TSMC

About this time last year, I posted my top five favorite podcasts for entrepreneurs. Avid readers may remember that one podcast, Acquired, was far and away my favorite listen—and I am happy to report that after a year of searching, downloading, subscribing and un-subscribing, Acquired still remains a must-listen in my podcast rotation.

For those who do not remember (or did not heed my suggestion), each episode of Acquired examines the history of a different tech company and the founder(s) who built them. Most of the companies featured on Acquired are familiar (think Apple, Uber, Lyft), but every so often, the hosts, Ben and David, pull back the hood of a Company I have never heard of before—the most recent case being Taiwan Semiconductor Manufacturing Company (TSMC).

Now, you have undoubtedly heard of semiconductors—their discussion is prevalent in the news today and they are literally everywhere. For those unfamiliar, a semiconductor is a physical substance, typically silicon, designed to manage and control the follow of current in electronic devices and equipment—and sometimes are better known by their general term: chip. Chips play a key role in the operation of most things: Rice cookers cook rice perfectly because a chip or chips control the temperature precisely.

CPUs that operate personal computers are also made with semiconductors. Most digital consumer products in everyday life such as smartphones, digital cameras, televisions, washing machines, refrigerators, and LED bulbs also use chips. In addition to consumer electronics, chips play a central role in the operation of bank ATMs, trains, the internet, communications, and other parts of social infrastructure. In short, they are very, very important.

Enter TSMC, the Taiwanese semiconductor contract manufacturing and design company which just so happens to be the world’s most valuable semiconductor company, the world’s largest pure-play semiconductor foundry, and one of its country’s largest companies. In 2020, TSMC had an operating profit of 20 billion dollars on 48 billion of revenue. TSMC holds more than 50% of the semiconductor global market and about 90% of the market share of all 5-nanometer chips, the current leading-edge chip.

TSMC was founded by Morris Chang in 1987. Morris received both his bachelor’s and master’s degrees in mechanical engineering from MIT. Despite obtaining his master’s degree in one year, Morris failed to defend his doctoral thesis twice and left MIT without his PhD for an entry-level job as an engineer in Sylvania’s semiconductor division.

After a 25+ year career in the industry, Morris was recruited to become chairman of the Industrial Technology Research Institute in Taiwan where he was instructed, at the request of the Taiwanese government, to start a semiconductor company.

At the time, all the leading semiconductor companies manufactured their own chips—controlling each part of the process from development to production. So, what did Morris do? He started TSMC, a pure contract manufacturing business.

By now, some of you may be asking this: If all semiconductor companies manufactured their own chips, how is it possible that TSMC now has a near monopoly on the semiconductor industry? Morris explains it best himself: “When I was at TI and General Instruments I saw a lot of integrated circuit designers wanting to leave and set up their own business, but the one thing or the biggest thing that stopped them from leaving those companies was they couldn't raise enough money to form their own company. I saw those people wanting to leave, but being stopped by the lack of ability to raise a lot of money and build a wafer fab [manufacturer].”

With an eye towards the future, sometimes we can create a solution before a problem arises. Sometimes, if you build it, they will come. Morris did.