# TSMC founder Morris Chang https://www.youtube.com/watch?v=FZItbr4ZJnc Translation: zh-TW [00:00] The podcast about great technology companies and the stories and play no no. 這個播客是關於偉大的科技公司以及故事和劇本，不，不。 [00:03] You said technology now we definitely have a cold opening. 你說科技，現在我們肯定有一個冷開場。 [00:08] All right, I guess uh I really want us to be about technology companies again. 好吧，我想呃我真的很希望我們再次專注於科技公司。 [00:13] Well, this is a technology company. 嗯，這是一家科技公司。 [00:15] It's a sign. 這是一個信號。 [00:16] All right, here we go. 好吧，我們開始吧。 [00:20] Is it you who got the truth? 是你得到了真相嗎？ [00:22] Is it you? 是你嗎？ [00:26] Now is it you, is it you, is it you? 現在是你嗎，是你嗎，是你嗎？ [00:29] Sit me down, say it straight. 讓我坐下，直說吧。 [00:31] Another story on the way. 另一個故事即將到來。 [00:33] Got the TRU. 得到了TRU。 [00:36] Welcome to the spring 2025 season of Acquired, the podcast about great companies and the stories and playbooks behind them. 歡迎來到Acquired的2025年春季季，這個播客是關於偉大的公司以及它們背後的故事和劇本。 [00:42] I'm Ben Gilbert. 我是Ben Gilbert。 [00:44] I'm David Rosenthal. 我是David Rosenthal。 [00:45] And we are your hosts. 我們是你們的主持人。 [00:48] Today we have something very special to share with you. 今天我們有非常特別的東西要與你們分享。 [00:50] 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. 在四年前我們從台積電那一集開始對半導體著迷之後，David和我一路走過行業的其他部分，研究像Nvidia和Qualcomm這樣了不起的公司。 [01:01] Architecture companies like Arm and Chip design software companies like Synopsis. 像Arm這樣的架構公司和像Synopsis這樣的晶片設計軟體公司。 [01:06] And as we were thinking what's next in the world of chips, unacquired, we threw the Hail Mary. 當我們思考晶片世界中下一步是什麼時，我們孤注一擲。 [01:13] We asked friend of the show Jensen Huang if he would ask Dr. Morris Chang, the 93-year-old founder of TSMC, if he would be open to an interview with us. 我們問節目的朋友黃仁勳，他是否願意詢問93歲的台積電創辦人張忠謀博士是否願意接受我們的採訪。 [01:24] Yeah, it is kind of insane and super cool that Jensen made time to help us with this. 是的，黃仁勳抽出時間幫我們做這件事，既瘋狂又超酷。 [01:28] It's not like he doesn't have a lot of other things going on. 他並不是沒有很多其他事情在忙。 [01:30] Yes, well, listeners, it happened. 是的，聽眾們，這件事發生了。 [01:33] So today's episode is a conversation that we recorded in Taipei last week at Dr. Chang's office. 所以今天的節目是我們上週在台北張博士辦公室錄製的一段對話。 [01:40] We flew to Taiwan for a 48-hour whirlwind where we spent some time at TSMC's headquarters in Hsinchu Science Park, where many of TSMC's fabs are located. 我們飛往台灣進行了一場48小時的旋風之旅，在台積電位於新竹科學園區的總部待了一段時間，那裡有許多台積電的晶圓廠。 [01:49] Super cool to see. 看到這些超級酷。 [01:52] Totally. 完全同意。 [01:52] So conveniently, Dr. Chang just published Volume 2 of his autobiography a couple months ago after a 26-year hiatus from Volume 1. 很巧的是，張博士在距離第一卷出版26年後，幾個月前剛出版了自傳的第二卷。 [02:00] But inconveniently, it is written in Traditional Chinese. 但不太方便的是，它是用繁體中文寫的。 [02:02] Not published in the Western World. 未在西方世界出版。 [02:05] We managed to get our hands on an unpublished translation of the book to prepare. 我們設法取得了一份未出版的書籍譯本以做準備。 [02:10] 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. 而您即將聽到的內容，聚焦於張博士在其回憶錄中分享的幾個關於台積電歷史的關鍵故事，涉及蘋果、輝達以及這個非凡產業的誕生。 [02:20] 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. 是的，非常感謝 Karina Baow，我們在啟動這個計畫後有幸與她聯繫上，她一直在泰勒·考恩和新興創投的資助下翻譯張忠謀的回憶錄。 [02:28] Right now the mem are not published in English, and we will let you know if and when that happens. 目前這些回憶錄尚未以英文出版，我們會在有進展時通知您。 [02:34] Yep, all right listeners, you can join our email list at acquire.fm. 是的，各位聽眾，您可以到 acquire.fm 加入我們的電子郵件列表。 [02:38] 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 what the next episode will be. 每個月新集數上線時您都會收到一封電子郵件，我們也會在此宣布過往集數的更正，以及一個有趣的小遊戲，我們會在其中暗示下一集的內容。 [02:50] I always have fun writing those. 我寫這些總是樂在其中。 [02:51] You do, that's a clear David job. 你確實如此，這顯然是大衛的工作。 [02:54] This episode is presented by our partners at JP Morgan Payments. 本集由我們的合作夥伴摩根大通支付呈現。 [02:56] Yes, just like how we say every company has a story, every company story is powered by payments, and JP Morgan. 是的，正如我們所說，每家公司都有一個故事，每個公司故事都由支付驅動，而摩根大通。 [03:02] Payments is a part of so many of their journeys from seed to IPO and beyond. 支付是他們從種子輪到IPO及之後的許多旅程的一部分。 [03:07] Yep. 是的。 [03:07] So with that, this show is not investment advice. 因此，這個節目不是投資建議。 [03:09] David and I may have investments in the companies that we discuss, and the show is for informational and entertainment purposes only. 大衛和我可能持有我們討論的公司的投資，而這個節目僅供資訊和娛樂用途。 [03:16] Please enjoy this conversation with Dr. Morris Chang, with some of David and my reflections following its conclusion. 請享受與張忠謀博士的這段對話，以及其後大衛和我的一些反思。 [03:23] We thought as a fun way to start things off would actually be to talk about the man who introduced us. 我們認為，作為一個有趣的開場方式，實際上是談論介紹我們認識的那個人。 [03:27] Could you tell us a little bit, in your words, about your relationship with Jensen and TSMC's special relationship with Nvidia? 你能用你的話告訴我們一些關於你與黃仁勳的關係，以及台積電與輝達的特殊關係嗎？ [03:36] Yeah. 是的。 [03:39] It started. 它開始了。 [03:39] Um, my relationship with Jensen started with a letter that, uh, he sent to me. 嗯，我與黃仁勳的關係始於一封他寄給我的信。 [03:48] I think it was 1997, and the letter was sent to the post office, and I received it in, uh, uh, and the letter said that, um, they... 我認為是1997年，那封信寄到了郵局，我在……嗯……收到了它，信上說，嗯，他們…… [04:05] 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. Nvidia 這家公司，呃，Jensen 擔任執行長的那家，是一家小公司，但他們開發了一些非常、呃、有前景的、呃、晶片，但是、呃、他們正在尋找一家晶圓代工廠，而且、呃、他們已經聯繫了台積電的、呃、聖荷西辦公室，但是、呃、他們真的、呃、沒有從聖荷西辦公室得到任何回應。 [04:47] Would I please contact Jensen because Nvidia really wanted to do business with, uh, TSMC. 請我聯繫 Jensen，因為 Nvidia 真的很想和、呃、台積電做生意。 [04:59] So, uh, I was going to the US in the next week anyway, so the letter, uh, frankly, uh... 所以、呃、我反正下週就要去美國了，所以那封信、呃、老實說、呃…… [05:06] Raised my U curiosity and also uh irritated me a little bit because uh. 引發了我的好奇心，也讓我有些惱火，因為。 [05:16] You know I had always uh told our sales people that uh that we should never be uh negligent in U talking to Future customers even if uh the customer seems to be a very small one. 你知道，我一直告訴我們的銷售人員，我們絕不應該疏忽與未來客戶的交談，即使客戶看起來很小。 [05:40] And at this point Nvidia was four years old, they were facing bankruptcy I think. 而此時Nvidia成立四年，我認為他們正面臨破產。 [05:45] Yeah, and they had uh maybe 50 or 60 employees. 是的，他們大概有50或60名員工。 [05:50] So tsmc I think at that time already had a few thousand employees. 所以我認為台積電當時已經有幾千名員工。 [05:57] And we had exceeded I remember we had exceeded uh 1 billion US dollar in Revenue in '95 and this was 97, so we were. 而且我們已經超過——我記得我們在95年收入超過了10億美元，而這是97年，所以我們。 [06:09] Relatively speaking, we were a pretty big company, yeah. 相對來說，我們是一家相當大的公司，是的。 [06:11] Which is very impressive. 這非常令人印象深刻。 [06:13] You were yourself only a 10-year-old company doing over a billion dollars in revenue, yeah right. 你自己只是一家成立十年的公司，營收卻超過十億美元，對吧。 [06:18] So the following week, I went to uh uh California and uh uh I called him back. 所以接下來那一週，我去了呃呃加州，然後呃呃我回電給他。 [06:31] Without advanced notice, I I called Jensen. 沒有事先通知，我我打電話給Jensen。 [06:34] I looked up I think there was telephone number on the stationary that he sent me the letter on. 我查了一下，我想在他寄給我的信紙上有電話號碼。 [06:40] Jensen himself picked up the phone and there was a lot of background noise. Jensen本人接起電話，背景有很多噪音。 [06:46] So they were I mean his he he was arguing something with uh uh his people uh. 所以他們是，我的意思是，他他他在跟呃呃他的員工爭論某事呃。 [06:54] But as soon as I introduced uced myself said this Mar, he immediately shouted to those people that were making noises. 但當我一自我介紹，說了這個Mar，他立刻對那些製造噪音的人大喊。 [07:11] Quiet Mar CH is calling. 安靜的Mar CH正在呼喚。 [07:15] 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. 我然後就和他約了時間，去拜訪他，去拜訪mvidia，大概是第二天之類的。 [07:34] And uh uh that was our first uh visit our first meeting. 而那就是我們的第一次拜訪，我們的第一次會面。 [07:40] And uh he uh immediately impressed me with um his um articulateness. 而他立刻讓我印象深刻，因為他的表達能力。 [07:50] And also uh he impressed me with his uh optimism. 而且他也以他的樂觀態度讓我印象深刻。 [07:58] While he was also very Frank he told me that Enid here was in financial difficulties. 同時他也非常坦率，他告訴我這裡的Enid面臨財務困難。 [08:06] But the chip that he wanted now to have bed would not. 但他現在想要擁有的晶片卻無法實現。 [08:12] Only uh save the company, it will also uh 只有呃拯救公司，它也會呃 [08:17] Make Nvidia a major customer of TSMC and 讓Nvidia成為台積電的主要客戶，而且 [08:23] Mean that was, you know, actually quite a 意思是那，你知道，其實是一個相當 [08:26] Bold statement, you know, we were we a 大膽的聲明，你知道，我們是我們一個 [08:29] Billion dollars and to be a major uh 十億美元，而要成為一個主要的呃 [08:34] Customer of ours, he would have to 我們的客戶，他必須 [08:37] Produce revenue for us of at least uh 50 為我們產生收入至少呃50 [08:41] Million a year, okay? Was that chip the 百萬一年，好嗎？那顆晶片是 [08:44] Reva Reva [08:45] 128? Uh, I forgot the number, but it was a 128？呃，我忘了號碼，但它是一個 [08:48] Very successful chip. Yeah, I don't think 非常成功的晶片。是啊，我不認為 [08:51] It was Riva anything. Uh, it was uh a uh a 它是Riva什麼的。呃，它是呃一個呃一個 [08:55] Games chip. Of course it was successful. 遊戲晶片。當然它很成功。 [08:59] In fact, back his prediction came true. 事實上，回頭看他的預測成真了。 [09:02] Not only did it solve uh idious 它不僅解決了呃棘手的 [09:06] Financial problems, uh it uh prevented 財務問題，呃它呃防止了 [09:10] From being bankrupt, you know. Not only 破產，你知道。不僅 [09:13] Did it do that? It also started to make them a major customer of TSMC within two or three years. 它做到了嗎？它也開始在兩三年內使他們成為台積電的主要客戶。 [09:21] They were, they did become one of the biggest five customers. 他們確實成為了前五大客戶之一。 [09:25] Wow, yeah, very successful chip. 哇，是的，非常成功的晶片。 [09:30] Yeah, so there was a great partnership forged there. 是的，所以那裡建立了一個偉大的合作夥伴關係。 [09:37] TSMC would fab the chips, would manufacture them; Nvidia would design them. 台積電會製造晶片，會生產它們；輝達會設計它們。 [09:42] That is true all the way to today at immense scale, but it hasn't always been easy and it hasn't always been perfect. 直到今天，這在巨大規模上仍然如此，但這並非總是容易，也並非總是完美。 [09:51] 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. 我想談談2009年40奈米節點的那個時刻，當時開發速度比PMC預期的要慢，並且讓像輝達這樣的客戶耗費了時間和金錢。 [10:05] Can you share the story of how this came to be and how it was resolved? 你能分享這個情況是如何發生的以及如何解決的故事嗎？ [10:08] Well, I decided to give the CEO... 嗯，我決定給執行長…… [10:18] Job, uh, to a potential successor of mine. 工作，呃，給我一個潛在的接班人。 [10:25] While I will still retain the chairmanship. 而我仍將保留主席職位。 [10:30] In Taiwan, usually the chairman is the top man anyway, even though the CEO is another person. 在台灣，通常主席無論如何都是最高主管，即使執行長是另一個人。 [10:44] So the problem you just mentioned happened during the period when someone else was the CEO. 所以你剛才提到的問題發生在別人擔任執行長的期間。 [10:52] Apparently, it was a manufacturing problem. 顯然，這是個製造問題。 [10:56] It was also a quality problem. 這也是個品質問題。 [11:00] And it was the quality problem that the CEO first reported to me. 而執行長首先向我報告的就是這個品質問題。 [11:09] But the CEO insisted that our people — we had a director of quality — insisted that we were not. 但執行長堅持我們的人——我們有位品質總監——堅持我們沒有。 [11:18] TSMC was not a fought and so on that basis on the basis of our quality manager arguments he had not offered Nvidia anything. 台積電並非因此爭論，基於我們品質經理的論點，他並未向輝達提供任何東西。 [11:38] Now as far as the manufacturing problem was concerned, it was a yield problem and everybody was suffering from it. 至於製造問題，那是良率問題，每個人都深受其害。 [11:49] And of course Nvidia at that time was perhaps the biggest customer of that node, the 40 nanometer node. 當然，輝達當時可能是該節點（40奈米節點）的最大客戶。 [11:58] 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. 而在這個產業中，良率問題是指當你試圖製造一批非常高品質的晶片，卻無法讓實際可用的比例提升到很高，類似這樣的情況。 [12:15] Yes, but the problem apparently just continued and I, I, I was even though I... 是的，但問題顯然持續存在，而我，我，我即使我…… [12:23] was not the CEO 不是執行長 [12:25] I was getting a little impatient uh 我有點不耐煩了 [12:30] and then of course some other problems popped up 然後當然又出現了一些其他問題 [12:33] other problems than this 40 nanometer Nvidia problem 除了這個40奈米Nvidia問題之外的其他問題 [12:36] other so I decided to uh take the Z position back 所以我決定重新接回Z職位 [12:41] so in 209 I I did that and uh there were 於是在209年我這麼做了 [12:49] several um priority problems that I had to deal with uh when I took the co job back on 有幾個優先問題我必須處理，當我重新接回共同職位時 [13:04] and one of them was this continuing problem 其中一個就是這個持續的問題 [13:07] continuing argument controversy with Nvidia anyway 與Nvidia持續的爭論和爭議 [13:15] 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 我記得在我重新接任執行長後的頭幾天，我打電話給所有主要客戶 [13:25] Including Jensen and Qualcomm was a I believe in that Qualcomm was also yeah and Qualcomm the top customers uh didn't change very much uh since except for maybe one yeah Apple Apple yeah Apple came later yeah. 包括黃仁勳和高通，我相信高通也是，是的，高通的主要客戶沒有太大變化，除了可能有一個，是的，蘋果，蘋果，是的，蘋果後來才加入。 [13:50] 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. 呃，在我和黃仁勳的通話中，他仍然對我非常友好，但他也以非常嚴肅的語氣提醒我，我們在40奈米製程上有品質和交貨的製造問題。 [14:15] 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. 所以我說我知道，這是我優先處理的問題之一，但請給我幾週時間，我會再回覆你，呃，正如我所說，我確實有…… [14:30] Several problems aside from the 40 nanometer manufacturing problem and the problem with the argument that we were having with Nvidia, aside from that, we also had the problem of the pricing was dropping faster than the cost, you know. 除了40奈米製造問題以及我們與Nvidia的爭論之外，我們還遇到了定價下降速度快於成本的問題，你知道的。 [15:05] 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. 我的意思是，你不希望看到毛利率百分比持續下降，你知道，因為你已經向客戶承諾了降價時間表，但卻無法以同樣的速度降低製造成本。 [15:18] All right, so that was one problem. 好了，所以那是一個問題。 [15:21] Another problem was the immediate one that triggered me to retake the CEO ship, because the previous... 另一個問題是直接觸發我重新擔任執行長職位的那個，因為之前的…… [15:32] CEO had um laid off except he didn't use the term layoff, you know. CEO 呃，進行了裁員，只是他沒有用裁員這個詞，你知道的。 [15:43] He used the B performance review, the worst performance view people, and there were about six or 700 of them, you know. 他用了績效考核，最差的績效審查人員，你知道，大約有六、七百人。 [15:53] And he laid them off um uh on the basis of their uh poor performance. 然後他呃，根據他們呃，表現不佳而解僱了他們。 [16:00] And well, we never did that, you know. 嗯，我們從未那樣做，你知道的。 [16:04] I mean, the worst we would do was to put them on place them on probation for 6 months. 我的意思是，我們最糟的做法是讓他們接受六個月的試用期。 [16:18] 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. 而且通常，你知道，六個月結束時，每個人都會回到他或她原來的工作崗位。 [16:31] And some of them would get um transferred because they were in the. 有些人會呃，被調職，因為他們在…… [16:35] Wrong jobs, you know, so some of them would get transferred, but we almost never really fired people even after the probation period. 錯誤的工作，你知道，所以有些人會被調職，但我們幾乎從未真正開除過人，即使在試用期之後也是如此。 [16:49] 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 off, right? 所以在你任內，你從未進行裁員，也從未查看過績效評估，而這些評估本應是幫助指導員工、作為決定誰該被裁員的手段，對吧？ [16:59] Yeah, and I, I actually, you know, uh, have told the managers that, you know, but uh, and well, in uh, 2008, 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. 是的，而且我，我實際上，你知道，呃，已經告訴過經理們，你知道，但是呃，而且嗯，在呃，2008年，當然，有呃，一場金融危機，而呃，半導體業務實際上受到了影響，呃，我們的收入下降了，我們的業務下滑得非常嚴重。 [17:31] Yeah, I was not a CEO, I was a chairman, but I just knew that uh. 是的，我不是執行長，我是董事長，但我只是知道呃。 [17:38] 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. 任何人，任何總經理，任何CEO，總經理，呃，沒有太多經驗，呃，他或她在這種情況下會怎麼做。 [17:54] 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. 這是一種膝跳反射式的反應，知道嗎，哦，他說，哦，這是我的考驗，我得盡可能省錢，而且，而且我得，你知道，裁員，你知道。 [18:11] But this is the semiconductor industry, and Moore's law means no matter what happens, you will always need people. 但這是半導體行業，摩爾定律意味著無論發生什麼，你總是會需要人。 [18:17] Well, I know, I know, but, well, semiconductor, but semiconductor people actually think the same way as I describe, you know. 嗯，我知道，我知道，但是，嗯，半導體，但半導體業的人實際上想法和我描述的一樣，你知道。 [18:23] I mean, they all lay off, they are, they all people too. 我的意思是，他們都裁員，他們也是，他們也都是人。 [18:28] I had a lot of experience at Texas, in, but at Texas. 我在德州有過很多經驗，在，但在德州。 [18:39] Instruments, I was not a CEO. 在儀器公司，我不是執行長。 [18:42] I was just one of the top managers under the co level. 我只是公司高層以下的高階經理之一。 [18:46] And when the company decided to have a layoff, the CEO conferred with the top managers, uh, who included me. 當公司決定裁員時，執行長與包括我在內的高階經理們商議。 [18:59] And their first reaction was exactly the same. 而他們的第一反應完全一樣。 [19:02] And I'm talking about, uh, the '70s, early '70s. 我指的是，呃，70年代，70年代初期。 [19:05] Their first reaction on who to lay off was exactly the same as what our TSMC COO did in 20 late 208, 209. 他們對於該裁誰的第一反應，與我們台積電營運長在20年晚期208、209年所做的完全一樣。 [19:21] Which was, you know, go by performance. 也就是，你知道，依據績效來決定。 [19:25] I mean, well, now I was the only one at Texas Instruments in the early '70s that said no, that would not be, uh. 我的意思是，嗯，我是70年代初期德州儀器唯一一個說不的人，那不會是，呃。 [19:43] 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. 可信的呃做法是，如果我們根據績效評級裁員，人們不會尊重我們，為什麼呢？因為績效評估非常主觀，績效評級是由每個人自己的主管完成的，所以公司裡有700名表現最差的員工，而誰給了這700人差評？700名主管，你知道，非常主觀，這不是人們會尊重的事情，如果一年內你必須重新僱用被裁的人，你就不應該裁員，因為離職費用通常約為半年，至少需要半年。 [20:46] year to train a [20:48] person so if you need the people back [20:52] within a year you shouldn't have you [20:54] shouldn't lay off so what did you do [20:56] when you came back as CEO both about the [20:59] employment issue and about the customer [21:02] issue you mean customer issue being uh [21:05] Invidia yeah yeah well to finish the [21:08] employment issue the laid-off [21:12] employees as I said there were 700 of [21:15] them six or 700 of them uh came to my [21:19] home uh to demonstrate and [21:22] protest now uh the company tsmc was [21:28] pre-warm war that hundreds of people [21:31] would appear uh in front of my home so [21:35] they [21:36] notified the police department uh in my [21:40] district so the police department [21:44] sent 50 60 police officers to uh try to [21:50] maintain the [21:52] order now uh more than 100 protesters [21:57] appeared and uh the neighbors my [22:00] neighbors you know they trouble getting [22:01] in [22:02] out that was only the first time a month [22:06] or so later uh the problem was uh still [22:10] not uh solved I was still not the CEO so [22:17] they appeared again some protesters [22:21] about 25 of them decided to spend the [22:24] night sleepover in the little park [22:27] that's about a block away from my home [22:31] my wife literally didn't didn't sleep [22:34] that night you know I bet she wake up [22:36] and went over to that window to take a [22:39] look to see what was going on but uh [22:42] then very early the next [22:44] morning um uh my wife 6 6:00 the next [22:51] morning my wife you know got up and uh [22:55] uh she took one of the uh [23:00] bodyguards and uh went to a uh [23:04] Neighborhood Market and got the the [23:08] Chinese star breakfast or Chinese bread [23:12] you know fried bread you know I don't [23:14] know whether you ever had it or not [23:16] probably not yeah yeah in bun buns you [23:20] know yeah so be milking and take [23:26] enough of the breakfast in up for 25 30 [23:31] people and back to to the park to the [23:37] park and uh distribute them to the [23:43] protesters and uh they were thankful you [23:47] know yeah and they actually decided to [23:52] not go to the president's [23:56] uh uh Palace president Manion and they [24:02] told my wife that they would not do that [24:07] that day and all [24:10] this uh kind of precipitated my U uh [24:15] taking back the CEO [24:18] job well there's another thing you know [24:21] uh I told the the previous CEO uh before [24:25] he he laid off the 6700 people I said if [24:30] you because I knew as I said I knew that [24:34] it would be his neor reaction uh to [24:40] confront a a crisis such as the crisis [24:45] uh we had it be his knee-jerk reaction [24:49] to lay off so I said to him if you want [24:54] to lay off bring it to the [24:56] board I'll for a special War [25:00] meeting and I I knew what I would ask [25:04] the bo to [25:05] do which was not to Grant the [25:10] permission but he decided to circumvent [25:14] that the [25:15] co [25:17] because what he [25:19] did he did not consider it to be layoff [25:22] you know it was just punishment for the [25:26] poor performers h [25:29] well as far as CEO is concerned I did [25:33] keep [25:34] him I [25:36] had more than one nice talk with him I [25:42] intended to and I told him that he was [25:47] still [25:48] a [25:50] potential uh successor to [25:54] me so I kept him at the same job grade [25:59] we have job grades and the [26:02] same salary and [26:06] bonus but he was now the president of [26:13] new [26:15] businesses and back then you know we we [26:18] had the high hopes for the so-called new [26:22] businesses which was solar cells and led [26:28] it's the great irony that your core [26:30] business of manufacturing integrated [26:33] circuits ended up becoming the largest [26:36] market opportunity of all you didn't [26:37] need any new businesses and up the [26:40] biggest marketing uh biggest Market [26:42] opportunity why is it so ironic well [26:46] it's always interesting to me when [26:48] companies think oh we should look at [26:50] other new businesses when in reality [26:53] semiconductors became a $600 billion a [26:57] year market and and you know solar is a [26:59] small fraction of that uh LEDs are a [27:02] small fraction of that you were already [27:04] in the best Market I know and I I knew [27:08] that I I KN I did I did not really mean [27:12] I did not really think that solar or LED [27:16] would really replace our integr circuits [27:20] business but I knew the integrated [27:22] circus was going to be great you know [27:26] but uh at that time which was uh [27:31] 209 at that time we also thought that [27:36] Sola and led was going to be very [27:41] promising yeah but it didn't work out of [27:44] course the solar business could have [27:47] been pretty good however China ruined it [27:52] they subsidized the hell out of it and [27:56] uh they now uh control that business [28:00] solar [28:01] cells the prices were extremely low [28:05] still low still low so it didn't take [28:08] off [28:09] tsmc didn't take off um and led did not [28:15] take off either because [28:17] LED it's not the the market is not as [28:21] big as solar however it's controlled the [28:25] pents are controlled by just a few [28:28] companies and they they wouldn't let the [28:32] the few companies that control the [28:34] patterns of LED were not let up at all [28:37] so a few years later the [28:41] CEO that was put on the new [28:45] businesses uh decided that uh uh his new [28:50] assignment wasn't working out either so [28:54] he quit and he's now running Media Tech [28:58] is that correct he is now the uh a vice [29:02] chairman uh and uh the CE of mediate [29:05] Tech [29:07] yeah so coming back to this moment in [29:10] 2009 you rehi you offered to rehire [29:13] anyone who was laid off that was [29:15] interested in coming back and you're [29:18] setting the new sort of vision and [29:20] strategy as CEO or in many ways [29:22] returning to the old one how did you [29:25] resolve the Nvidia dispute yeah [29:28] in the first four or five weeks after I [29:33] retok the co job I probably [29:38] spent almost half of the time [29:42] on how to resolve the problem with [29:47] Nvidia as far as youths were concerned [29:50] but we were doing our best because you [29:53] know we had to do it anyway you know I [29:56] mean andbe there was just is one of the [29:58] customers yeah not just imidia but yeah [30:01] Qualcomm and Intel yeah and it was a [30:06] very important note 40 nanometer was [30:09] very important note uh in the [30:11] progression of Mor law you [30:14] know only after 40 can we if we do the [30:19] 40 well can we can we do the uh uh 28 28 [30:24] was the next one and I called uh the [30:28] the uh sales people that were in direct [30:32] that have been in direct contact with [30:34] Nvidia and of course I called the [30:38] everybody that [30:40] was somehow involv somewhat involved in [30:43] the [30:45] problem so it was a matter of money you [30:48] know as far as the progress on U the [30:54] manufacturing lines would already doing [30:58] what we could I mean it was as I just [31:02] said it wasn't just for Invidia it's for [31:06] for tsmc you know but Nvidia because um [31:11] they they had borne the brunt of the the [31:15] the problem the damage so it's a matter [31:19] of money I worked out in number [31:23] I familiarized myself with all aspects [31:27] of the problem [31:28] and then I worked out a number and I I [31:31] also knew that idious customers were [31:36] were after them you know they had [31:39] demands on Nvidia too so and I I use all [31:43] the intelligence I could [31:45] get and I think that was it turned out [31:49] that it was it was [31:51] good so about a [31:54] month after I retook [31:58] the [31:59] CEO job I sent an email to Jensen I [32:06] said I'm coming to Silicon [32:09] Valley next week on this [32:14] stage I will be at your [32:18] home at [32:20] 6:00 let's [32:23] have just Salah and pizza which was [32:27] something [32:28] we we had had uh many times in the [32:33] past now uh immediatey uh you sent back [32:39] uh an email he [32:41] said when do we discuss business [32:46] then did he ask who was going to pay for [32:48] the pizza and [32:50] salad he didn't ask that so I I [32:55] anticipated that so I said [32:59] 6:30 we start [33:01] having pizza in the SAT 8:00 shop we'll [33:06] go to your office at your [33:09] home and we'll do discuss [33:13] business so on the appoint of the date [33:16] uh day I showed up and we followed the [33:20] schedule exactly you know 6:30 show up [33:24] we had the very present pizza and the S [33:27] yeah thing is that you know uh his wife [33:32] Lori would make the p uh the salad you [33:35] and and the pizza was [33:38] delivered from [33:40] outside maybe maybe they made their own [33:42] pizza too I forgot would not surprise me [33:45] yeah anyway I I had I had had it many [33:49] times at his home all right so at OST [33:54] shop it was I who looked the watch said [33:57] Jon why don't we go to your study you [34:00] know and I gave him the offer it was on [34:06] the order of a 100 [34:08] million dollars right yes more than 100 [34:12] million yeah and I also said our offer [34:17] is effective 48 [34:20] hours if you do not there there is not [34:23] going to be we are not going to argue [34:26] we're not going to bargain [34:29] if you don't accept the offer within 48 [34:33] hours we have to go to an [34:37] arbitrator which was what he had [34:40] suggested to the previous CEO anyway [34:43] that we go to the arbitrator you know [34:46] but the previous CEO did not even give [34:48] him a number you know the previous CEO [34:51] gave him [34:52] zero you probably don't want to go to [34:54] arbitration with your best customer no I [34:56] didn't want to yeah but uh you know I [34:58] had to say that uh uh and uh and because [35:03] I mean that number the number we offered [35:06] him uh was arrived at after uh as I said [35:11] weeks of work uh on my part and I [35:15] thought it was fair to both sides you [35:19] and Did Jensen accept the offer yeah he [35:24] did uh in two within two days I think [35:28] it's an amazing example of a situation [35:31] where you had strong partnership [35:34] together for many years you built this [35:36] close personal relationship such that [35:38] you could have an hour and a half family [35:40] dinner and not talk business you were [35:43] able to then come up with a large sum of [35:46] money over hundred million doar settle [35:48] and then since then there have been many [35:50] many many billions of dollars of [35:52] business done together it's a great [35:55] success of working out your differences [35:57] and no I I like I liked it [36:00] too I that's why I included the story in [36:05] my auto [36:07] while now is a great time to thank our [36:10] presenting partner JP Morgan payments [36:12] you don't often hear stories of how [36:14] important payments are to supply chain [36:16] success but the last few years have [36:18] really shown how critical it is to the [36:19] global economy in our remastered tsmc [36:22] episode you heard how JP Morgan's trade [36:24] and working capital group helps [36:26] companies manage risk can access [36:28] liquidity for their global trade and we [36:30] just got a new stat from them 18 of the [36:32] top 20 largest corporates are payments [36:35] clients so they have an unparalleled [36:36] view into global trade flows so zooming [36:40] in on supply chain think about a typical [36:42] manufacturer they're trying to 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materials [39:22] and controls so uh and also that origin [39:28] which was [39:29] geophysical uh and so on but TI's [39:34] semiconductor business was their [39:37] biggest and I was the head of that [39:41] worldwide semiconductor [39:44] business I wanted at that time when I [39:49] was the head of uh worldwide [39:53] semiconductors our R&D budget was [39:58] 4.8% of Revenue of our [40:01] revenue and I thought it was not [40:04] enough I just wanted to raise it to [40:08] 5.5% of the revenue but my request was [40:13] denied all every time I raised [40:17] it now coming back to [40:21] tsmc I wanted to set a a [40:25] number a number a percentage of Revenue [40:30] number so we don't have to argue every [40:33] year how much on the which is [40:36] sp so at that at about that time about [40:41] the time [40:42] 20 [40:44] 89 uh when I came back I [40:49] just almost like at that time we were [40:52] running I think six or [40:55] s% uh a year but it was negotiated every [40:58] year between the R&D director and the [41:02] CEO you know so I want to stop that I [41:05] want to make him at ease you know I mean [41:10] doesn't have to argue doesn't have to to [41:13] request every year so I almost just [41:18] literally picked a number our had we've [41:22] been running 6 or 7% already so I said [41:26] oh let's pick 8% okay yeah [41:30] 8% regardless of [41:33] uh whether there's a recession or not [41:38] and just 8% off [41:40] revenue and that was the the best news [41:43] if you ask uh uh our and the director [41:47] who was back then I think uh in in the [41:53] second place of on the uh uh he would [41:57] tell you I mean he has told me many [42:00] times in the last 10 15 years that this [42:04] was really the best thing that we did [42:09] for Andi you so they were not concerned [42:13] the and director was not concerned at [42:15] all about having his planned budget cut [42:19] back his plann uh uh resource uh people [42:25] uh allocation cut back you none of that [42:30] so he has been working 8% [42:33] and so has been like that you know and [42:38] um that is what you know propelled our [42:44] uh on the effort in this period in 2010 [42:49] it wasn't just ramping the R&D budget [42:52] was also the capital expenditures you [42:54] you would had almost a decade of two to [42:57] 2 and a half billion spent you know [42:58] building the Fabs every year and in 2010 [43:01] you you ramped that to almost 6 billion [43:04] what was it about the competitive [43:06] environment the 28 nanometer node that [43:09] caused you to push all your chips in on [43:11] that yeah I think it was a kind of a [43:14] mutual feeding thing you know as I as I [43:19] uh [43:20] settled the um ond budget at 8% of [43:26] Revenue [43:27] I mean to the [43:30] uh [43:32] uh satisfaction of uh the Andi [43:36] people they began to [43:39] have big Ideas you know they began to to [43:44] be telling me our [43:47] 28 is going to be the term they they use [43:51] and they have used it several times uh [43:55] 20 but the first term the first time I [43:59] heard them using it is the 28 [44:05] 28 is going to be the Sweet Spot it's [44:10] just like tennis racket you know you hit [44:13] you hit the [44:15] ball with a sweet spot of your record [44:18] yeah yeah do you play tennis I have [44:20] played tennis not well good I was like [44:25] you you know like 40 years ago I was [44:29] like you I don't play anymore but you [44:31] know I so I know the feeling of hitting [44:34] board in The Sweet Spot you know 28 n is [44:38] in The Sweet Spot and so I said I said [44:41] why you know he you know gave me a lot [44:44] of technical reasons 20 [44:47] n so I decided I I would believe [44:52] him and uh he he now had the resources [44:57] uh to push it to do it uh uh as fast as [45:02] he could uh so you know uh now the [45:06] capital [45:07] spending now of course back then we had [45:11] already built up a pretty good um [45:14] infrastructure uh organizational [45:17] infrastructure we had uh a pretty good [45:20] uh Market [45:22] forecasting [45:24] group and I had set up the business [45:29] development [45:31] department which was like uh the [45:34] marketing department now we always had a [45:38] pretty strong sales [45:40] effort but uh to me sales effort is just [45:45] uh uh the Tactical side uh uh with the [45:53] customers marketing is the Strategic [45:56] side [45:57] to the outside world [46:01] yeah now from all these inputs the [46:05] marketing The Business Development [46:08] Department which as I said was our [46:11] strategic [46:12] Marketing [46:15] Group um and from the technical from the [46:19] R&D side that uh 28 was going to be [46:24] spot I decided that [46:28] and I I quoted the Shakespeare in my [46:32] autobiography [46:34] that there's a tide in the Affairs of [46:38] man which taken at its frot leads on to [46:43] Fortune you know I [46:45] decided this was 28 nm was going to be [46:49] our our tide yeah our our next hide [46:53] anyway there will be others seven n it [46:57] was another was the the next Sweet Spot [47:01] the and the people told me and again you [47:05] know uh reminded myself of Shakespeare [47:10] you know taking it the flood [47:13] taking yeah uh so I mean that took that [47:17] however you know and setting the R&D at [47:20] 8% of uh uh did [47:24] not invite uh any opper position from [47:27] the [47:28] board but [47:31] suddenly [47:33] increasing uh Capital spending threefold [47:36] I think did invite a lot of questions [47:41] from the board our practice in the board [47:44] meetings and because back then well even [47:49] now uh mostal directors are from uh [47:54] overseas uh [47:58] us and [48:01] England and we would uh uh email the [48:08] agenda to them two weeks before the [48:11] board [48:12] meeting then the [48:15] night before the board [48:19] meeting I would invite the independent [48:24] directors to dinner [48:27] and uh that dinner the conversation at [48:31] that dinner was not on record uh so so [48:36] the independent directors [48:38] actually more three quarters of our [48:41] directors in were independent are [48:44] independent [48:46] directors anyway uh so in the in the uh [48:50] night before and the evening before the [48:53] meeting they had uh the opportunity to [48:56] asked me questions if they had any but [49:01] on this matter of uh vastly increased [49:05] Capital spending they didn't even wait [49:08] until uh until they get to that they got [49:12] to that uh dinner because this was [49:15] effectively betting a huge amount of the [49:17] company's cash on this node this process [49:20] this generation yeah and uh so they uh [49:25] they called the the uh Chief U uh The [49:30] General Counsel The General Counsel is [49:32] also the secretary to the board yeah uh [49:37] they called uh him at that time it was [49:40] uh an American the general Council was [49:43] an [49:44] American and said we want to talk uh to [49:48] the chairman we don't like this uh idea [49:55] no anyway [49:57] so I talked to [49:59] them on the [50:01] phone uh about a week or so before the [50:04] board [50:05] meeting and uh all right uh you know [50:09] this is something that of course I told [50:12] them what I have now just told you uh [50:16] inputs from a market forecast inputs [50:20] from our aune inputs from our business [50:24] department the new business department [50:26] Department [50:27] and of course you know they didn't [50:29] believe it you really can't convince [50:31] anybody on something like this so at the [50:34] end I had to say well [50:38] look I heard you but I am still the guy [50:44] that's responsible for the operation of [50:46] the [50:47] company so you need to let me go ahead [50:51] with this one so they were satisfied [50:56] with that [50:57] and what was the result what happened [50:59] around this era of 28 nanometer that [51:02] created so much demand oh I think you [51:06] know the result was good and that was [51:10] the smartphone ERA coincided with 28 [51:13] nanomer yeah when the business [51:15] development group was looking at this [51:18] and you were looking at this did you see [51:20] how big smartphones were going to become [51:22] and the immense opportunity that that [51:24] would unlock for you no I I didn't maybe [51:28] the business development guy that was [51:31] another interesting story yeah maybe he [51:34] knew maybe he or at least I I I now [51:39] hope and I of course hoped at that