0 | 0 | 0 | Host analysis on learning curve economics, capex barriers, and TSMC's widening competitive moat. | |
| Playbook Analysis: Moore's Law and Semiconductor Industry Scale | 0 | 0 | 0 | 0 | Host concluding analysis on Moore's Law demand dynamics and closing remarks. |
Statements from this episode (54)
Chang: TSMC salespeople were instructed to never ignore small customers
“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.”
Morris Chang: TSMC exceeded $1 billion in revenue in 1995
“We had exceeded, I remember we had exceeded the one billion U.S. Dollars in revenue in 95, and this was 97.”
Chang: NVIDIA became a top-five TSMC customer within three years
“Within two or three years, they were, they did become one of the biggest five customers.”
Chang: 2009 TSMC CEO retake was triggered by 600-700 performance layoffs
“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 …”
Chang: TSMC historically used six-month probations rather than layoffs
“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…”
Chang: Layoffs based on supervisor performance reviews lack credibility
“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…”
Chang: Companies needing workers back within one year should not do layoffs
“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 layoff, 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 y…”
Chang: TSMC's 2009 CEO circumvented board approval by framing layoffs as performance dismissals
“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…”
Chang: Replaced TSMC CEO kept same pay, grade, and successor status
“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…”
Morris Chang: China heavily subsidized and took control of solar manufacturing
“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.”
Morris Chang: TSMC's LED venture failed due to restrictive patent concentration
“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…”
Chang: TSMC Offered NVIDIA Over $100M with 48-Hour Deadline
“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…”
Chang: Previous TSMC CEO Offered NVIDIA Zero Dollars in Dispute
“The previous CEO did not even give him a number, you know. The previous CEO gave him zero.”
Chang: Texas Instruments repeatedly rejected raising semiconductor R&D to 5.5% of revenue
“At that time, when I was the head of Worldwide Semiconductors, our R&D budget,
Was, 4.8% of revenue, of our revenue, and I thought it was not enough.
I just wanted to raise it to 5.5% of the revenue, but my request was denied all the, every time I raised it.”
Chang: TSMC fixed R&D spending at 8% of revenue through recessions
“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…”
Morris Chang: Sales is tactical with customers, marketing is strategic to the world
“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.”
Chang: TSMC board questioned suddenly tripling CapEx for 28nm
“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.”
Chang: I did not foresee how big smartphones would become for 28nm
“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”
Morris Chang: Semiconductor foundries are unsuitable for divisional organizational structures
“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.”
Morris Chang: Non-executive chairmen should only intervene if the company risks collapse
“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…”
Morris Chang: TSMC used 'business development' because of its Chinese translation
“I decided to use business development in English because it has a good translation in, in Chinese.”
Morris Chang: Mark Liu declined TSMC BD role due to small headcount
“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 …”
Chang: Power comes from strategic proximity, not headcount, much like Kissinger
“Actually, back in my mind, I was thinking of the time when Kissinger was Nixon's national security advisor, and somebody else whose name I have even forgotten was the Secretary of State. And Kissinger, you know, probably had a couple hundred people reporting t…”
Chang: Apple rejects unprompted supplier pitches until they are ready
“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…”
Chang: Apple's initial TSMC pitch proposed a 40% gross margin
“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%.”
Chang: TSMC gross margins crossed 50% after his retirement
“Now, of course what happened later was that there was COVID and so on, and also we began to have leadership, technology leadership. So our margin, you know. Jumped up to over 50%, but when I retired, I was still short of 50%, slightly short of 50%. I was almos…”
Chang: TSMC led foundries at 28nm, but trailed Intel
“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.”
Chang: Apple was not actively considering Intel foundry in 2010
“No, Apple Was not actively considering intel. That came later.”
Chang: TSMC R&D could not develop two nodes concurrently in 2010
“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.”
Chang: TSMC did not include Apple in 28nm capex expansion
“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.”
Chang: TSMC funded Apple ramp via debt and filled half their requested volume
“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…”
Chang: Eliminating TSMC's dividend for Apple would have crashed the stock
“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.”
Chang: TSMC matched Intel in technology and beat it in manufacturing in 2011
“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…”
Chang: Tim Cook told me in 2011 that Intel cannot run a foundry
“And anyway, he told me there's nothing to worry about because Intel just does not know how to be a Foundry.”
Chang: None of Taiwan's PC makers liked dealing with Intel
“Before this Apple thing, Apple and we, before Apple became our customer, I knew a lot of Intel's customers in Taiwan. You know, all the PC makers are Intel's customers. I mean, they, none of them liked Intel. None of them.”
Chang: Committing to 20nm delayed TSMC's 16nm development
“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.”
Chang: Apple placed initial 16nm chip orders with Samsung over TSMC
“I mean, it was a real shock when I heard that Apple had placed their first orders of 16 with Samsung.”
Chang: TSMC launched 16nm six months later and won most Apple orders
“We developed, we had our own 16 about half a year later, and most of Apple's 60 nanometer requirements still belonged to us.”
Chang: Co-developing tech with senior partners destroys internal R&D capability
“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.”
Chang: TSMC rejected IBM co-development deal that UMC accepted and regretted
“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…”
Chang: Refined BCG's learning curve theory at TI for semiconductor manufacturing
“I really did not develop. I certainly did not initiate it. I think I had a role at TI. I had a role in refining it to the point where a semiconductor company can use it effectively.”
Chang: TSMC's Scale Exceeded Expectations, But Not by an Order of Magnitude
“TSMC's size and importance exceeded my expectations, but not by an order of magnitude, you know.”
Chang: Foundries demand running one standardized factory for many diverse customers
“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…”
Rosenthal: TSMC is the only leading-edge foundry not competing with customers
“They are truly the only foundry at the leading edge that does not in any way compete with their customers. They don't have their own end product division, they don't design their own chips, it is truly they only serve their customers, and they do not compete a…”
Rosenthal: Without ARM, Intel probably would make all iPhone chips
“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 iPhone, all the leading edge chips that go into your iPho…”
Rosenthal: TSMC, Arm, Synopsys, Cadence, and ASML were founded within years of each other
“Not only TSMC, ARM, Synopsys, Cadence, and ASML all founded,
Right within a couple years of each other.”
Gilbert: Recreating Taiwan's science park ecosystem elsewhere would take decades
“It would take decades to recreate the ecosystem that they have in the science parks.”
Rosenthal: Hsinchu Science Park is history's most successful government industry initiative
“This has got to be the single most successful government funded industry initiative of all time, like anywhere in the world.”
Gilbert: TSMC will ramp its 2nm process in the second half of 2025
“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.”
Rosenthal: Intel Upgrades Old Fabs Rather Than Keeping Legacy Capacity
“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…”
Gilbert: TSMC's Fabs 2 and 3 Built in 1980s Still Operate
“Fabs two and three were the first TSMC specific fabs that they built, and they're still running from the late eighties.”
Rosenthal: Learning Curve Pricing Requires Early Unprofitable Aggressive Pricing
“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…”
Gilbert: $100B fab costs give semiconductor manufacturing natural monopoly characteristics
“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…”