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Podcasts > Acquired > TSMC (Remastered)

TSMC (Remastered)

By Ben Gilbert and David Rosenthal

In this Acquired episode, the podcast explores the history and impact of TSMC, the world's leading semiconductor foundry. The summary traces TSMC's founding by Morris Chang, a former Texas Instruments executive, who established the company in Taiwan as a pioneer of the pure-play semiconductor manufacturing model.

It examines TSMC's pivotal role in enabling the rise of fabless semiconductor firms like Qualcomm and Nvidia by providing low-cost, high-volume chip manufacturing. The summary also highlights TSMC's technological prowess, from relentless process innovations like their 3-nanometer chips to their concentrated resources fueling industry dominance. Additionally, it discusses the heightened geopolitical importance of TSMC's operations amid Taiwan-China tensions and the concentration of semiconductor manufacturing in this region.

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TSMC (Remastered)

This is a preview of the Shortform summary of the Jan 20, 2025 episode of the Acquired

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TSMC (Remastered)

1-Page Summary

TSMC's Founding and Early History

Morris Chang was born in China in 1931 and immigrated to the US, studying and working at MIT and Texas Instruments. Chang, a leading candidate for CEO at TI, resigned with aspirations to lead a company elsewhere.

Taiwan recruited Chang to establish TSMC as a state-backed, pure-play semiconductor foundry focused solely on manufacturing chips for others. Despite skepticism about this model's viability, TSMC, under Chang's leadership, gained traction and grew to become a global leader.

TSMC's Impact on Fabless Semiconductor Firms

Morris Chang foresaw the rise of the fabless semiconductor sector. Chang strategically positioned TSMC as a dedicated foundry providing low-cost, high-volume manufacturing for fabless chip designers.

This enabled companies like Nvidia, Qualcomm, and Broadcom to innovate efficiently without the costs of manufacturing. As the fabless firms thrived on TSMC's manufacturing platform, TSMC expanded to meet growing demand.

TSMC's Technological Leadership

TSMC leads in advancing semiconductor scaling for better chip performance and efficiency through process innovations like their 3-nanometer chips. Their consistent investments allow customers to target broader markets.

TSMC's dominance stems from a relentless pursuit of excellence and concentration of knowledge and resources. By strategically capitalizing on technology shifts, TSMC has limited rivals' alternatives and solidified its dominance in the semiconductor supply chain.

TSMC's Geopolitical Importance

TSMC's location in Taiwan raises concerns about its role in the global tech ecosystem amid Taiwan-China tensions. China potentially controlling Taiwan could impact TSMC's operations and access.

Though diversifying manufacturing, including a new US plant, TSMC founder Chang believes leading-edge operations should remain in Taiwan. Taiwan's semiconductor concentration makes the region a geopolitical focal point influencing the global technological power balance.

1-Page Summary

Additional Materials

Clarifications

  • A pure-play semiconductor foundry is a company that specializes solely in manufacturing semiconductor chips for other companies. Unlike integrated device manufacturers (IDMs) that design and manufacture their own chips, pure-play foundries like TSMC focus exclusively on the manufacturing aspect, offering services to fabless semiconductor companies that design chips but do not have their own manufacturing facilities. This business model allows fabless firms to innovate without the burden of owning and operating expensive manufacturing plants, enabling them to bring their designs to market more efficiently. By concentrating on manufacturing expertise, pure-play foundries like TSMC can optimize production processes and technologies to meet the diverse needs of their fabless customers.
  • A fabless semiconductor company is one that designs and sells semiconductor chips but does not manufacture them. Instead, they outsource the manufacturing to third-party semiconductor foundries like TSMC. This business model allows fabless companies to focus on innovation and design without the need for costly semiconductor fabrication facilities. Fabless firms benefit from the expertise and economies of scale offered by specialized foundries like TSMC. This model has become popular in the semiconductor industry, enabling companies to bring cutting-edge technology to market efficiently.
  • Semiconductor scaling involves reducing the size of components on a semiconductor chip to enhance performance and efficiency. This process allows for more transistors to be packed into a smaller space, leading to faster and more power-efficient electronic devices. Advancements in semiconductor scaling, like TSMC's 3-nanometer chips, contribute to technological progress by enabling smaller, faster, and more energy-efficient electronic devices. The continuous innovation in semiconductor scaling is crucial for driving improvements in various industries, from consumer electronics to advanced computing systems.
  • In semiconductor manufacturing, the term "3-nanometer chips" refers to the technology node used in producing advanced semiconductor chips. It signifies a significant advancement in chip miniaturization and performance. Companies like TSMC and Samsung have developed processes based on innovative transistor technologies to achieve this node. The term "3 nanometer" does not directly correspond to a specific physical feature size but represents the overall level of miniaturization and technological sophistication in the semiconductor industry.
  • TSMC's location in Taiwan amid tensions with China raises concerns due to the potential impact on TSMC's operations and access if China were to control Taiwan. Taiwan's semiconductor industry concentration makes it a critical geopolitical focal point, influencing the global balance of technological power.