time [51:42] too that he had uh a more [51:47] detailed uh visibility uh than I did uh [51:52] uh but I I I mean of course this was was [51:56] not the only uh it was not the only [51:59] input you know I had a few other [52:02] advisors too [52:04] yeah so that takes us to Apple could you [52:09] share with us how you end up meeting [52:13] Apple yeah but before we before we do [52:17] that let me [52:19] offer how [52:21] we [52:22] uh made uh CC actually [52:27] the business development uh director ah [52:30] the current CEO the current CEO the [52:33] current chairman and CEO yeah when uh [52:40] Rick was uh CEO [52:43] between 205 and [52:48] 209 he had split operations into two [52:54] groups [52:56] advanced [52:58] technology and uh mainstream [53:03] technology and uh CC was uh the head of [53:08] the [53:10] mainstream [53:11] actually really I should say the Lesser [53:15] one okay yeah and Mark Lou was the head [53:20] of [53:21] the [53:24] advanced and each group had a [53:29] small business [53:31] development [53:33] section maybe 30 or 40 people [53:37] each all right so I came back to be the [53:42] CEO and I I never [53:46] thought the split up of two groups was a [53:51] good idea anyway in fact uh back in 1996 [53:57] uh the president he was not a CEO but he [54:03] was the [54:04] president uh we didn't have the CEO [54:08] title back in [54:11] 1996 but the president who was American [54:15] Don Brooks yeah right he wanted her [54:19] to spit he got a little I think he got a [54:23] little tired of running this company uh [54:28] he was going to be here for only a year [54:30] at first but he winded up he end up [54:35] staying spending six seven years in [54:40] Taiwan towards the end he was getting [54:42] little tired of running this [54:46] thing and he thought that he would do it [54:50] like uh TI for instance when TI had a [54:54] germanium transition Department silicon [54:57] trans department and IND circuit bipolar [55:00] IND circuit MOS IND circuit you know [55:03] it's the divisional org structure [55:05] instead of a functional or structure [55:07] right yeah but I really did not think [55:13] that The Foundry business TSM [55:15] CP uh was suitable for the divisional uh [55:24] structure because you know [55:27] we have almost the same group of [55:30] customers how do you how do you divide [55:33] up that group divide up the company if [55:36] you want want the so-called divisional [55:39] structure well you know you know D [55:44] Brooks was going to divide it by Fab you [55:46] know my goodness you know the customers [55:49] move from one FB to another the same [55:52] customers you know not to mention tsmc [55:54] has 21 two Fabs now and so what are you [55:57] going to have 22 he only of course he [56:00] only had three or four Fabs you know [56:01] back then yeah but he he was not [56:05] convinced he kept [56:08] arguing and I said look why don't we get [56:11] um a consultant uh McKenzie McKenzie why [56:15] don't get McKenzie okay so we got [56:18] McKenzie in and McKenzie after a month [56:23] or two two months [56:24] actually and a couple million dollars I [56:28] guess well told us the same answer you [56:31] know that functional is pass is [56:35] best and then Don Brook [56:39] said well tell me one [56:43] company one big company that's [56:49] functionalized and McKenzie immediately [56:52] answered Bo [56:54] boing which which is is a good answer [56:56] you know yeah yeah of course except it's [56:59] not true Boeing has commercial and and [57:03] government uh well they they probably [57:06] have have commercial and government but [57:08] they don't have 707 [57:11] 747 7 57 you know they don't have they [57:15] don't divide and if we divide up by Fab [57:19] it would be like dividing up 707 from [57:23] 757 737 you know yeah [57:27] anyway Don Brooks attempt was in [57:34] 1996 and well by uh [57:39] 205 Rick s you know decided to cheat the [57:43] same [57:44] ground well and he did uh this time you [57:48] know I didn't I didn't stop [57:50] him [57:51] my idea my principle when I was uh [57:56] the chairman and not the co uh was well [58:01] sometimes you have let you have to let [58:04] the CEO make his own mistakes and learn [58:08] from them you [58:09] [Music] [58:11] know uh of course uh not if the whole [58:15] company is going down the drain dra so [58:18] you you you have to interfere then but [58:21] only then well [58:24] anyway um [58:26] so that was uh the background uh two [58:31] groups when I came back to be the [58:34] CEO uh the advanced group and uh [58:38] mainstream group and each group had a [58:42] small business development section 30 or [58:46] 40 people I think evance has had more a [58:52] bigger group than uh mainstream [58:56] all right so I wanted to combine the the [59:01] two operation [59:03] oops and I also wanted a real marketing [59:10] and I didn't call it marketing because I [59:12] decide to use business development in [59:14] English because has a good translation [59:17] in in Chinese uh all right now I decided [59:22] to combine the [59:24] two uh groups operation groups uh now [59:30] back uh in [59:32] 2009 qu I decided to combine the two [59:36] groups uh I think the uh Advanced group [59:40] uh had uh something [59:43] like 10,000 [59:47] employees and uh the mainstream group [59:51] had a little less but also 7 or 8,000 [59:57] employees and the mainstream group just [59:59] because we haven't explained this [01:00:01] concept yet is taking those older Fabs [01:00:05] that have the higher nanometer nodes and [01:00:08] they're finding customers that don't [01:00:10] necessarily need the Leading Edge to [01:00:12] automotive parts or it's Coss sensors [01:00:15] for cameras and and finding customers to [01:00:18] keep the utilization high on those older [01:00:20] Fabs from previous generations yeah uh [01:00:23] right but also uh you [01:00:26] quite often the same customers use both [01:00:30] mainstream and Advanced Technologies [01:00:33] yeah take qualcom I'm quite sure that [01:00:37] they use uh you know the most advanced [01:00:40] uh and uh or even Apple I think they use [01:00:45] yeah if you think about all the chips in [01:00:46] an iPhone yeah you know the a16 pro is [01:00:50] built on the Leading Edge but there many [01:00:52] many other chips in there yeah right so [01:00:55] you combine to one Business Development [01:00:57] organization 80-ish people yeah we had [01:01:01] the mark Lou in charge of the advance [01:01:05] and the CCA in charge of the the [01:01:08] question is you know who's going to be [01:01:10] in charge of what you know the combined [01:01:13] or you need only one for the combined [01:01:15] operations you need only one person the [01:01:19] truth is that we had a lot of [01:01:22] operational talents you know operation [01:01:25] meaning [01:01:26] manufacturing taking the developed [01:01:29] technology from R&D you know and uh [01:01:33] converting into mass [01:01:37] production we are a lot of talents [01:01:40] there but um Business Development or [01:01:44] marketing there and uh [01:01:49] neither uh [01:01:52] Mark nor uh CC [01:01:56] had any real previous experience in [01:02:01] marketing business [01:02:04] development so that was my U my main [01:02:07] worry uh you know we need we need we [01:02:10] combine the two groups we needed a [01:02:14] combined uh uh operations manager uh but [01:02:20] even more importantly in my mind we [01:02:23] needed a some find market uh business [01:02:28] development [01:02:31] manager so I [01:02:34] uh first [01:02:36] offered the marketing uh Business [01:02:39] Development job to [01:02:42] the the guy who was in [01:02:47] the bigger job evance Tech [01:02:51] Mark and I explained to him that I did [01:02:56] not think he had [01:02:59] had any [01:03:02] significant marketing experience in the [01:03:05] past and this would this new job if he [01:03:10] takes it [01:03:12] would give him the opportunity [01:03:17] of of being uh [01:03:20] professed in that [01:03:23] area but he de kind it he [01:03:27] said my [01:03:29] goodness I have 10,000 people reporting [01:03:33] to me now you want me to take a job that [01:03:37] has only 60 70 people in [01:03:40] it it was always the end of that [01:03:42] conversation and your goal was for him [01:03:44] to become a well-rounded executive yeah [01:03:47] in hopes of leading the company after he [01:03:49] sort of did that tour of Duty and I [01:03:51] explained to him that [01:03:53] yeah not to mention it's a very [01:03:55] important or 70 people they're [01:03:57] responsible for finding all the next [01:03:59] business I know I know I know actually [01:04:02] back in my mind I was Thinking of U the [01:04:06] time when Kissinger was Nixon's National [01:04:11] Security advisor and somebody else whose [01:04:14] name I have even forgotten was the [01:04:17] Secretary of [01:04:18] State and the Kissinger you know [01:04:23] probably had couple hundred people [01:04:25] reporting to him whereas the Secretary [01:04:27] of State you know had thousands of [01:04:29] people all over the world reporting to [01:04:33] him and who had more power you know [01:04:36] Kissinger certainly not the name who [01:04:39] you've forgotten [01:04:41] yeah and before this period you were [01:04:44] doing the business development and [01:04:46] marketing for the company right you were [01:04:48] the one finding the nvidias the Jensen's [01:04:51] the broadcom the next great customers [01:04:54] and great markets for that's right [01:04:56] that's right I Was You Were Always On A [01:04:58] Plane meeting with the current top 15 [01:05:01] customers and trying to find the next [01:05:04] top 15 yeah except for those four years [01:05:07] when I was not the CEO yeah H yeah but [01:05:11] you were right I was on the plan most of [01:05:14] the time visiting customers I that that [01:05:19] was my pleasure yeah I really liked it [01:05:24] you uh well [01:05:26] anyway uh [01:05:28] so I then of course offered offered the [01:05:32] business Department job to CC and he [01:05:36] accepted I mean I I thought he accepted [01:05:39] it uh [01:05:41] uh even delightfully you know yeah so [01:05:45] and he's now the chairman and CEO of [01:05:48] tsmc [01:05:50] yeah so this had just happened and you [01:05:54] came home from a board meeting we [01:05:56] understand one evening that's right the [01:05:58] board meeting had [01:06:00] ended and it was uh 6:00 or [01:06:04] later and [01:06:06] uh uh I went [01:06:09] home [01:06:11] uh uh this was uh [01:06:15] Tae uh we had uh our board [01:06:18] meetings back at that [01:06:21] time uh in in fact here in the in the [01:06:27] you have you ever seen you have seen my [01:06:29] conference from yes across the hall yeah [01:06:31] yeah right yeah we we had all our all [01:06:34] meetings in taipe in that conference [01:06:39] room uh anyway it was uh 6:30 [01:06:43] also when I got home and I think my wife [01:06:47] knew that uh I would not be home until [01:06:52] around [01:06:53] 6:30 because as soon as I uh she [01:06:57] actually she met me at the door which [01:07:00] wasn't very often [01:07:03] you but this time she has something to [01:07:06] tell me that's why she met me at the [01:07:08] door she said uh uh Terry G called in [01:07:13] the [01:07:15] afternoon and said he was coming to [01:07:19] dinner and who is Terry gal for [01:07:21] listeners Terry [01:07:23] gal is a relative is actually a uh [01:07:30] second cousin of Sophie Sophie is my [01:07:36] wife [01:07:37] uh and uh they share the same [01:07:42] grandparents that's what makes them [01:07:44] second cousins I think yeah and for our [01:07:47] Western listeners who this won't be [01:07:49] obvious to Terry gal is the founder and [01:07:51] CEO of [01:07:52] foxcon right Terry gal is a second [01:07:56] cousin of sophies and he's also uh he he [01:08:00] is also he was also at that time the [01:08:04] chairman of uh hanhai which Hong High [01:08:08] Hong High yeah foxan to American the [01:08:10] name slip my mind for what for for a [01:08:13] second yeah onai which which is a a very [01:08:17] important supplier to Apple uh and [01:08:22] pretty big company and in fact Terry G [01:08:25] uh uh is reputed to be one of the [01:08:29] richest men in Taiwan [01:08:33] H and she said [01:08:38] Sophie uh is [01:08:41] lovely but she [01:08:44] doesn't uh know too much of my [01:08:49] business I don't think she understood [01:08:52] the uh significance of uh of uh Terry G [01:08:58] coming to dinner [01:09:01] bringing a vice president from [01:09:05] Apple uh she I don't think she quite un [01:09:09] quite really she didn't really she [01:09:12] wasn't very interested either in the [01:09:15] significance of that and you had been [01:09:17] trying for months [01:09:19] strategizing with the business [01:09:21] development team how do we go win [01:09:23] Apple's business the smart the the [01:09:24] iPhone seems to be working yeah I mean [01:09:27] strategize well strategizing is probably [01:09:31] too uh strong a word you know I mean I [01:09:35] mean just [01:09:38] thinking thinking Al also knowing that [01:09:42] we we just can't do anything we can't do [01:09:46] anything about it app is a very close [01:09:48] mouth company if you try to talk to them [01:09:51] if you offer you know your service I [01:09:54] mean they were just [01:09:56] tell tell you to go away you [01:09:58] know they will come to see you when they [01:10:01] are [01:10:02] ready that's what I knew about Apple [01:10:08] even then and I knew I know the same [01:10:12] thing now you [01:10:14] know yeah all right all right so uh 8:00 [01:10:19] now Sophie did know that uh I would not [01:10:23] be home until [01:10:25] after 6 o' so he had told she had told [01:10:31] uh Terry that and Terry had set the time [01:10:36] of of arrival of their [01:10:39] arrival uh at [01:10:42] 8:00 so 8:00 was a a bit late for my [01:10:47] dinner but I I said what the heck [01:10:51] wait so they showed up [01:10:55] uh I didn't ask Sophie just said a vice [01:10:58] president and uh I just thought to [01:11:01] myself it wouldn't be just an ordinary [01:11:05] vice president yeah so uh because you [01:11:09] know there was no reason [01:11:12] for uh Terry to just bring any uh Apple [01:11:18] vice president to my home with then it [01:11:22] must be something special it must be [01:11:25] someone special uh for tsmc you [01:11:31] know all right so Jeff Williams came he [01:11:34] was uh not just a a vice president he [01:11:38] was the chief operating officer of [01:11:43] Apple and uh you know they Jeff was a [01:11:47] pretty straightforward person [01:11:50] he [01:11:52] didn't spend much time in the [01:11:56] in uh ordinary [01:11:59] uh uh [01:12:02] chitchat there wasn't the same Pizza and [01:12:04] Salad uh period before it wasn't but it [01:12:08] wasn't formal either you know my my wife [01:12:11] Sophie just added we we we have a cook [01:12:14] you know we had a cook uh and uh pretty [01:12:18] good cook uh uh [01:12:22] so uh Sophie just told the cook to add a [01:12:27] few [01:12:28] dishes she's a Chinese cook she doesn't [01:12:31] do any Western food and you know Terry [01:12:36] obviously he grew up on Chinese food and [01:12:40] I would imagine that that the [01:12:43] Apple guy that he bought uh would also [01:12:47] like uh Chinese food anyway so she just [01:12:53] asked the cook to cook okay a few more [01:12:56] dishes but uh you know it wasn't [01:12:59] important the food was not important [01:13:02] either the quantity or the quality was [01:13:06] not important [01:13:07] because [01:13:09] almost Jeff almost uh immediately [01:13:14] started his pitch you [01:13:17] know almost soon as uh he sat down to [01:13:22] dinner and what is the pitch from [01:13:24] someone like Jeff Williams [01:13:26] like we would like you [01:13:29] to p y [01:13:32] wavers something like that pretty [01:13:36] straightforward I mean so I was I I I [01:13:40] listened that that night I think Jeff [01:13:44] talked [01:13:46] uh maybe [01:13:48] 80% and I talked [01:13:52] 20% uh [01:13:55] if if you don't count the uh the [01:13:58] relative to relative talk between Sophie [01:14:01] and the Terry you know which was very [01:14:04] which was not very much either yeah and [01:14:08] Jeff had proposed economic terms at this [01:14:11] first dinner right no uh not not nothing [01:14:17] so concrete okay he just say that we [01:14:20] would let you have 40% course margin [01:14:26] and I I think well I didn't say anything [01:14:29] I didn't answer him I didn't respond to [01:14:31] that but our margin at that time was [01:14:35] already [01:14:37] 45% and I was trying to push it up to [01:14:41] 50% was a [01:14:45] announced effort in the company to push [01:14:50] the G [01:14:51] mod uh and I had that uh [01:14:55] uh effort for many years uh after I came [01:15:02] back to be the [01:15:05] CEO and I really didn't even didn't [01:15:09] succeed even at my [01:15:12] retirement now of course uh what [01:15:16] happened later was that there was covid [01:15:18] and so on and also we began to have [01:15:22] leadership technology leadership uh [01:15:25] uh so our margin you [01:15:29] know uh jumped up to over [01:15:33] 50% but when I retired I was still short [01:15:37] of 50% slightly short of 50% I was [01:15:40] almost there when retired in in [01:15:43] technology leadership you're saying that [01:15:45] around this time the 28 nanometer node [01:15:48] you were you're talking about uh 20 [01:15:51] 20110 yes you were still [01:15:55] a select few at the Leading Edge but [01:15:57] there was fierce competition whereas [01:15:59] once you got to seven net or so that's [01:16:01] when you really you neglecting I think [01:16:04] when you said that you were neglecting [01:16:08] Intel okay [01:16:10] yeah at 28 [01:16:13] nanometers we were very definitely the [01:16:17] leader among foundaries [01:16:20] yeah and maybe [01:16:23] among a few other companies such as [01:16:25] Texas Instruments and so on but not [01:16:28] Intel okay and apple was considering [01:16:33] Intel no [01:16:35] apple [01:16:37] uh was not actively considering inil [01:16:42] that came later later yeah but uh uh uh [01:16:48] know I'm I'm quite sure we we have time [01:16:51] to cover that yeah well take us there [01:16:53] now so after no member of 2010 you had [01:16:56] the initial conversation with Jeff [01:16:57] Williams yeah he said that he would let [01:17:00] us at 40% and my thought was my goodness [01:17:03] you know we're already at 45% you know [01:17:08] uh but I also thought that he was trying [01:17:12] to be generous when he said that he [01:17:15] would let us have 40% and I also thought [01:17:18] to myself well uh now is not this dinner [01:17:23] is not the time to go into a pricing [01:17:27] discussion we have a lot of other things [01:17:30] to discuss anyway so I said um no we [01:17:34] were about to go into production we were [01:17:38] almost in production with 28 n me at [01:17:42] that time uh the initial stage [01:17:46] anyway 28 so I said I thought it was [01:17:51] going to be 28 28 nope [01:17:57] what what [01:17:58] node uh do you [01:18:01] want [01:18:03] uh plny he [01:18:06] said now that was a surprise to me and [01:18:10] Frank it was also a disappointment [01:18:15] because the most law [01:18:18] progression after 28 was going to be [01:18:23] 16 h [01:18:25] now Apple Jeff Williams wanted a [01:18:30] 20 a half step a half step but half step [01:18:35] a half step is a detour you [01:18:39] know uh you you we had to we would have [01:18:42] to my thought at the dinner there was [01:18:45] that we have to spend effort on the [01:18:50] 20 uh which of course will help us on [01:18:53] the natural [01:18:55] next note which was [01:18:58] 16 but still it was a detour from 28 you [01:19:04] know from 28 if we had if we could go [01:19:07] directly to if Rd would go to uh 16 it [01:19:14] will be less time than the first do 20 [01:19:18] and then no the point is that back [01:19:23] then on D did not have enough resources [01:19:28] to do two noes at the same time later we [01:19:34] did later we did so you have this [01:19:37] conundrum [01:19:38] where this is right after you had just [01:19:41] spent $6 billion in capex the previous [01:19:44] year going all in on 28 nanometers [01:19:48] you're asking Apple which could be your [01:19:49] biggest customer ever this is for 28 [01:19:52] right and you hear back no we want you [01:19:54] to go do something that you're not [01:19:55] planning on spending any money on and [01:19:57] have this huge distraction and you're of [01:19:59] course left with this question is it [01:20:01] worth it to land apple as customer it [01:20:03] wasn't that serious it wasn't that [01:20:06] serious uh because when we [01:20:10] figured uh a very big market for [01:20:15] 28 uh and therefore uh when we planned [01:20:19] to increase vastly our Capital spending [01:20:25] we didn't have apple in mind we didn't [01:20:28] include [01:20:29] apple apple came strictly as the [01:20:34] president [01:20:35] surprise yeah anyway for the company in [01:20:39] total but not for 28 you know 28 28 yeah [01:20:42] we didn't have we didn't include Apple [01:20:46] in our 28 planning but it's still the [01:20:48] question of are you are you willing to [01:20:50] go do this huge distraction and spend on [01:20:52] the order of 10 billion over the the [01:20:54] next few years doing 20 nanometer for [01:20:57] Apple when you weren't planning on doing [01:20:58] 20 nomer at all that's right that is [01:21:02] where our connection with uh Roman sex [01:21:07] came in you know you know remember I I [01:21:10] planted a lot of [01:21:12] seats in when I ran [01:21:17] tsmc um I knew that one of these days [01:21:22] will probably need [01:21:25] uh top level Investment Bank uh [01:21:28] advice so we we establish a good [01:21:33] relationship with Comm sax uh very early [01:21:38] in our [01:21:39] existence I was in fact a board director [01:21:43] of Comm sex did you know that I did yeah [01:21:45] yeah yeah uh we did uh the uh uh ADR [01:21:50] with uh Comm sex yeah uh which uh uh [01:21:57] opened up a a good relationship with K [01:22:01] it was your New York New York public [01:22:03] listing of of the stock yeah ADI is [01:22:07] American deposit re receipts yeah it's [01:22:12] New York yeah it's tra it's it's a [01:22:15] separate Market you know it's in fact [01:22:17] right now the tsmc [01:22:20] price uh ADR price uh is has a 20% [01:22:27] premium over really wow however you know [01:22:32] you need tsmc board permission to [01:22:37] convert your shares to ad yeah otherwise [01:22:40] you'd be able to [01:22:42] Arbitrage yeah we don't want that so as [01:22:46] I said as I was saying that the board [01:22:49] has to approve any conversion [01:22:53] of uh [01:22:56] ordinary Taiwan TSM stock to [01:23:02] ADR and the board does not give such [01:23:07] permission easily anyway okay yeah so [01:23:10] you had planted this seed with Goldman [01:23:12] Sachs for when you knew you would need [01:23:14] them right this this was very early in [01:23:17] our history now uh we we [01:23:21] need uh funds I mean [01:23:26] this apple thing came after we had [01:23:30] already decided to increase uh Capital [01:23:37] spending now you know Apple uh [01:23:42] requires even more Capital [01:23:45] spending [01:23:48] and we have to figure out where the cash [01:23:52] is going to come from [01:23:55] so now there were several possibilities [01:23:58] of course we're paying a dividend not [01:24:01] not a a big [01:24:03] dividend back then but uh uh a modest [01:24:09] dividend then we could cut the the [01:24:12] dividend and uh then we we also could [01:24:18] could sell stock you know new stock [01:24:20] offering either in in Taiwan or in the [01:24:25] US we have the adrs you know uh or we [01:24:30] can borrow money yeah uh cob bonds you [01:24:35] know or you could only fill part of [01:24:38] Apple's order right and uh we in fact we [01:24:43] we did we did that I you know uh what we [01:24:47] first we first did our financial [01:24:51] planning and um we decided not to cut [01:24:56] dividend we decided not to sell new [01:25:00] stock we decided to just [01:25:05] borrow and uh I this was [01:25:10] also with consultation with K [01:25:13] sex we [01:25:15] chose [01:25:17] following how [01:25:18] much I looked at the numbers and just as [01:25:23] you said I decided to take half of what [01:25:27] Apple said what Apple said they needed [01:25:32] is this common by the way it seems like [01:25:34] it would be in a customer's interest to [01:25:35] come to you and say I need to buy [01:25:38] zillions of chips from you I need all [01:25:40] your Wafers because they have no skin in [01:25:43] the game of you spending all the money I [01:25:46] know I know well back uh in the '90s in [01:25:52] the first uh say 15 year first 10 12 15 [01:25:57] years of our [01:25:59] existence we were short of capacity [01:26:03] almost all the [01:26:04] time uh and what you just said happened [01:26:09] all the time you know and so we figure [01:26:12] out that we will require a deposit from [01:26:17] the [01:26:18] customer and will [01:26:21] even confiscate the deposit if the time [01:26:25] comes him comes for him to to take the [01:26:28] waers and he doesn't you know and [01:26:32] everybody Delights in the word [01:26:37] confiscate so it was first used by me [01:26:40] okay I told the sales people in San Jose [01:26:44] I said tell the customer that they need [01:26:48] we need a deposit from them because you [01:26:50] know just as you said you know it's our [01:26:53] money and it's only their words you know [01:26:56] uh they may not want the uh Wafers when [01:27:00] the time [01:27:01] comes and uh I told the salesman tell [01:27:05] the customer they will confiscate the [01:27:08] deposit and ah the salesman never heard [01:27:12] anything like that before you [01:27:14] know and uh so they were they [01:27:17] were they were you know [01:27:22] upro in in happiness you know I mean now [01:27:26] you know they could they could actually [01:27:28] stand up and tell the customer that we [01:27:31] might even confiscate your money but of [01:27:35] course uh it really we never confiscated [01:27:40] any money no it it it did [01:27:44] happen quite often uh particularly in [01:27:48] the 2000 uh [01:27:51] 2000 we had uh I think it was called [01:27:55] internet uh yeah recession I think yeah [01:27:59] because in in internet was you know [01:28:03] people were were starting companies uh [01:28:07] called [01:28:09] pets.com or something you know [01:28:12] yeah it was anyway so we had the [01:28:17] recession which trickled all the way [01:28:19] back to semiconductors tsmc's [01:28:21] revenues uh it was four years years [01:28:24] after the com bubble before they were [01:28:26] back at the yeah at those rates yeah [01:28:31] yeah uh was was it five it was almost [01:28:34] four years yeah uh 20 I remember [01:28:37] recovered only in 203 yeah it started in [01:28:42] 2000 no started in 2001 the first [01:28:46] quarter of 2001 and recovered in the [01:28:50] third quarter of 2003 so it was three [01:28:53] years yeah [01:28:54] three years H 01 [01:28:58] 02 uh the third fourth quarter of 03 [01:29:02] three years [01:29:04] uh anyway the customer a quite a few [01:29:09] customers had plac [01:29:11] deposits uh to anticipate normal good [01:29:16] times during those years and we did [01:29:19] build the plant uh in fact we bought we [01:29:24] we purchased or I should say uh uh yeah [01:29:29] we bought uh uh a couple of other [01:29:33] companies and uh so their plants their [01:29:37] faps became [01:29:40] ours and the customer didn't need the [01:29:44] Wafers anymore didn't need the outputs [01:29:47] of those FBS [01:29:49] anymore and uh we [01:29:52] didn't uh come confiscate their deposit [01:29:56] but we let them delay you know demand [01:30:00] yeah right and eventually every one of [01:30:03] them they all use their use up their [01:30:09] deposits but you know that would come [01:30:12] you know and so then back to at this [01:30:15] point early 2011 with apple you go to [01:30:19] them and say uh we are prepared to serve [01:30:22] half yeah the number that you told us [01:30:25] well first uh of course uh the new or [01:30:29] relatively new business development [01:30:32] director [01:30:34] CC he he had the uh privilege of first [01:30:39] telling the lower level uh purchasing [01:30:44] people uh at Apple and he got he got he [01:30:51] got a response back you must be crazy [01:30:54] you [01:30:55] know uh so CeCe did not comment on that [01:30:59] uh at least he said he didn't comment [01:31:01] that he brought it back to [01:31:03] me and then I went [01:31:07] to [01:31:09] uh Apple myself and talked to Jeff [01:31:15] Williams so I said to him we have to [01:31:20] issue corporate [01:31:22] bonds I think I use the word prudent [01:31:25] after all the prudent financial planning [01:31:28] we decided that we will take half of [01:31:32] what you ask [01:31:33] for now he he was very [01:31:37] uh [01:31:39] uh very quiet about he only made one [01:31:42] suggestion he said well I think you can [01:31:46] eliminate your [01:31:48] dividend you know your shareholders will [01:31:51] understand that I said well no I don't [01:31:53] think I [01:31:54] well the fact is I I had looked into [01:31:56] that I mean that's that's also a reason [01:31:59] for you know having a high level [01:32:02] Consulting uh uh [01:32:06] advice [01:32:08] um about onethird of our investors [01:32:13] shareholders are very seriously [01:32:17] interested in the [01:32:20] dividends so if if we do what the [01:32:24] Jeff whim said our stock is going to [01:32:27] drop like hell you know trigger a sell [01:32:29] off right oh anyway but but um uh when I [01:32:36] talked to to Jeff Williams and I I I [01:32:40] went to see him in [01:32:42] uh uh what's the placeo yeah [01:32:46] copertino I mean he was he took it uh [01:32:51] fairly willingly you know know [01:32:54] no no no big problem all the only [01:32:58] suggestion that he [01:33:00] made was uh the elimination of dividend [01:33:04] you know and I said no and he he then [01:33:09] let it just [01:33:11] uh lie there you [01:33:14] know okay uh but so [01:33:18] then [01:33:20] uh then the issue was settled I mean how [01:33:23] much demand do we we would take and how [01:33:26] we will get we still had to borrow [01:33:29] billions of dollars even with the [01:33:34] with half of uh the demand all right [01:33:38] listeners this is a great time to [01:33:40] reintroduce a good friend of the show [01:33:42] service now last year we shared their [01:33:44] incredible story from founding through [01:33:46] becoming one of the best performing [01:33:49] public software companies in history [01:33:51] well today we want to share a more [01:33:52] recent story in November of 2022 chat [01:33:55] GPT was released we all lived through [01:33:58] that moment and it totally changed [01:33:59] everything and so predictably what [01:34:02] happened next is that there was an [01:34:04] explosion of oneoff B2B tools that let [01:34:06] people uh do some specific department or [01:34:10] function thing with AI to get more done [01:34:12] faster yep but then again predictably [01:34:16] all of this just created what Bill [01:34:17] McDermot the CEO of service now calls [01:34:19] the Hornets Nest of complexity [01:34:22] businesses already had too much software [01:34:24] in different departments doing different [01:34:26] things and now all of a sudden they had [01:34:28] too many different AI tools which just [01:34:30] compounded the problem ultimately AI is [01:34:33] powerful but it's only as powerful as [01:34:35] the platform and data that it's built on [01:34:38] fortunately not only is service now a [01:34:40] powerful platform Bill had foreseen the [01:34:42] coming importance of AI as some of his [01:34:44] very first moves as CEO in 2020 he took [01:34:47] all the R&D work that service now had [01:34:49] been doing for years in Ai and elevated [01:34:51] it within the company they also bought a [01:34:53] called element AI founded by a turing [01:34:56] Award winner over the next several years [01:34:58] they were heads down integrating AI into [01:35:00] the entire service now platform which [01:35:02] meant that when this new era of large [01:35:04] language models arrived service now was [01:35:06] deeply prepared yep so how does that [01:35:09] show up in their product today service [01:35:11] now has AI agents that you can deploy [01:35:13] across every corner of your business [01:35:15] they all work with each other [01:35:17] architected on one Enterprise grade [01:35:20] platform and built on the same data and [01:35:22] workflows so whether it's your it or HR [01:35:25] or Finance CRM supply chain Etc you can [01:35:29] deploy AI agents in every part of your [01:35:31] company David it's funny you hear all [01:35:33] these Fortune 500 CEOs talking on [01:35:35] earnings calls about the AI agents that [01:35:37] they're deploying to increase [01:35:39] productivity behind the scenes a huge [01:35:41] number of those are actually doing this [01:35:43] with service now yeah it's incredible so [01:35:45] if you want to bypass the Hornets Nest [01:35:47] of complexity caused by disparate [01:35:49] software vendors and put AI to work on [01:35:51] one platform and in every corner of of [01:35:53] your business go to servicenow.com [01:35:56] Acquired and when you get in touch just [01:35:58] tell them that Ben and David sent you so [01:36:01] this really was especially after the the [01:36:03] investment in 28 nanometers that [01:36:05] depleted your reserves this is a bet the [01:36:07] company move you're you're you're taking [01:36:09] on a bunch of debt to go build yeah the [01:36:11] Fabs to make this happen but yeah I know [01:36:14] better a company but I I didn't I didn't [01:36:16] think I would lose you know you sound [01:36:19] like Jensen we sound that's exactly what [01:36:21] Jensen said [01:36:23] yeah and so um all right but I think [01:36:28] that uh the [01:36:32] financial discussion with apple had [01:36:35] already [01:36:36] happened when [01:36:39] Apple when Jeff Williams call me in [01:36:44] February of 20 we're talking about who [01:36:48] 11 yeah he [01:36:52] said was see very short [01:36:56] conversation [01:36:58] well [01:37:00] um [01:37:03] said uh we need [01:37:06] to [01:37:08] um pause our [01:37:11] discussions [01:37:13] for two [01:37:15] months [01:37:18] because the highest level of Intel [01:37:25] has [01:37:27] approached Tim [01:37:29] Cook and has [01:37:34] asked Tim Cook to consider Intel and at [01:37:39] this time intel was the major supplier [01:37:41] for all Macs Apple's Mac line was all [01:37:44] Intel yeah yeah yeah that wasn't an [01:37:48] issue of course I mean uh in [01:37:51] February uh of 20 11 Jeff Williams was [01:37:55] talking about the iPhone yeah but they [01:37:59] had a a close existing [01:38:01] relationship yeah yeah I don't know what [01:38:06] relationship they really have you know [01:38:09] well I it must be closer to me so that [01:38:14] was all he said and I wasn't all that [01:38:20] worried because in 2011 [01:38:26] um intel was no [01:38:30] longer a [01:38:32] name that you would when you hear it you [01:38:37] would stand up and bow you [01:38:40] know interesting I mean heck you know in [01:38:45] in the 90s in the late in the late uh uh [01:38:50] 20th century I mean they were a name in [01:38:55] semiconductor that when you hear it of [01:38:58] course I'm [01:38:59] exaggerating the situation Mo's law I [01:39:02] mean it's they're Intel yeah Intel yeah [01:39:05] if you hear the name if you hear that [01:39:07] they're in competition with you you know [01:39:10] my goodness you'll be trembling with [01:39:13] fear you know I mean this is why you [01:39:15] started tsmc as a PurePlay Foundry [01:39:18] business because you didn't want to [01:39:19] compete head-to-head you you said we [01:39:21] should not be an integrated design [01:39:22] manufact of the design of the chips and [01:39:25] the