The Exchanges

Q 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?

A Yeah, it started, um, my relationship with Jensen started with a letter that he sent to me. Uh, I think it was 1997, and the letter was sent through the post office, and I received it in Xinxu. Uh, uh, and the letter said that, um, they were NVIDIA, the company that, uh, Jensen was the CEO of, It was a small company, but they had developed, uh, 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, PSMC. So, uh, I was going to the U.S. in the next week anyway. So the letter, uh, frankly, uh, raised my, uh, Curiosity and also, uh, uh, irritated me a little bit because, uh, you know, I had always, uh, told our salespeople that, uh, that we should never be, um, Uh, negligent in, um, talking to future customers, even if, uh, the customer seems to be a very small one.

AI assessment note: “my relationship with Jensen started with a letter that he sent to me.”

Q was kind of a bad business. Fabless 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 didn't want to make on their own. Did you see Fabless coming, or was that a very lucky thing?

A No, I saw it coming. Uh, and, uh, the, in fact, I just had dinner, oh, two months ago, at dinner with the first guy, Gordon Campbell, Gordy Campbell. Do you, have you heard his name? Anyway, Gordy Campbell came to see me in General Instruments in my final months at General Instruments. He came to see me. He did not know that I was leaving. Frankly, I did not know when I saw him that I was leaving yet. But the reason he came to see me at General Instrument was that he wanted the funding. He wanted investment from General Instrument. Fifty million dollars , he said. He wanted to start a new company. Fifty million dollars. 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 journalism. So he said, all right, I'll send it to you within three weeks. Three weeks later, there was no business plan, and I was interested because I knew that he had a good reputation of starting companies. So I called him, and he said, ah, Morris, I'm sorry I didn't send you anything because I don't need you anymore. I said, how come? He said, I don't need fifty million dollars more, anymore. I need only five million dollars, and five million dollars, I can gather up very easily. I said, why do you need only five million dollars? He said, I'm not going to build a fab. See? That was the start for me. That …

AI assessment note: “No, I saw it coming.”

Q Yeah. So, uh, how would you explain it to a novice?

A Well, explaining the learning curve theory is simple, uh, but one would 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 it started with refrigerators and the cars, you know. If a company makes more cars, then It's 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, ah, if one, ah, just takes that simple explanation and thinks that's all it is, it is about, you know, ah, then you really haven't Learn anything at all. All right. Anyway, um, ah, the learning curve. Well, Bruce Henderson, who is now, ah, considered, ah, the father of, ah, Uh, strategies.

AI assessment note: “as you make more of one thing... You gain more experience, you become more efficient.”

Q 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.

A I know. I know. Well, back, uh, in the nineties, in the first, uh, let's say 15 years, 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 figured out, uh, that we will require a deposit from the customer, and, uh, we'll even Confiscate the deposit if the time comes him, comes for him to, to take the wafers, and he doesn't, you know. And everybody delights in the word, confiscate. It was first used by me, okay. I told the salespeople 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. They may not want the wafers when the time comes, and 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 so they were, they were They were, you know, in uproar, uh, in, in happiness, you know, I mean, now, you know, they, they could actually stand up and tell the customer, uh, that, uh, we might even counter 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 an internet, uh, Yeah. Recession, I think, yeah. Because in, in, in …

AI assessment note: “what you just said happened all the time”

Q true all the way to today at immense 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 TSMC 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?

A Well, I, um, 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, uh, uh, uh, CEO is another person. So, uh, the problem you just mentioned, uh, happened during the period when someone else was, uh, the CEO. Apparently, it was a manufacturing problem. It was also a quality problem, and, uh, it was the quality problem that, uh, the CEO, uh, first reported to me, but the CEO insisted that Uh, our people. Uh, we, we had the Director of Quality, uh, insisted that, uh, we were not, TSMC was not at fault. And, uh, so on that basis, on the basis of our, uh, quality, uh, um, managers' arguments, uh, He had not offered NVIDIA anything. Now, as far as the manufacturing problem was concerned, it was a yield problem, and everybody was suffering from it, and of course, NVIDIA at that time was perhaps the biggest customer of that node, the 40 nanometer node.

AI assessment note: “the problem you just mentioned, uh, happened during the period when someone else was, uh, the CEO.”

Q 2010, it wasn't just ramping the R&D budget. It was also the capital expenditures. You, you had had almost a decade of two to two and a half billion spent, you know, building the fabs every year. And in 2010, you, you ramped that to almost six billion. What was it about the competitive environment, the 28 nanometer node that caused you to push all your chips in on that?

A Yeah, I think it was kind of a mutual feeding thing, you know. As I, as I, uh, settled the, um, R&D budget at eight percent of revenue, I mean, to the, uh, uh, satisfaction of, uh, the R&D 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 It's gonna be the sweet spot. It's just like tennis racket, you know. You hit, you hit the ball with a sweet spot of your racket. Yeah. Yeah. Do you play tennis?

AI assessment note: “They began to to be telling me our 28 is going to be the sweet spot.”