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TSMC (Remastered)

Tsmc's Founding and Early History, Including Founder Morris Chang's Background

Taiwan Semiconductor Manufacturing Company (TSMC) has a storied history marked by the vision and ambition of its founder, Morris Chang. His journey from fledgling student to leading the world's first pure-play semiconductor foundry is a tapestry of resilience and innovation.

Morris Chang's Rise in the Semiconductor Industry

Chang: Born 1931 In China, Fled Wars, Immigrated To US, Studied Mechanical Engineering At Mit, Worked At Texas Instruments

Dr. Morris Chang was born in Ningbo, China, in July 1931. He suffered the tribulations of war throughout his youth, moving from place to place due to the Second Sino-Japanese War and later the Chinese Civil War. By the age of 18, Chang had lived through multiple significant conflicts and had twice fled to Hong Kong for safety.

Seeking a better life, Chang immigrated to the United States, initially entering Harvard but transferring to MIT to study mechanical engineering—a field that seemed more promising for a Chinese immigrant at the time. At MIT, he completed his undergraduate and master's degrees within three years. Desiring an academic career, his twice failing qualifying exams for a Ph.D. pushed him into industry instead.

Chang’s industrious work ethic led to a promotion to VP at Texas Instruments in 1972, running the entire semiconductor business. Despite becoming a leading candidate for CEO at TI, unexpected setbacks eventually prompted him to resign with aspirations of leading a company elsewhere.

Founding Tsmc and Chang's Struggles Establishing Pure-Play Foundry Model

Taiwan Recruited Chang to Establish Tsmc As a State-Backed Semiconductor Company Amid Skepticism of the Pure-Play Foundry Model's Viability

The Taiwanese government, aiming to transform its economy, recruited Chang to spearhead the Industrial Technology Research Institute (ITRI) and then to establish Taiwan as a powerhouse in semiconductor manufacturing. The bold proposition was to create a pure-play foundry—a business solely focused on manufacturing chips for others.

As Taiwan possessed manufacturing capabilities but lagged in R&D, product design, sales, and marketing, this model fit well with its available strengths. Despite skepticism about the viability of the pure-play foundry model, the government's ambition was to elevate its technological standing globally.

Morris Chang was recruited by KT Lee to lead E-Tree and later to start TSMC with the directive of making it a global leader. This decision was contentious as the norm at the time was for semiconductor companies to prod ...

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Tsmc's Founding and Early History, Including Founder Morris Chang's Background

Additional Materials

Clarifications

  • The pure-play foundry model in the semiconductor industry involves companies that solely focus on manufacturing chips for other companies, without engaging in the design of the integrated circuits. This model allows fabless semiconductor companies to avoid the high costs of building and maintaining their own fabrication facilities. Pure-play foundries like TSMC and GlobalFoundries specialize in manufacturing, while fabless companies like AMD and Nvidia focus on designing semiconductor devices. This separation of design and manufacturing operations has become a common practice in the semiconductor industry to optimize efficiency and cost-effectiveness.
  • Overflow production in the semiconductor industry typically refers to manufacturing capacity that is not fully utilized for profitable production but is instead used for excess or emergency production needs. Non-profitable chip manufacturing indicates the production of semiconductor chips that do not generate sufficient revenue to cover the costs of manufacturing, leading to financial losses for the company. These terms highlight the challenges faced by semiconductor companies in managing production capacity and ensuring profitability in a highly competitive and cost-sensitive industry.
  • The Second Sino-Japanese War was a conflict between China and Japan from 1937 to 1945, marked by significant military engagements and atrocities. The Chinese Civil War was a prolonged conflict between the Chinese Nationalist Party (Kuomintang) and the Communist Party of China, lasting from 1927 to 1949. These wars shaped modern Chinese history, leading to the establishment of the People's Republic of China in 1949.
  • The Industrial Technology Research Institute (ITRI) is a prominent technology res ...

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TSMC (Remastered)

Impact of Tsmc's Pure-Play Foundry Model on Fabless Semiconductor Firms

The growth of TSMC and its foundry model has had a substantial impact on the fabless semiconductor industry, enabling companies to focus on chip design without the massive capital investments traditionally required for chip manufacturing.