manufacturing we have to compete on [01:39:27] a different Vector CU we'll never catch [01:39:30] Intel I didn't quite say that we never [01:39:34] catch fair enough look where we are in [01:39:39] 2025 okay yeah uh uh anyway so so uh I I [01:39:46] I I I of course had to accept uh Jeff [01:39:50] Williams request [01:39:53] all right um but again you know uh as I [01:39:58] just told you I wasn't all that worried [01:40:00] because uh you know why why reviewed in [01:40:04] my mind all the [01:40:08] characteristics uh that [01:40:10] uh uh Apple is uh looking for in a [01:40:15] supplier you know uh technology at that [01:40:19] time we thought we were almost at par [01:40:23] with Intel [01:40:25] almost in fact I thought we were I think [01:40:28] I thought we were at part with Intel at [01:40:30] that time manufacturing I thought we [01:40:33] were better than [01:40:36] Intel and customer [01:40:41] trust we thought that our customers [01:40:45] trusted us more their intels customers [01:40:50] trust [01:40:51] Intel so [01:40:54] I will do wor it but uh then indeed and [01:41:00] I also thought that when when Jeff [01:41:03] Williams told me the highest level of [01:41:06] Intel I thought he was talking about [01:41:09] U somebody like Andy goo you know who [01:41:12] was retired of course but you know but [01:41:15] it turned out that he was only talking [01:41:17] about the CEO of Intel that [01:41:24] yeah but I knew that only later would [01:41:27] that have been uh Bob Swan or Paul adini [01:41:30] no it was uh uh the Italian guy [01:41:35] oini got yeah so today Intel doesn't [01:41:40] make the chips in the iPhone what [01:41:42] happened and in fact tsmc makes all of [01:41:45] Apple's chips yeah all right I wasn't [01:41:50] too worried but uh you know I it still [01:41:52] was uh [01:41:53] in my [01:41:54] mind so a month [01:41:57] passed I think was about the middle of [01:42:00] February when [01:42:03] Jeff called to tell me to pause for two [01:42:07] months uh so almost exactly a month [01:42:12] later [01:42:13] March middle of March [01:42:16] sometime I decided that I would uh pay [01:42:20] them a [01:42:22] visit and and asked them what's going on [01:42:25] you know any [01:42:27] progress so I emailed Jeff and uh asked [01:42:30] for an appointment and I said I was [01:42:33] coming to the Silicon Valley anyway uh [01:42:37] which was pretty normal [01:42:39] uh and uh will stop in at your place on [01:42:45] such and such a day is that [01:42:48] okay and uh Jeff uh replied by saying [01:42:53] that uh yeah come here but I won't be [01:42:56] here I have asked Tim Cook to see you I [01:43:01] mean this Freedom Jeff's freedom of [01:43:05] dedicating his [01:43:07] spouse to see a visitor it was a [01:43:11] privilege that I seldom had in my career [01:43:15] you know yeah normally someone says [01:43:17] someone on my team will see you not my [01:43:19] boss will see you I know I know it was [01:43:21] usually that way it was usually the [01:43:23] other way yeah but but in this case it [01:43:26] was [01:43:27] Jeffs well anyway so I showed up and uh [01:43:32] uh Tim was uh very nice to me and took [01:43:35] me to [01:43:36] lunch to the cafeteria I guess where [01:43:39] there was a lot of food we each picked [01:43:42] our food and Carri our tray back to his [01:43:46] office you [01:43:48] know and uh anyway he told me there's [01:43:51] nothing to worry about [01:43:54] because uh [01:43:55] Intel uh just does not know how to be a [01:44:00] found H that's a very short but a very [01:44:06] satisfactory answer to me yeah what is [01:44:10] your interpretation of the meaning [01:44:12] behind that statement I was explaining [01:44:15] to you that we had the uh on technology [01:44:19] on [01:44:20] manufacturing subconsciously I think I [01:44:23] interpreted Jeff's uh explanation to me [01:44:27] to be the third one customer trust you [01:44:30] know I mean they were [01:44:34] always very Superior you know [01:44:37] Intel before this apple thing apple and [01:44:42] we before [01:44:45] Apple became our customer I knew a lot [01:44:51] of Intel's customer customers in Taiwan [01:44:55] you know all the PC [01:44:59] makers uh are Intel's [01:45:02] customer they none of them liked Intel [01:45:07] none of them yeah in you know act always [01:45:12] acted like they were the the only guy [01:45:14] they were the only guy you know the for [01:45:17] the uh microprocessors yeah and that's [01:45:20] for their microprocessor business but [01:45:23] here we're talking about The Foundry [01:45:24] business where tsmc at their extreme [01:45:27] core does not compete with customers and [01:45:31] even if intel is trying to do business [01:45:33] in good faith they do have the conflict [01:45:37] where they also design ships which is [01:45:40] competing with Apple's chip designers or [01:45:42] nvidia's chip designers or any other [01:45:45] yeah I I but I really don't think Tim [01:45:47] meant that I think Tim meant that uh the [01:45:51] customer asks a lot of [01:45:53] things we have learned to respond to [01:45:58] every [01:46:00] request some of them were crazy some of [01:46:04] them [01:46:05] were some of them were irrational we to [01:46:09] respond to each request courteously [01:46:12] which we do you [01:46:14] know Intel has never done [01:46:18] that yeah in I mean I I I said I knew a [01:46:24] lot of uh customers of uh intels here in [01:46:30] Taiwan and uh none of them they all [01:46:35] wished that there were another [01:46:38] supplier H yeah none of them either [01:46:42] trusted the Intel or lik Intel so to to [01:46:46] finish the Apple [01:46:47] Story the short answer is it worked on [01:46:51] 20 nmet were there any tradeoffs where [01:46:55] uh that did did pursuing 20 nanometer [01:46:57] and spending the billions of dollars [01:46:58] cost tsmc in any [01:47:00] way well it might have cost but uh mean [01:47:04] yeah the story certainly does not end [01:47:08] here all right so I mean there was [01:47:11] pricing you know every [01:47:14] everything was not [01:47:17] easy pising and and Jeff came himself [01:47:23] and um we talked about pricing and we of [01:47:27] course we had done our homework also on [01:47:31] the cost [01:47:33] and uh what what what kind of price we [01:47:39] accept but Jeff came and uh he told us [01:47:44] to say number you know well he he gave [01:47:47] us his [01:47:48] reasoning he had to make uh his [01:47:52] component costs meet the certain goal [01:47:56] also you but anyway um that was settled [01:48:01] and the Jeff said ah and when when the [01:48:05] pricing was [01:48:07] settled I said let's go out to dinner go [01:48:10] to a taipe three [01:48:14] star uh [01:48:15] restaurant for dinner and Jeff jokingly [01:48:19] said ah if you didn't like the pricing [01:48:23] we will be we probably could be going to [01:48:26] a [01:48:29] McDonald's which was never in my mind [01:48:32] but you said that could you tell us a [01:48:34] little more about what goes into [01:48:37] considerations around pricing I imagine [01:48:39] things like the yields you think you'll [01:48:41] be able to get hugely impact that sure [01:48:45] the course yeah but the main the main [01:48:49] thing that goes into pricing of course [01:48:51] is the cost [01:48:54] and then the second thing is of course [01:48:57] um where uh your desired price will be [01:49:03] accepted by the customer you know one [01:49:06] thing that has occurred to me is uh tsmc [01:49:09] now gets mid 50% gross margins call it [01:49:13] 55 57 uh higher than your time but many [01:49:16] of your customers have 70 80% gross [01:49:19] margins yeah tsmc is creating a lot of [01:49:22] value Val the designer is creating a lot [01:49:24] of value how do you sort of sort out who [01:49:26] gets to capture the value well I I I [01:49:29] don't get the privilege of sorting it [01:49:31] out now you know CC CC way I think has [01:49:36] the pleasure and the duty of sorting [01:49:39] that out yeah well I mean as a general [01:49:43] principle you know uh you try to find uh [01:49:48] a kind of a middle [01:49:49] ground which is different for every CEO [01:49:53] you know uh even though every [01:49:57] CEO uh who [01:50:00] wants to protect his [01:50:02] reputation every CEO says Ah I worry [01:50:06] about the long range and but in truth uh [01:50:11] not everyone does so it's a very [01:50:15] personal how to sort these things out I [01:50:19] think is a very personal issue now for a [01:50:21] lot of cosos there's really no choice [01:50:24] you have to ex you you have to as a [01:50:27] supplier you have to accept a certain [01:50:30] price if it's a commodity particularly [01:50:32] you [01:50:33] know we have not finished with apple yet [01:50:36] yeah please let's finish Apple yeah now [01:50:39] I think you were asking uh whether there [01:50:42] was any U uh tradeoffs tradeoffs well [01:50:47] the tradeoff uh there was a pretty [01:50:51] significant serious F off and that was a [01:50:55] detour that I said you know we took uh [01:50:58] we at that time back in the [01:51:02] uh [01:51:03] 201 11 [01:51:06] 2012 time we our R&D was was not strong [01:51:11] enough to do two notes at the same time [01:51:14] now we are but back then we weren [01:51:18] so the tradeoff of accepting the [01:51:23] 20 node technology was that we delayed [01:51:28] our 16 [01:51:31] node development [01:51:34] H and [01:51:35] then [01:51:37] Samsung came up with the 16 they had [01:51:40] lost the tronic business you know so [01:51:44] they they they went ahead of us in the [01:51:48] 16 nanometer Department because they got [01:51:51] to skip 20 yeah because they didn't get [01:51:54] 20 okay they need to develop 20 so I got [01:51:59] a shock I mean it was a real shock when [01:52:02] I [01:52:03] heard [01:52:05] that Apple had placed the first orders [01:52:09] of 16 with [01:52:14] Samson now that was the real [01:52:17] shock we invested so much even though we [01:52:20] took only half of the original demand it [01:52:24] was still tens of billions of dollars I [01:52:26] think and we were counting on it being [01:52:31] at least 80 90% of the equipment being [01:52:35] convert converted to [01:52:39] 16 and now if [01:52:42] Apple went to Samsung for the 16 where [01:52:46] did that leave [01:52:48] us do you understand what Happ Oh Yes [01:52:51] sounds horrible [01:52:53] so I would feel like I got tricked [01:52:56] well I wouldn't say that okay but I was [01:53:00] I was I [01:53:01] was I was I was really shocked that was [01:53:06] so I emailed U Jeff Williams right [01:53:11] away uh and in I said you know uh we we [01:53:17] investigating all these equipment and we [01:53:20] were counting on you to [01:53:23] take [01:53:24] the uh the six 16 from us uh but now you [01:53:30] know we we found out you were buying 16 [01:53:34] at the first 16s anyway from [01:53:37] Sam so uh Jeff replied [01:53:42] immediately don't [01:53:44] worry I'll be here I'll be there I'll be [01:53:48] in s j next [01:53:50] week and explain to you [01:53:53] so that um made me uh that relieved me a [01:53:59] little uh uh but uh so certainly not [01:54:05] completely but uh next week uh he did [01:54:08] show up and he explained to us he said [01:54:12] well you know as soon as you as soon as [01:54:15] you're ready with your 16 we buy from [01:54:19] you who buy [01:54:20] all the needs from you when you're ready [01:54:25] now of course that [01:54:28] completely relieves me you because [01:54:31] that's what we're supposed to do anyway [01:54:33] you [01:54:34] know so uh indeed what he said was true [01:54:38] now we we developed we had our own [01:54:42] 16 about uh half a year later and uh [01:54:49] most of apples [01:54:52] 60 nanometer requirements still belonged [01:54:57] to [01:54:58] us [01:54:59] yeah most yeah I I can [01:55:03] imagine the shock that you must have had [01:55:06] at the same time this also again just [01:55:08] illustrates the Brilliance of of tsmc [01:55:11] and the the Pure Play Foundry business [01:55:13] model uh Samsung is Apple's cheap [01:55:17] competitor yeah I know I know it was uh [01:55:22] I said in the autobiography you know I [01:55:25] mean sitting in [01:55:28] suu being in The Foundry [01:55:32] business uh I actually see a lot of [01:55:35] things [01:55:37] before they actually happen uh uh so let [01:55:42] me tell you the IBM ccom Story please um [01:55:50] now corcom [01:55:53] uh we consider the qu comp to be a uh [01:55:58] Prime [01:56:00] uh uh candidate uh to be our [01:56:05] customer uh we we really wanted to qu [01:56:08] because we knew they were a technology [01:56:11] house what year was this this was uh way [01:56:14] back you know when we started in the [01:56:18] '90s anyway yeah and they were part of [01:56:20] that initial wave of fa companies yes [01:56:24] they started the irn Jacobs started a [01:56:28] qualcom uh actually before uh I [01:56:33] started uh [01:56:35] tsmc tsmc started in 87 quom I think was [01:56:41] uh a few years before that [01:56:44] yeah so we um in the 90s early 90s all [01:56:49] the way up [01:56:50] to 90 [01:56:53] 7 [01:56:56] maybe 96 97 all the way up [01:56:59] to [01:57:01] the lat part of the '90s we want [01:57:05] to quam to be a [01:57:10] customer and um you I saw their [01:57:15] operations VP that's what they call [01:57:18] that's what our customers call their [01:57:21] purchasing people [01:57:23] operations VP operations senior [01:57:27] VP and I I saw I saw him often and he [01:57:33] was always pretty polite but he gave us [01:57:37] very little [01:57:38] business and I also knew that his [01:57:42] Foundry his main Foundry was [01:57:45] IBM uh [01:57:47] now sometime in the later 90s I forgot [01:57:51] where that was uh 97 or [01:57:57] 98 uh [01:58:00] suddenly uh he started he first he [01:58:04] started to tell me that he would use us [01:58:10] now he didn't even tell me who our [01:58:15] competitor was who our competitor had [01:58:17] been but I I kind of knew that it was [01:58:20] IBM [01:58:22] from other sources of [01:58:26] intelligence and uh our business with [01:58:30] qualcom the business that qualcom gave [01:58:34] us pretty rapidly increased after that [01:58:38] after 97 998 [01:58:41] period so I immediately knew the IBM [01:58:48] semiconductor was in trouble H because [01:58:52] I mean they had their own FBS and so [01:58:56] on but their main [01:59:00] business was [01:59:03] really supplying to [01:59:06] uh uh quom and a few other very small [01:59:12] companies very small fabulous [01:59:15] company so I immediately [01:59:19] knew uh IBM Wasing in trouble because [01:59:24] they were losing [01:59:27] qualcom uh all right so the next [01:59:31] step that IBM [01:59:34] took was not a surprise to me the next [01:59:38] step they took was to ask us [01:59:42] tsmc [01:59:44] to [01:59:46] co-develop the next [01:59:49] generation of technology which is .13 [01:59:54] Micron 130 nanometer okay in [02:00:01] 1999 and since I anticipated that it was [02:00:05] no problem at all for us to refuse [02:00:08] the and in fact even even if I didn't [02:00:11] anticipate that we would never never [02:00:14] have accepted that kind of of cod [02:00:17] develop I mean IBM was still you know a [02:00:22] they still consider themselves to be the [02:00:25] senior yeah partner in any partnership [02:00:30] they establish the senior part so we [02:00:33] were the the the company that co- [02:00:36] developed something with them was send [02:00:38] its Engineers to IBM you [02:00:41] know and when we do that we will lose [02:00:45] our ability to to develop our own [02:00:48] process we have to depend on this Co [02:00:52] development [02:00:54] thing and the Cod development [02:00:57] thing is going to have a lot of [02:01:00] difficulties you know oh heck you know [02:01:03] our people you know will be a different [02:01:06] culture so we declined without having to [02:01:10] think about it at all we declined the [02:01:13] the IBM of and IBM in fact was uh quite [02:01:18] uh Angry you know I mean they thought we [02:01:22] we still a small [02:01:26] Taiwan uh backward place you know Taiwan [02:01:30] company and they are big [02:01:34] H so they uh immediately went to uh uh [02:01:41] UMC and UMC accepted [02:01:45] them only to regret seriously their [02:01:50] acceptance if you yes and UMC at that [02:01:54] point in time was was it fair to call it [02:01:56] a peer of tsmc here in Taiwan in terms [02:01:58] of volume and size not by 1999 they were [02:02:02] already smaller smaller they were [02:02:04] smaller already [02:02:06] yeah that what's what I meant when I [02:02:08] said that the sitting here as Foundry I [02:02:11] mean I I I can see some things that uh [02:02:15] uh like this IBM thing this might be a a [02:02:19] good time to go back to the learning [02:02:21] curve [02:02:22] speaking about the importance of owning [02:02:25] your own technology and process at the [02:02:27] Leading Edge and controlling your own [02:02:29] destiny you developed the learning curve [02:02:33] I really did not develop I certainly did [02:02:36] not initiate it I'm I I think I had a [02:02:39] role at TI yeah I had a role [02:02:42] in refining it to the point where a [02:02:47] Semiconductor Company can use it [02:02:50] effectively that's my my RO yeah so uh [02:02:54] how would you explain it to the [02:02:56] novice well explaining learning curve [02:02:59] theory is simple uh but one will be [02:03:04] foolish if one just takes the simple [02:03:07] explanation you know and thinks that [02:03:09] that's all it [02:03:11] is the simple explanation of learning [02:03:14] curve is that uh as you make more of one [02:03:22] thing [02:03:23] anything uh actually started with [02:03:27] refrigerators and the cars you know if a [02:03:30] company makes more cars then its cost [02:03:35] per per car unit cost goes down that's [02:03:39] why it's also called experience curve [02:03:41] you gain more experience you become more [02:03:45] efficient that's a simple explanation [02:03:49] but uh if one uh just takes that simple [02:03:53] explanation and thinks that's all it it [02:03:56] is about you know you really haven't [02:04:01] learned anything at [02:04:03] all all right anyway um uh the learning [02:04:09] C well Bruce [02:04:11] Henderson who is [02:04:15] now [02:04:17] uh [02:04:19] considered uh the [02:04:22] father of [02:04:24] uh uh [02:04:26] strategies founded Boston Consulting [02:04:29] Group yeah he he he was the founder of [02:04:32] Boston Consulting Group and uh uh now [02:04:36] you know I mean there's a branch in [02:04:40] U um in uh business [02:04:44] economics uh uh that's uh that's called [02:04:50] uh uh competive strategy or something [02:04:53] yeah competitive strategy I guess [02:04:57] um uh and Michael Porter was at one time [02:05:02] uh considered uh a big figure in this [02:05:07] competitive I mean he [02:05:09] wrote three or four books you know big [02:05:11] books you know 700 page each you know I [02:05:15] I have all of them his original [02:05:17] competitive strategy memo I think it's [02:05:19] like 20 pages is still some of the best [02:05:21] best business writing ever just who [02:05:24] Michael Porter [02:05:25] oh well good who was a director of TSC [02:05:28] at one point right why yeah yeah and I [02:05:31] had a story about him in my [02:05:34] autobiography too which because of time [02:05:37] we probably won't go into not not [02:05:40] Michael Porter but Bruce Anderson uh we [02:05:43] will talk about him uh he was uh he is [02:05:47] now considered to be the father of uh [02:05:50] the compet comptitive strategy he came [02:05:54] to Texas [02:05:56] Instruments one day in I think around [02:06:01] 1970 uh or I should say he he first [02:06:04] called the ti [02:06:07] zo Mark [02:06:10] shepher and told him [02:06:14] that [02:06:16] uh Boston Consulting Group he he had [02:06:19] founded a Boston cons Consulting Group [02:06:22] and we we have cons B [02:06:28] CG has uh a experience curve theory that [02:06:34] would [02:06:35] benefit semiconductor [02:06:38] industry and TI was the largest company [02:06:42] in the semiconductor industry then and [02:06:46] with Mark [02:06:47] shepher uh like a [02:06:50] presentation uh of this uh [02:06:54] Theory the Mark sheeper said yes so [02:06:58] Bruce Henderson brought Bill bang uh you [02:07:02] probably know that name uh with him and [02:07:06] came to uh Dallas and made a [02:07:10] presentation and Mark sheeper invited [02:07:13] the the co the c o and me to attend the [02:07:20] presentation [02:07:21] and it was a a very uh eloquent uh [02:07:26] presentation uh because you know Bruce [02:07:29] Henderson was a very eloquent man and uh [02:07:32] Bill Bane was on the [02:07:35] side apparently Bruce Henderson's [02:07:39] poy uh anyway Mark sheeper was uh [02:07:43] impressed and he decided that uh TI [02:07:47] would work [02:07:49] with uh B PG [02:07:52] on this uh learning curve [02:07:56] Theory and uh Bruce Henderson then uh [02:08:02] assigned Bill [02:08:04] bang uh [02:08:06] to work most of the [02:08:10] time at TI you know most of my like [02:08:13] three days a week and Mark assigned me [02:08:19] as TI's [02:08:22] guy so Bill b and I became [02:08:28] partners and [02:08:32] I assign Bill bang a small office uh [02:08:37] very close to my [02:08:40] office uh at TI in the same building and [02:08:45] small office because he needed a lot of [02:08:48] things from me he needed permission to [02:08:51] get out costs our prices we had we had a [02:08:55] lot of families of integrated circuits [02:08:58] uh and transs you know I mean he had a [02:09:02] lot of requests so it was uh easier if [02:09:05] he was [02:09:07] nearby and uh every time when he arrived [02:09:12] at [02:09:13] some interesting useful conclusions she [02:09:17] will also discuss them with me so we had [02:09:21] a very present [02:09:23] Association [02:09:25] for I would think two years maybe even [02:09:31] more and uh he would you [02:09:34] know uh [02:09:36] fly to uh [02:09:39] Dallas every [02:09:41] Monday and uh go back to Bing either [02:09:45] Wednesday night or Thursday night and uh [02:09:49] of course every time he uh went back to [02:09:54] Boston it would be to tell uh Bruce [02:09:58] Henderson what he what he had done that [02:10:01] week so this happened this went on [02:10:06] for I think two [02:10:09] years and then [02:10:11] finally uh Bill bang came to see me one [02:10:14] day uh and it was in those two years [02:10:18] that I [02:10:20] absorbed uh uh a lot of uh learning Cur [02:10:24] stuff which uh I used up to now you know [02:10:31] I mean I I found [02:10:35] it uh highly [02:10:38] um highly fruitful uh just as as a [02:10:42] thinking tool you know yeah yeah it [02:10:45] seems so fundamental to the industry [02:10:47] that you want to get through the low [02:10:50] volume period as fast as you can ideally [02:10:52] you spend no time in the low volume [02:10:54] period and it seems like over time all [02:10:58] the returns in the industry all the the [02:11:00] winner is the one with all the volume [02:11:02] because they'll just have the lowest [02:11:03] prices and there's a flywheel where once [02:11:05] you have the lowest prices you get all [02:11:07] the business then you can reinvest that [02:11:08] in the next node right it's almost yeah [02:11:11] yeah right I couldn't have told you that [02:11:13] tsmc was going to be the winner but once [02:11:14] you internalize the learning curve and [02:11:16] globalization you can sort of into it [02:11:20] that in the future there will be one [02:11:22] winner yeah in semiconductor [02:11:24] manufacturing but one day after a couple [02:11:29] years uh B bang came to me in Dallas [02:11:35] said you are the first one I tell this [02:11:39] to outside the Boston Consulting [02:11:44] Group I am leaving B concerning group to [02:11:49] start my own consulting [02:11:52] company so I said why I said you know [02:11:56] obviously Bruce Henderson thinks very [02:11:59] highly of you and the bill bang said yes [02:12:04] but there is the world [02:12:10] imperative that's the first time I heard [02:12:12] that term you know World [02:12:14] imperative he meant for him personally [02:12:17] yeah for him personally [02:12:21] oh anyway that was that all right [02:12:24] listeners now was a great time to thank [02:12:26] friend of the show fundrise we've gotten [02:12:28] to know fundrise CEO Ben Miller and the [02:12:31] folks there quite well over the last [02:12:32] several years and they're huge acquired [02:12:34] listeners just like all of you and since [02:12:37] we first worked together three years ago [02:12:39] fundrise itself has gone through quite a [02:12:41] transformation longtime listeners may [02:12:43] remember that they have a growth stage [02:12:45] Venture that they actually first [02:12:46] launched here via an acquired [02:12:49] sponsorship back in 2022 at the time [02:12:52] fundrise was primarily known as the US's [02:12:54] largest real estate investment platform [02:12:56] for retail investors and it wasn't [02:12:59] necessarily obvious that Ben fundrise [02:13:02] Ben that is that his kind of crazy idea [02:13:04] to bring their model to venture capital [02:13:05] would work well fast forward to today [02:13:08] and Incredibly they have demonstrated [02:13:10] they could break into the Venture [02:13:11] industry in a big way Ben Miller and [02:13:13] fundrise have invested in data bricks [02:13:15] anthropic canva Ander ramp and uh fellow [02:13:18] Friends of the show vanta and also [02:13:20] service Titan which just went public in [02:13:22] December in a successful IPO yep it's [02:13:26] genuinely awesome what fundrise has done [02:13:28] here which is something that many have [02:13:30] tried over the years but no one else has [02:13:31] actually been able to accomplish in [02:13:33] Venture they've taken a retail platform [02:13:35] that any American can invest in and [02:13:38] gotten pre-ipo access to some of the [02:13:40] best private companies in the world it's [02:13:42] democratized access to all the value [02:13:44] creation that otherwise has been locked [02:13:46] in these private companies over the last [02:13:48] decade plus as these growth companies [02:13:49] are delaying IPOs and staying private [02:13:51] longer yep so when the service Titan IPO [02:13:54] happened thanks to fundrise tens of [02:13:56] thousands of regular investors got to [02:13:58] celebrate along alongside the VC's LPS [02:14:00] and employees yep we'll be talking about [02:14:02] fundrise all season long and you can go [02:14:04] check out the full portfolio that Ben [02:14:06] and the fundrise team are building at [02:14:08] fundrise.com Venture and if you're a [02:14:10] growth stage founder looking for a great [02:14:12] series C or later investor just get in [02:14:15] touch and tell them that Ben and David [02:14:17] sent you as our time comes toward a [02:14:20] close [02:14:22] one question David and I wanted to ask [02:14:23] you is tsmc is essentially the only [02:14:27] trillion doll company in the world not [02:14:29] on the west coast of the United States [02:14:31] it is this incredibly important thing in [02:14:34] the [02:14:35] world it's this unlikely success of [02:14:38] grand scale unlikely in your [02:14:41] opinion [02:14:43] that yeah I mean you started it when you [02:14:45] were 56 yeah yeah there are many things [02:14:49] I'm not going to argue with you okay I [02:14:51] merely asked as a point of curiosity you [02:14:55] know I didn't realize I didn't think it [02:14:58] was that unlikely you know yeah well it [02:15:01] it did exceed my [02:15:04] expectations [02:15:06] tsmc's size and importance exceed the my [02:15:12] expectation but [02:15:14] not by an order of magnitude you know [02:15:18] but wasn't the original plan to stop [02:15:20] building after Fab too no that was never [02:15:23] that that was only the very initial plan [02:15:28] okay yeah we were never going to stop [02:15:30] there you know I mean we were just [02:15:32] talking about learning you know that you [02:15:34] know I mean how could we plan to if I [02:15:39] didn't know anything about learning I [02:15:42] would say yeah maybe we stop after two [02:15:44] two BS you know but I I was a serious [02:15:47] student of learning C and I would never [02:15:51] I would never stop uh at just two baps [02:15:55] here's why I say unlikely success there [02:15:57] were so many reasons why the original [02:15:59] incarnation of [02:16:01] tsmc was kind of a bad business fablous [02:16:05] was not a thing yet and so all of your [02:16:07] initial customers were the integrated [02:16:09] device manufacturers the intels of the [02:16:12] world and you were taking their worst [02:16:15] you know [02:16:16] excess you were their Second Source [02:16:18] supplier for manufacturing on the stuff [02:16:20] that they did didn't want to make on [02:16:21] their own did you see fabas coming or [02:16:25] was that a very lucky thing no I saw it [02:16:30] coming uh and uh the in fact I just had [02:16:34] dinner or two months ago at dinner with [02:16:38] the first guy Gordon Campbell gordi [02:16:42] Campbell do you have you heard his [02:16:45] name anyway Cy [02:16:49] Campbell came to see me in general [02:16:53] instrument in my uh final [02:16:57] months at General [02:17:00] instruments he came to see me he did not [02:17:02] know that I was leaving frankly I did [02:17:05] not know when I saw him that I was [02:17:07] leaving yet but the reason he came to [02:17:10] see me at General instument was that he [02:17:12] wanted the funding he want the [02:17:15] investment from General [02:17:17] instrument $50 million he said you want [02:17:21] to start a new company $50 [02:17:25] million so I said do you have a business [02:17:30] plan no it's all in my head so I said [02:17:34] well I I need at least a business plan I [02:17:38] mean I have to go to the board of [02:17:41] jne so he said all right I'll send it to [02:17:44] you within 3 weeks 3 weeks later there [02:17:49] was no business plan [02:17:51] and I was interested because I knew that [02:17:54] he had a good reputation of starting MH [02:17:58] companies so I called him and he said ah [02:18:02] Mars I'm sorry I didn't send you [02:18:05] anything because I don't need you [02:18:08] anymore I said how [02:18:11] come he said I don't need $50 million [02:18:16] more anymore I need only $5 million and [02:18:21] $5 million I can gather up very [02:18:25] easily I said why do you need only $5 [02:18:29] million he said I'm not going to build a [02:18:33] FB [02:18:35] see that [02:18:37] was the start for [02:18:40] me that there will be fabulous [02:18:45] companies another [02:18:47] guy uh came to General instrument [02:18:52] and said he had already started a [02:18:55] company which was called ATM [02:18:59] ATM [02:19:01] and they did not have any faps MH and [02:19:05] this guy wanted the general instrument [02:19:07] to make the wers for them and back then [02:19:11] General instrument you know had the [02:19:15] empty FBS uh so I said I told the cic [02:19:20] conductor manager of generalis and I [02:19:22] said well go ahead and work with him Don [02:19:26] Valentine yeah who I'm sure you you knew [02:19:29] yeah I knew him yeah he had a great [02:19:31] great quote when asked about starting [02:19:33] seoa and he said well I had an advantage [02:19:36] I knew the future and it sounds like you [02:19:39] knew the future [02:19:40] too well at least [02:19:43] I I had a glimpse of it you know yeah uh [02:19:49] so [02:19:50] M you know uh and they were still [02:19:54] fighting I mean at M he wanted the Fab [02:19:58] to be run his way now of course the J [02:20:01] semiconductor manager wanted to run the [02:20:05] Fab his way you know I mean andent owned [02:20:07] the Fab anyway For Heaven's Sake you [02:20:09] know so that was just a very early [02:20:15] situation in which the difficulty and [02:20:19] the advantage AG of running a Foundry [02:20:24] business already appeared you [02:20:26] know the difficulty was you know you you [02:20:30] have to satisfy a lot of customers you [02:20:33] know and everyone you know wanted the FB [02:20:36] to be run his way you know uh but you [02:20:40] can only run f one way you know which [02:20:43] will satisfy more or less all the [02:20:46] customers and the advantage of course is [02:20:49] you have a lot customers you know well [02:20:53] we can't thank you enough Dr Chang Dr [02:20:55] Chang thank you all right very good was [02:20:58] my [02:20:59] pleasure even though uh it's the first [02:21:02] time in a long long time that I have [02:21:05] talked so [02:21:06] long we appreciate it thank you for [02:21:08] doing it with us all right listeners [02:21:11] well David and I are coming at you now [02:21:13] from our home Studios back in Seattle [02:21:15] and San Francisco and uh we wanted to do [02:21:19] a little post game on that interview a [02:21:21] little bit of uh uh analysis kind of our [02:21:24] conclusions the things that are still [02:21:27] sitting with us a few days later after [02:21:28] we've crossed the ocean and uh David [02:21:32] this felt essential to me [02:21:34] because it felt like we were just [02:21:36] recording history there with Morris I [02:21:38] didn't want to interrupt him to try to [02:21:39] like make a business model point or it [02:21:42] just kind of felt like uh we should let [02:21:44] him talk and then we could do our part [02:21:46] after yeah totally and uh fortunately we [02:21:49] have a model for doing analysis at the [02:21:51] end of story which is Playbook our [02:21:53] Playbook so let's do it okay so the [02:21:56] first thing that I can't shake that just [02:21:59] keeps sitting with me is this idea that [02:22:03] is genius in hindsight of not competing [02:22:06] with your customers being the dedicated [02:22:08] Pure Play Foundry which we actually saw [02:22:11] in the tsmc museum of innovation they [02:22:13] have yeah Morris's original pitch like [02:22:16] his little original slide original [02:22:18] business plan that he pitched to the [02:22:20] taies government the government and then [02:22:21] to investors there's like two different [02:22:23] versions of this extremely simple pitch [02:22:25] deck and one of the bullet points it's [02:22:26] right in there of ba dedicated Pure Play [02:22:29] Foundry at the time I get the sense it [02:22:34] was actually much more about what can we [02:22:36] win at versus what will be the most [02:22:41] important and valuable Semiconductor [02:22:43] Company in the world in the future right [02:22:46] at the time they didn't have the [02:22:48] capabilities certainly not tsmc and and [02:22:50] didn't exist in Taiwan to be able to [02:22:53] design chips and products so like it was [02:22:56] impossible for them to compete with [02:22:58] customers this was all they could do [02:22:59] right it crossed Morris's mind for sure [02:23:01] hey we could compete with Intel but then [02:23:03] he scrapped that I get the sense because [02:23:06] the thing that they were good at was [02:23:07] this manufacturing angle and it's almost [02:23:10] like an accident of History the the Pure [02:23:12] Play Foundry ended up being the best way [02:23:15] to do this I guess best as evaluated on [02:23:18] market cap versus other foundaries and [02:23:20] integrated device manufacturers such as [02:23:22] Intel well and best that like this is [02:23:24] the path that has led them to being [02:23:27] essentially alone operating at the [02:23:29] Leading Edge like they have surpassed [02:23:31] technology-wise all of the other [02:23:34] integrated you know integrated and quasa [02:23:37] integrated uh chip foundaries out there [02:23:39] yeah I guess that's my first thing is [02:23:41] the this uh connect you can connect the [02:23:44] dots looking backwards as as Steve Jobs [02:23:46] said and that famous quote but uh [02:23:48] forwards is difficult this [02:23:51] primarily I think was the main reason [02:23:53] why tsmc has worked so well that they [02:23:56] don't compete with customers they are [02:23:58] truly the only Foundry at the Leading [02:24:01] Edge