Tsmc's Strategy: Low-cost, High-Volume Manufacturing for Fabless Chip Companies

Morris Chang, who almost ran Texas Instruments and stood at the helm of TSMC's growth, played a pivotal role in the expansion of the fabless semiconductor industry. He foresaw the rise of the fabless sector, realizing that integrated circuit designers aspired to launch their own businesses but were hindered by the cost of setting up manufacturing plants. Chang leveraged this trend by adopting the pure-play foundry model, which targeted these fabless companies needing a dependable manufacturing partner. His approach was to serve as a dedicated foundry that provided high-volume, low-cost manufacturing services, thereby positioning TSMC as a key manufacturing platform for the emerging fabless firms.

Tsmc's Symbiotic Relationship With Fabless Semiconductor Companies

This strategic move by Chang led to a symbiotic relationship between TSMC and the fabless semiconductor companies. TSMC's capabilities allowed these design-focused companies—like Nvidia, Qualcomm, and Broadcom—to innovate efficiently without bearing the high costs typically associated with semiconductor manufacturing. As a result, companies could significantly cut capital requirements and speed up progress in the semiconductor space.

It's evident that TSMC manufactures the essential chips for powerhouse products like every MacBook and iPhone shipped today. TSMC produces for industry giants such as Qualcomm, AMD, and the AI giant Nvidia. Nvidia, which was catapulted into the top 20 stocks worldwide, benefited immensely from TSMC's manufacturing prowess.

Chang's vision fostered an entrepreneurial environment, where companies like Nvidia could start with minimal investment—Nvidia began in 1993 with only $20 million raised and has never opened its own fab. TSMC's role was not just to manufacture but also to empower these startups, which relied exclusively on TSMC for their production needs.

The dynamic between fabless companies and TSMC demonstrates a flywheel effect: as the fa ...

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Impact of Tsmc's Pure-Play Foundry Model on Fabless Semiconductor Firms

Additional Materials

Counterarguments

  • The pure-play foundry model may lead to over-reliance on a single manufacturer, potentially creating supply chain vulnerabilities.
  • TSMC's dominance could stifle competition within the semiconductor manufacturing industry, possibly leading to less innovation and higher prices in the long term.
  • The high concentration of manufacturing in one company could pose geopolitical risks, especially given TSMC's location in Taiwan, a region with complex political tensions.
  • Fabless companies might face challenges in protecting their intellectual property when outsourcing to a third-party manufacturer like TSMC.
  • The flywheel effect assumes continuous growth and demand, which may not account for market saturation or economic downturns that could disrupt the semiconductor industry.
  • TSMC's expansion to accommodate evolving needs may not be sustainable or environmentally friendly, raising concerns about the long-term impact of semicond ...

Actionables

  • Explore the potential of a fabless business model by sketching out a hypothetical tech startup. Imagine you're creating a company that designs innovative chips. Outline the types of chips you'd design, the markets you'd target, and how you'd leverage a foundry like TSMC to handle manufacturing. This exercise can help you understand the ecosystem and identify potential business opportunities or investments.
  • Educate yourself on the basics of Electronic Design Automation (EDA) software through free online resources or tutorials. While you might not be designing chips yourself, gaining a foundational understanding of EDA can provide insights into the complexities of chip design and the value of fabless companies outsourcing manufacturing to specialized foundries.
  • Consider the impact of semiconductor technology on ...

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In this guide, we’ll explore the founding of the chip industry in the US, the emergence of Japan and Taiwan as major centers of chip design and manufacturing, and the rise of China as a new geopolitical rival in the global semiconductor competition—sparking concerns among Western firms and governments as national security interests became intertwined in the chip industry.

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Shortform Explainers

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TSMC (Remastered)

Tsmc's Technological Leadership and Dominance in Semiconductor Manufacturing

TSMC's rise to technological leadership and financial success in the semiconductor industry is a tale of strategic vision, consistent innovation, and aggressive investments.

Tsmc's Investments in Process Technology and Manufacturing Innovation

Advancing Semiconductor Scaling for Better Chip Performance and Efficiency

TSMC, renowned for its astonishing 40% operating margins, leads in advancing semiconductor scaling, enhancing chip performance and efficiency. They've made a name for themselves by manufacturing superior chips with smaller wavelengths and moving forward with process technology like the acclaimed 3-nanometer chips. Their investments allow customers to target broader market segments with ever more efficient use cases. Their five-nanometer process, which has become more a marketing term than a precise measurement, plays a pivotal role in performance improvement—not just from size reduction but also from technological advancements beyond the physical limits of transistor gate length.

TSMC's prowess in process advancement, highlighted in discussions of their 5-nanometer process, has been critical in the development of high-performance electronics and cutting-edge applications like AI and cloud computing. This capability is underscored by the expectation that they will lead with the imminent 3-nanometer process, potentially becoming the sole company to achieve this.