that does not in any way compete [02:24:04] with their customers they don't have [02:24:05] their own end product division they [02:24:07] don't design their own ships it is truly [02:24:09] they only serve their customers and they [02:24:11] do not compete at any other part of the [02:24:13] value chain with them right okay so if [02:24:16] you're asking yourself how did the world [02:24:18] arrange itself in this way such that [02:24:20] could have a trillion dollar company [02:24:22] that doesn't do any design that doesn't [02:24:24] do any architecture that doesn't do any [02:24:28] uh Eda tools like Cadence or synopsis um [02:24:32] so they're you know they're not Nvidia [02:24:35] they're not arm they're not Cadence [02:24:38] synopsis they're not asml like they're [02:24:40] not their own equipment vendor so what [02:24:43] what enabled this one of the things that [02:24:46] I think is under appreciated and I I we [02:24:49] didn't talk that much about with Morris [02:24:51] but the rise of arm if if you try to [02:24:53] play forward a world where Intel and the [02:24:56] x86 architecture had maintained its [02:24:59] dominance you wouldn't have had this [02:25:02] window this opportunity for the value [02:25:04] chain to sort of rearrange itself but [02:25:06] the fact that there was an architecture [02:25:09] as we talked about on our aq2 episode [02:25:11] with Renee uh from [02:25:13] arm this architecture that became [02:25:16] dominant in phones and then computers [02:25:18] and then servers and you know now is [02:25:20] coupled on with all these AI chips you [02:25:23] open the door to have a dedicated [02:25:26] Foundry for armed chips in a way where [02:25:29] if it had stayed x86 it's not like you [02:25:31] could start a new Foundry for all the [02:25:33] fabulous x86 companies for the longest [02:25:35] time intel was the only x86 company and [02:25:37] then AMD of course is the the second [02:25:40] source and AMD is a tsmc customer so [02:25:42] that's sort of the one Edge case is like [02:25:43] well there is AMD that designs x86 chips [02:25:46] that tsmc manufactures but that's not [02:25:49] like the common case of the way it would [02:25:51] have gone for an in an x86 dominated [02:25:53] world it would have been fully [02:25:56] integrated Intel yeah I mean one super [02:25:59] straightforward and enormous example of [02:26:02] this just is Apple like if arm hadn't [02:26:05] become such a viable CPU architecture [02:26:10] platform and apple hadn't standardized [02:26:12] you know their apple silicon on [02:26:15] arm probably Intel would be making all [02:26:18] of the chips that go into your phone all [02:26:20] the leading Ed chips that go into your [02:26:22] iPhone like they already had the Intel [02:26:25] relationship Max were running on x86 [02:26:28] Intel chips yeah you have to keep [02:26:30] peeling the onion because this of course [02:26:31] supposes that the that Intel actually [02:26:34] could have gotten their act together and [02:26:35] made a [02:26:37] chip for mobile phones that was [02:26:40] performant but maybe uh all the baggage [02:26:43] from x86 actually prevented them from [02:26:45] structurally doing that it wasn't like a [02:26:47] competency thing it was like a that it [02:26:49] never could have happened that 86 could [02:26:51] run on phones yeah I I think all this is [02:26:54] true but if arm hadn't existed like [02:26:56] there would have been nowhere else for [02:26:58] you know this Vector of innovation to go [02:27:00] right the point that we're driving at [02:27:02] here is this world where there's a [02:27:04] standalone architecture company there's [02:27:05] a standalone big Manufacturing Company [02:27:08] there are Standalone Eda companies there [02:27:10] are Standalone um uh designers you know [02:27:14] Apple Nvidia in a large part that's due [02:27:17] to arm yes and arm and tsmc are sort of [02:27:19] like coupled at the hip of History uh of [02:27:22] when this how this came to be in fact [02:27:24] didn't you find that a bunch of these [02:27:26] were started within 12 months of each [02:27:28] other yes totally the mid to late 80s [02:27:30] were like an absolute golden period for [02:27:34] all these companies getting started not [02:27:35] only tsmc arms synopsis Cadence and asml [02:27:39] all founded right within a couple years [02:27:42] of each other which brings us to hinu [02:27:45] Science Park going there in person we [02:27:48] talked about this on our original t MC [02:27:50] episode that you know even if you wanted [02:27:52] to you couldn't airlift tsmc and this [02:27:55] capability out of Taiwan and recreate it [02:27:58] somewhere else yeah we talked about that [02:27:59] as if we knew it in sort of an abstract [02:28:02] way this was very different driving [02:28:03] around the Science Park feeling in a [02:28:05] physical way the entire ecosystem it's [02:28:08] like if Silicon Valley were all in one [02:28:10] you know kind of government sponsored [02:28:12] you know Industrial Park uh which it [02:28:15] sort of was and was Silicon Valley you [02:28:17] know as we talked about in our locky [02:28:19] Martin episode oh the early locked yeah [02:28:21] yeah the early locked years but that's [02:28:24] what it's like today it's all right [02:28:26] there it's not just tsmc that's there [02:28:28] it's all of their Partners it's all of [02:28:30] their customers you know we're driving [02:28:32] by and this is a Cadence building there [02:28:34] and that's a synopsis building there and [02:28:35] that's an arm building there there's [02:28:37] Qualcomm there's mediatech right there [02:28:39] headquartered right there and right [02:28:41] across the street the craziest thing to [02:28:43] me we saw there are two universities [02:28:47] that are just like there in the Science [02:28:49] Park yes like that are cranking out phds [02:28:53] every year that are just getting [02:28:55] absorbed right there in the ecosystem I [02:28:57] mean this would be like if there were [02:28:58] two universities on the Nvidia campus [02:29:01] the thing that really jumped out to me [02:29:03] is uh you always hear people talk about [02:29:05] how [02:29:07] integrated this ecosystem is with each [02:29:11] other that you know synopsis has to be [02:29:15] closely [02:29:17] uh tied with tsmc to understand what the [02:29:20] next node will look like so that they [02:29:22] can make it easy for people who are [02:29:24] using [02:29:24] synopsis uh tools to design ships [02:29:28] to you know actually manufacture using [02:29:31] tsmc's process uh you kind of get the [02:29:33] sense of oh I see because they all are [02:29:35] walking across the street to each other [02:29:37] and having this extremely close [02:29:38] communication uh not to mention David [02:29:40] both of our flight experiences kind of [02:29:42] felt like oh there's these are a bunch [02:29:44] of Chip design uh fabulous companies [02:29:46] that are making the pilgrimage over to [02:29:49] uh to Taiwan to meet with people in this [02:29:51] ecosystem my plane felt like the [02:29:54] semiconductor version of the tech buses [02:29:57] that go from you know San Francisco down [02:29:59] to Silicon Valley every day I mean the [02:30:01] backpacks that I saw on the plane like [02:30:02] there's a Google backpack there's an [02:30:04] Amazon backpack there's an arm backpack [02:30:05] there's a marll backpack yeah which does [02:30:08] raise the point of this uh Arizona Fab [02:30:10] and the sort of outside of Taiwan Fabs [02:30:13] you know why is tsmc doing it because [02:30:17] it's not their Leading Edge it's not big [02:30:20] volumes it's not leveraging this really [02:30:23] close [02:30:24] Geographic ecosystem that they have in I [02:30:28] believe there's three science parks in [02:30:30] yes Taiwan we saw the original but [02:30:33] there's one that's even bigger I think [02:30:34] it's the tyan one in the South but it [02:30:38] just kind of becomes clear [02:30:40] that it's there are customers and [02:30:43] government reasons to build Fabs in [02:30:46] other countries but you're not going to [02:30:48] be able to recreate the magic of that [02:30:50] ecosystem like physically instantiated [02:30:53] right there yeah it would take decades [02:30:56] to recreate the ecosystem that they have [02:30:58] in the science Parks which is you know [02:31:01] funny on that front you and I were [02:31:03] saying as we were driving around there [02:31:06] this has got to be the single most [02:31:08] successful government funded industry [02:31:11] initiative of all time like anywhere in [02:31:13] the world at least to Spur Innovation [02:31:17] with this particular of a mandate [02:31:19] totally the land grant universities here [02:31:21] in America but like this was like a a [02:31:24] like a a rifle shot like you know we are [02:31:26] going to Spur semiconductor industry [02:31:28] innovation in this industrial park in [02:31:32] this location and it worked and there [02:31:35] you have one of the 10 most valuable [02:31:37] companies in the world and the only uh I [02:31:39] guess one of two uh trillion dollar [02:31:42] companies that are not on the west coast [02:31:43] of the United States I would say it [02:31:44] worked yeah it it worked it worked and [02:31:48] the scale too we drove by a construction [02:31:51] site where it looked like a quarter of [02:31:53] the building was done this is where [02:31:55] they're making the 2 nanometer process [02:31:57] which presumably will be in the the next [02:31:59] iPhone um it's not like anyone said [02:32:01] anything about that but it gez I wonder [02:32:04] after 5 nanometer and then three n3e and [02:32:09] n3p when they have this two nomor [02:32:11] process I wonder what they're going to [02:32:12] make on that lots of Nvidia gpus and [02:32:15] lots of iPhone [02:32:17] chips massive building f one was open [02:32:21] which I think is a quarter of the [02:32:22] building but then there's three other [02:32:24] phases for this uh 2 Nom facility that [02:32:27] are not even you know ready for prime [02:32:29] time yet but I think they're actually [02:32:30] doing the small production runs getting [02:32:32] ready to ramp in the second half of this [02:32:33] year on the 2 nanometer process like you [02:32:36] said the scale of the physical buildings [02:32:40] of these [02:32:41] Fabs smacked me in the face I felt like [02:32:44] I was looking at a sphinx in in Egypt I [02:32:47] mean like it's huge it's like many [02:32:49] football fields bus of size like you [02:32:51] know just per phase of the Fab these are [02:32:54] enormous buildings yep okay so back to [02:32:58] things I've been noodling on since the [02:33:01] uh conversation with Dr [02:33:03] changen I felt a little bit bad for [02:33:06] saying hey your original business plan [02:33:08] was kind of a bad one that basically [02:33:12] taking the excess capacity from Intel [02:33:14] and other idms and giving them a place [02:33:16] to manufacture their least critical [02:33:18] least Leading Edge least interesting [02:33:20] chips uh but that is true I mean he he [02:33:25] believed that fabus was going to be a [02:33:27] thing but for the first I don't know at [02:33:29] least five years the only real business [02:33:32] that they had was idms who were willing [02:33:35] to say how cheap can you give me some of [02:33:37] your manufacturing capacity and it's not [02:33:40] strategic at all but here you go here's [02:33:42] some Revenue this is a major difference [02:33:45] in Intel's Fab strategy versus tsmc [02:33:49] Intel [02:33:50] is constantly taking their existing Fab [02:33:53] footprint and repurposing it and [02:33:55] upgrading it for the Leading Edge which [02:33:58] you know on the one hand is great it's [02:34:00] utilizing their assets you know for the [02:34:02] most valuable highest valuable products [02:34:05] on the other hand though they then lose [02:34:06] the manufacturing capabilities for older [02:34:10] processed node generations and it's not [02:34:12] like demand goes away for those chips [02:34:14] and those products it does it just does [02:34:17] slowly it does slowly yeah and I mean [02:34:18] like replace Parts is a great example [02:34:21] like you know there are technology [02:34:23] systems and products you know [02:34:25] manufacturing things even automobiles [02:34:27] built 10 20 30 years ago that have [02:34:30] specific chips that were made with old [02:34:32] processed technology that when they [02:34:33] break and they need replacing like you [02:34:35] need those exact same chips so this is [02:34:38] the business that tsmc started in right [02:34:41] so that is the fundamental philosophical [02:34:43] difference is I I think [02:34:46] Fab so fab one belonged to itri the the [02:34:50] government uh where Morris was president [02:34:52] of that organization before taking the [02:34:55] the helmet tsmc uh Fabs 2 and three were [02:35:00] the first tsmc specific Fabs that they [02:35:03] built and they're still running from the [02:35:05] late 80s and in addition to the old [02:35:08] replacement parts there are still [02:35:10] applications for older nodes if you're [02:35:13] in this this world of you know 40 [02:35:15] nanometers and up and you know one [02:35:17] micron and I don't know all the names of [02:35:20] the previous generations but the the [02:35:22] less high resolution etching on Silicon [02:35:25] uh camos sensors are a great examples of [02:35:28] that the the cameras that we're talking [02:35:29] into right now that have these great [02:35:31] Sony sensors uh those don't require a 2 [02:35:35] nanometer process but they do require [02:35:37] etching the same way that you would etch [02:35:39] a chip and so that's a specialty use [02:35:42] case of tsmc's older Fabs which by the [02:35:45] way on an accounting basis are fully [02:35:47] depreciated so there almost like free to [02:35:50] run right right all the capital [02:35:53] expenditure now there's maintenance [02:35:54] capex that needs to go into it of course [02:35:56] but like the initial capex yes fully [02:35:59] depreciated you're just getting like [02:36:01] essentially very very high margin [02:36:03] dollars out of those old Fabs right and [02:36:06] it's not that it's a better or worse [02:36:07] decision than what Intel has [02:36:09] historically decided to do but it is a [02:36:10] different one Intel is going to keep [02:36:12] closing the old stuff so they can own a [02:36:15] smaller footprint and keep all the [02:36:17] equipment and everything focused on [02:36:18] making the latest and great [02:36:20] just not what tsmc does totally totally [02:36:23] but that point of I'm obsessed with this [02:36:25] idea that uh it was funny that Morris [02:36:29] went on the record and said no I knew I [02:36:30] knew fabulous was coming and he had a [02:36:31] couple great anecdotes about that which [02:36:33] is funny because in older interviews [02:36:35] sometimes he goes well the timing was a [02:36:37] little lucky on when fabulous happened [02:36:40] but uh I think he even said to Jensen uh [02:36:43] in the first few years of tsmc growth [02:36:45] wasn't very high because we were waiting [02:36:47] for the customers to emerge [02:36:50] but it really is this idea that he saw [02:36:52] the [02:36:53] future he made a [02:36:55] bet and he did kind of a crappy business [02:36:59] to build up competency [02:37:03] capability volume capacity yeah exactly [02:37:07] to build up literal Fabs right to be [02:37:09] there when the fabulous Revolution [02:37:11] happened and I don't know you know I I [02:37:14] think he yeah I think he was within 12 [02:37:16] months of when he thought it would [02:37:17] happen but it is crazy that when [02:37:20] especially in his Memoir you're reading [02:37:21] the story about the early customers year [02:37:23] five year six year seven the majority of [02:37:25] the business is still not fabulous it's [02:37:27] someone else's you know worst orders [02:37:31] which that actually gets to the heart of [02:37:33] learning curve pricing that we spoke [02:37:36] about with Morris we brought it up sort [02:37:38] of like tangentially with him but it's [02:37:39] probably worth dwelling on what is the [02:37:41] learning curve yeah the I mean the core [02:37:44] Insight of the learning curve from BCG [02:37:47] and Bill Bane and Bane and Morris that [02:37:50] they all developed together which by the [02:37:52] way how crazy is it the the founders of [02:37:53] BCG and Bane are the ones who sort of [02:37:56] co-develop this or at least named it and [02:37:59] formalized it with Morris when he was at [02:38:00] TI totally the Insight is that like the [02:38:05] goal that you are playing for is to be [02:38:07] the largest volume player kind of at the [02:38:10] end of the game so if you take that as a [02:38:13] given of like if we get to be the [02:38:16] largest volume player this is a fixed [02:38:18] cost business this is a economy's [02:38:20] business we can spread that fixed cost [02:38:22] over the maximum number of customers how [02:38:25] do we get to the maximum number of [02:38:27] customers in the early stages of the [02:38:29] game where it's more [02:38:31] competitive we accelerate the pricing to [02:38:35] where we think it will get to at the end [02:38:38] of the game so that's why doing these [02:38:40] price cuts and and also starting low [02:38:42] with your prices like you can even start [02:38:45] unprofitable with your prices in the [02:38:47] early days in a given node generation [02:38:50] because the goal is out the competition [02:38:52] become the industry dominant number one [02:38:54] player get all the customers once you [02:38:56] aggregate that demand yeah then you get [02:38:58] the scale and then you can get the [02:39:00] economies of scale pricing but just like [02:39:02] get to that as fast as possible that's [02:39:04] the name of the game yeah it works [02:39:06] backwards from it actually involves a [02:39:08] lot of Market sizing at maturity on this [02:39:11] node what do we think demand will be for [02:39:16] you know call it 40 nanometer how many [02:39:18] orders of of individual chips will there [02:39:22] be in 40 nanometer okay well to have the [02:39:27] cheapest price for customers we need to [02:39:29] do the biggest ordering and so then it's [02:39:32] it's just a matter of like how fast can [02:39:33] we get into volume production y everyone [02:39:37] sort of intuitively grasps this oh [02:39:39] economies of scale but the implications [02:39:42] across your whole business your pricing [02:39:44] strategy the way like strategic Finance [02:39:46] how do you when do you decide to take on [02:39:49] debt when do you not when do you decide [02:39:51] to take on more shareholders it's this [02:39:53] incredible orchestration to make it [02:39:55] happen you know it's almost Costco like [02:39:56] in the ballet that has to go into this [02:39:59] right I mean the example from Apple we [02:40:01] are about to go get the absolute whale [02:40:03] customer and we have to [02:40:05] balance taking on all of their order [02:40:09] which the learning curve would tell you [02:40:11] you you want to get the deepest down the [02:40:13] learning curve possible we should go [02:40:14] take all their order but you all that [02:40:16] kind of exposes you to existential risk [02:40:18] in your business business when you're [02:40:20] not you know within spitting distance of [02:40:23] doing that volume on your own so is it [02:40:25] really worth betting the entire company [02:40:27] you got to be so precise and accurate in [02:40:31] your forecasting of the ultimate market [02:40:33] demand which means the ultimate demand [02:40:35] for your customer products which in the [02:40:38] Apple case means ultimately forecasting [02:40:41] accurately how many customers are going [02:40:43] to buy the next generation iPhone in [02:40:46] order to run your business right or in [02:40:49] nvidia's case how big is AI going to be [02:40:52] you know these are this is kind of a [02:40:54] crazy thing for a manufacturer to have [02:40:56] to do to have that uh crystal ball into [02:40:59] the End Market um markets you know the [02:41:01] end their customers markets but they [02:41:04] really do need to make bets on how big [02:41:07] those markets are going to be yep [02:41:09] because if you're off by 5 10% that's [02:41:12] going to tank your entire profitability [02:41:14] for that node generation which is going [02:41:16] to tank your free cash flow which is [02:41:17] going to mean you can't play the game in [02:41:18] the next [02:41:20] to this point though if you actually are [02:41:23] good at all of this and you you are good [02:41:25] at forecasting and the execution is [02:41:28] Flawless once you internalize the [02:41:30] learning curve the story of tsmc goes [02:41:34] from one where it's surprising and [02:41:38] unlikely and it becomes an inevitability [02:41:42] of course the company that is taking on [02:41:46] all the orders to have the lowest price [02:41:50] right of course this will be the end [02:41:52] state of this industry is to have a [02:41:54] dominant player like right now it costs [02:41:56] I don't know on the order of$ 20 billion [02:41:58] to build a new Fab eventually it will [02:42:00] cost 40 billion 80 billion 100 billion [02:42:03] how many players are really going to be [02:42:04] left standing with the ability to deploy [02:42:06] a hundred billion dollars to build a [02:42:08] building with some machines in it this [02:42:10] Market has natural monopoly [02:42:14] characteristics yep yep and that's just [02:42:16] the capex side of the equation as talked [02:42:19] about with Dr changen like there's also [02:42:21] the R&D side of the equation that needs [02:42:23] to go into creating the next process [02:42:26] node that can you know be built on that [02:42:29] capex yeah it is crazy that if you just [02:42:32] look at every year the capex versus the [02:42:35] net income of this company they [02:42:38] basically spend all the money not all [02:42:40] the money but their their capex grows in [02:42:43] a very similar way if you look at the [02:42:45] bar graph to their net income from the [02:42:48] year and so that is even before R&D [02:42:51] David to your point if they were looking [02:42:53] around at competitors at other [02:42:54] foundaries and saying uh okay how much [02:42:58] can we invest they in they can invest [02:43:01] more than anyone else because they have [02:43:03] the most volume and then on top of that [02:43:05] they are also spending in a separate [02:43:07] bucket of R&D on the technology for [02:43:10] their manufacturing processes and that's [02:43:12] how you get Coos which is the technology [02:43:15] that they use for packaging for AI chips [02:43:17] that's their you know proprietary thing [02:43:20] uh which by the way once you have [02:43:21] proprietary packaging then it's even [02:43:23] harder for customers to go and you know [02:43:26] double Source double manufacturer [02:43:27] elsewhere they have a similar technology [02:43:30] for um uh packaging of mobile chips that [02:43:33] that doesn't use Coos but it seems like [02:43:36] this is a market where those in the lead [02:43:38] are only going to get further in the [02:43:41] lead over time absent some big strategic [02:43:43] mishaps or some big execution mistakes [02:43:47] yep totally and then I think the last [02:43:50] Playbook theme here for me and for us is [02:43:52] just that uh Mo's law is undefeated I [02:43:56] mean at the end of the day back from [02:43:59] starting all the way back Morris's [02:44:01] career at TI and being a contemporary of [02:44:05] Jack Kilby and Bob noise and the [02:44:07] invention of the integrated circuit once [02:44:10] the integrated circuit was invented the [02:44:13] compounding growth of that industry is [02:44:16] all that mattered everything else [02:44:19] is just Downstream of the fact that the [02:44:21] world is going to demand more Computing [02:44:25] at this [02:44:27] monotonic exponentially increasing Pace [02:44:31] every 18 to 24 months you know and of [02:44:33] course like the technical definition of [02:44:35] Mo's law expired a long time ago but [02:44:38] like spiritually the world [02:44:41] demands roughly 2x the computing power [02:44:44] that it had two years ago every two [02:44:47] years and that has continued for 50 60 [02:44:51] years at this point and shows no signs [02:44:53] of slowing down and as a result well no [02:44:56] signs of slowing down except that they [02:44:58] keep hitting theoretical physics limits [02:45:00] well I said the demand side of the [02:45:02] equation shows no shows no signs of [02:45:04] slowing down well sure but the demand [02:45:06] side is far more than 2x mors law has [02:45:09] always been about how much can happen on [02:45:12] the Innovation side of getting better at [02:45:16] design and Manufacturing and that is [02:45:18] getting harder than because we're having [02:45:19] to like call more things Moors law you [02:45:23] know packaging was never a part of the [02:45:24] original Moors law and software [02:45:27] improvements and uh proprietary [02:45:30] interconnects my point is that it's a [02:45:32] self-reinforcing system as long as the [02:45:35] demand is there that the world wants [02:45:37] twice as much compute as it had [02:45:38] yesterday there are going to be you know [02:45:41] Market incentives to drive the supply [02:45:44] side and that is why people work so hard [02:45:46] to make it happen all right here's the [02:45:47] stat since SMC was founded in 1987 the [02:45:51] world's semiconductor Market has grown [02:45:53] from 26 billion to [02:45:55] 527 billion last year so they rode a [02:46:00] ridiculous Tailwind ridiculous Tailwind [02:46:03] yep a ridiculous Tailwind where as the [02:46:07] industry reorganized away from the [02:46:09] vertical integration of the Intel world [02:46:12] you could build a trillion doll value [02:46:15] Foundry yep the scale of the numbers are [02:46:17] so staggering I keep thinking about the [02:46:20] fact that they can go spend $20 billion [02:46:23] to build a building and the stuff that [02:46:26] they spit out is so valuable that that [02:46:28] 20 billion was a profitable investment [02:46:31] in a matter of I don't know how many [02:46:33] years if it's three five seven whatever [02:46:35] the payback period is like they know for [02:46:37] sure that it's a worthwhile investment [02:46:40] to do that yeah the whole thing comes [02:46:43] down to oh my God silicon has become [02:46:47] really valuable like graded [02:46:49] circuits are the fabric of our world [02:46:52] today ah well Ben what an amazing [02:46:56] experience so glad we did this went to [02:46:59] Taiwan got to see this in person got to [02:47:01] spend this special time with Dr Chang [02:47:04] what a great way to start the year [02:47:06] should do carve outs carve [02:47:09] outs all right I have two one is a [02:47:14] uh kind of a hilarious I can't believe [02:47:16] it's 2025 and this is my recommendation [02:47:18] for anyone who's not a AAA member I [02:47:21] highly recommend it oh I had a [02:47:24] spectacular AAA experience where I went [02:47:27] to fill up the air in my tires before a [02:47:29] road trip and uh uh I went to the gas [02:47:33] station and there was something wrong at [02:47:35] my local gas station with their pump and [02:47:37] I ended up draining the air in my tires [02:47:39] to an unsafe [02:47:42] level and so the car was actually not [02:47:44] drivable away from this gas station and [02:47:47] I was like crap I I can't even go get [02:47:49] the other car to and I had my baby in [02:47:52] the back seat and my wife and I are [02:47:53] trying to figure out what to do and [02:47:54] we're like do we have to call a tow [02:47:56] truck to like tow us to and so I um [02:48:00] signed up for AAA while I'm just sitting [02:48:02] there in the gas station parking lot and [02:48:04] within I think an hour hour and a half [02:48:06] they had a mobile tire inflator on a [02:48:10] long weekend like a holiday weekend when [02:48:13] other people aren't working drive out [02:48:15] and uh fill up my the the air in my tire [02:48:18] so we could be quickly on our way not [02:48:20] ruin the weekend amazing and it was like [02:48:23] hundred bucks or something it's really [02:48:25] not a bad price and you get this was see [02:48:28] 100 bucks to become a member whatever is [02:48:29] 150 and then the service is actually [02:48:32] free for something as trivial as this [02:48:34] and you get three of them a year wow so [02:48:36] I'll take it it it was a it was a [02:48:37] phenomenal experience all right Triple A [02:48:41] there we go my second one is a YouTube [02:48:43] channel called defunct land you and I [02:48:46] were talking about this oh yes this is [02:48:48] so good you turned me on to this yeah it [02:48:51] is an entire YouTube channel that I [02:48:52] actually haven't watched in a while but [02:48:54] I only remembered it from our [02:48:55] conversation and now I need to go back [02:48:57] and watch older ones that talks about [02:48:59] defunct theme parks so if you like [02:49:01] Acquired and you wish you had something [02:49:03] you know acquired like that's kind of [02:49:05] visual that's about uh history and [02:49:08] intellectual property and people trying [02:49:10] crazy stuff some of the most crazy [02:49:12] entrepreneurs and Executives within [02:49:14] companies decided to build theme parks [02:49:17] and it is very fun to see the weird old [02:49:20] Nickelodeon hotels or Action Park in I [02:49:23] think it's New Jersey the like wildly [02:49:25] unsafe Park from the 60s 70s and 80s ah [02:49:30] man those were the days yes you could [02:49:33] get lost for hours and hours and hours [02:49:34] watching defunct land so I highly [02:49:36] recommend the YouTube channel I'm really [02:49:38] glad that uh you and I grew up as kids [02:49:40] in the era where uh we could still take [02:49:43] unreasonable amounts of risk and nobody [02:49:45] thought that that was there was anything [02:49:47] wrong with that yes [02:49:49] oh um my carve out uh speaking of you [02:49:53] know it being 2025 how are we talking [02:49:56] about this on the plane on the way over [02:49:59] to Taipei um I finally watched [02:50:03] everything everywhere all at once for [02:50:04] the first time I can't believe I hadn't [02:50:06] seen it before but you know two kids [02:50:09] under three and a half not a lot of time [02:50:11] for movies it's so good it's so good I [02:50:13] think this was your car out when it came [02:50:15] out a couple years ago um just so so so [02:50:18] good truly enjoyed it lived up to the [02:50:20] hype deserves every award that it won [02:50:23] all right well we've got some thank to [02:50:25] folks who helped us prepare for this [02:50:27] episode so first uh to our sponsors JP [02:50:29] Morgan payments our presenting partner [02:50:31] service now and fundrise you can click [02:50:33] the links in the show to learn more and [02:50:35] then some special shoutouts to Art deas [02:50:38] the co-founder and executive chair of [02:50:40] synopsis had a great conversation with [02:50:43] us uh well first publicly with um cine [02:50:46] gazi the current CEO of synopsis on an [02:50:48] aq2 episode a little while back uh and [02:50:52] then uh we chatted to prep for this [02:50:54] episode and basically asked the question [02:50:56] what should we be asking Dr Chang about [02:50:58] we uh got some similar notes from Renee [02:51:01] H who is the CEO of arm great [02:51:04] conversation with sir Peter Bonfield a [02:51:06] current tsmc board member and former CEO [02:51:09] of British Telecom David I know you've [02:51:11] got a few also also to Wall-E Ry the [02:51:14] former CEO of Mentor Graphics Wally is a [02:51:17] legend in the semiconductor industry uh [02:51:20] almost on par with uh with Dr changen [02:51:23] they were contemporaries at TI back in [02:51:25] the day uh and to John Bathgate and [02:51:28] Britton John's from nzs Capital are [02:51:30] go-to folks on anything semiconductors [02:51:34] they were I think they were more excited [02:51:35] even more excited than we were that we [02:51:37] were doing this that we got to talk to [02:51:39] them about it yes also past acquired [02:51:41] guest I think that episode holds up [02:51:43] really well where we did uh you know [02:51:45] semiconductor and complexity Theory with [02:51:46] them totally and actually joh is the one [02:51:49] originally who explained to me how euv [02:51:53] lasers work which is still one of the [02:51:54] most impressive accomplishments in human [02:51:56] history uh to John from the asianometry [02:51:59] YouTube channel this is just an [02:52:01] incredible Channel all about [02:52:03] semiconductors and about how all of this [02:52:07] stuff works I mean I learned so much [02:52:09] about camos sensors about how they make [02:52:11] the actual um silicon Wafers themselves [02:52:16] that's a sophisticated process before [02:52:17] the etching even starts Arts uh he's [02:52:19] just got some awesome awesome videos on [02:52:21] the asianometry YouTube channel and uh [02:52:24] very very kindly bought David and I [02:52:26] dinner and hung out with us the night [02:52:27] before the interview which was very fun [02:52:28] to do in Taipei very fun also to Tim [02:52:31] kulpin a former Bloomberg journalist who [02:52:34] now has a substack called cium also gave [02:52:37] us some great topics to chat about and [02:52:39] lastly as always to arvind Navar ratnam [02:52:43] at worldly partners he did a great great [02:52:46] write up on tsmc that he'll be posting [02:52:48] publicly um right before we post this [02:52:51] episode so you all can see it it was [02:52:53] great last minute prep for me after [02:52:55] reading the Memoir to get someone else's [02:52:56] take on what makes this company so [02:52:58] special and actually some of the stats [02:53:00] that we threw out in our um Playbook [02:53:02] came straight out of his write up so if [02:53:04] you want more and kind of a more [02:53:06] analytical view of how did tsmc become [02:53:09] tsmc uh he's got a great study on that [02:53:12] that we'll link to in the show notes so [02:53:15] if you like this episode go check out [02:53:17] other semiconductor episodes [02:53:18] Nvidia we've got four of them at this [02:53:20] point uh one of them is an interview [02:53:22] with Jensen and then we've got the whole [02:53:23] history of the company across three [02:53:25] different episodes we did a great live [02:53:27] episode several years ago on qualcom [02:53:30] which I think is a sleeper pick that's [02:53:32] right that's right total sleeper pick [02:53:35] Amazing Story Irwin Jacobs one of the [02:53:38] greatest entrepreneurs in American [02:53:39] history yes and our diving into how CDMA [02:53:43] Works was one of the most fun technical [02:53:45] explanations I've ever done on an [02:53:47] acquired episode so if you want to [02:53:48] understand how all of our cell phones [02:53:49] work go check out the Qualcomm episode [02:53:52] or of course if you did not last week [02:53:54] listen to the tsmc remastered episode uh [02:53:58] I don't know how you got this far [02:53:59] without listening to that but you should [02:54:01] go listen to [02:54:02] that after this episode check out aq2 [02:54:05] we've been talking about this episode [02:54:07] with synopsis there's one with Rene H [02:54:09] from arm Holdings that we did it's our [02:54:11] most recent episode so it's spectacular [02:54:13] and if you're interested in semis go [02:54:15] check that out come talk about this [02:54:17] episode with us in the slack acquire. [02:54:19] fm/ slack and if you want to know when [02:54:22] future episode drops you can uh find out [02:54:25] sign up at acquire. fmil and you'll also [02:54:28] get episode Corrections and hints at [02:54:30] what the next episode will be so with [02:54:32] that listeners we'll see you next time [02:54:35] we'll see you next time who got the [02:54:38] truth is it you is it you is it you who [02:54:41] got the TRU now [02:54:45] [Music]