Tsmc's Unassailable Position as World's Leading Semiconductor Foundry

TSMC’s dominance is a testament to their relentless pursuit of excellence and concentration of knowledge and resources. They were strategic, starting behind in technology around the rise of mobile in 2009 but catching up in about ten years. Morris Chang, TSMC's founder, saw the shift in the market towards ARM-based computing devices and capitalized on it.

With each new wave of technology—be it machine learning, crypto, or 5G—TSMC is inevitably the enabler. Their simple-but-complex manufacturing execution and semiconductor alchemy have kept rivals at bay, limiting other chip companies' alternatives. TSMC’s unparalleled capital and expertise ensure they remain at the forefront, with Intel's plans to outsource chip manufacturing to TSMC serving to underscore TSMC’s dominance.

Contributing to TSMC's position is the increase in the necessary capital expenditure to compete, which requires substantial profitability. TSMC has met this demand head-on with massive financial infusions, including a dedicated $9 billion plant built for Apple in just 11 months with 6,000 employees.

Tsmc's Dominance in the Global Semiconductor Supply Chain

...

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Tsmc's Technological Leadership and Dominance in Semiconductor Manufacturing

Additional Materials

Clarifications

  • Semiconductor scaling involves reducing the size of components on a chip, leading to improved performance and efficiency. As components shrink, electrons have shorter distances to travel, enhancing speed and reducing power consumption. This scaling trend enables the creation of more powerful and energy-efficient electronic devices.
  • The terms "3-nanometer" and "5-nanometer" chips denote the manufacturing process technology used to create semiconductor chips. Smaller nanometer values indicate more advanced technology, allowing for more transistors to be packed into a smaller space, leading to improved performance and energy efficiency. These advancements are crucial for developing high-performance electronics like smartphones, AI systems, and cloud computing infrastructure. TSMC's leadership in producing these advanced chips signifies their technological prowess and ability to drive innovation in the semiconductor industry.
  • TSMC, or Taiwan Semiconductor Manufacturing Company, is a key player in the semiconductor industry, specializing in manufacturing chips for various tech devices. Their dominance stems from their focus on cutting-edge process technology, enabling them to produce advanced chips for a wide range of applications. TSMC's strategic investments in research, development, and manufacturing facilities have solidified their position as a leading semiconductor foundry globally. Their role extends beyond manufacturing capacity, as they play a crucial part in driving technological advancements and innovation in the semiconductor supply chain.
  • TSMC strategically positions itself by investing heavily in cutting-edge technology, such as semiconductor scaling and process advancements like 3-nanometer chips. These investments enable TSMC to lead in chip performance and efficiency, catering to diverse market segments. By staying ahead in technological innovation, TSMC solidifies its dominance in the semiconductor industry and maintains a competitive edge over rivals.
  • TSMC and Intel are both major players in the semiconductor industry, but they operate differently. While Intel traditionally designed and manufactured its own chips, i ...

Counterarguments

  • TSMC's leadership in semiconductor scaling is challenged by emerging competitors and geopolitical risks that could disrupt their supply chain or market position.
  • Investments in cutting-edge process technologies like 3-nanometer chips carry significant financial risk and may not always yield proportional returns due to the complexities and costs of advanced semiconductor manufacturing.
  • The 5-nanometer process, while pivotal, is part of an industry-wide trend, and other companies are also working on similar or alternative advanced technologies that could compete with TSMC's offerings.
  • TSMC's expected leadership in the 3-nanometer process is not guaranteed, as competitors like Samsung are also aggressively pursuing advanced manufacturing processes.
  • TSMC's catch-up in technology since 2009 may not predict future success, as the semiconductor industry is subject to rapid changes and innovation from other players.
  • The focus on ARM-based computing devices was a strategic move, but it also represents a dependency on a specific architecture that may face competition from other architectures in the future.
  • While TSMC enables new technologies, it is not the sole enabler, as other foundries and integrated device manufacturers contribute to the advancement of technologies like machine learning, crypto, and 5G.
  • TSMC's manufacturing execution and expertise, although currently superior, must continuously evolve to prevent rivals from closing the gap.
  • Intel's plans to outsource chip manufacturing to TSMC could change, as Intel has announced its own ambitions to revitalize its manufacturing capabilities and regain market leadership.
  • The massive financial infusions required for advanced semiconductor manufacturing could lead to vulnerabilities if market conditions change or if investments do not perform as expected.
  • The rapid construction of a $9 billion plant for Apple, while impressive, may not be indicative of sustainable or repeatable business practices, especially in different economic or logistical contexts.
  • TSMC's continual reinvestment strategy, while successful so far, may face diminishing returns as the cost of ...

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Chris Miller

In Chip War, economic historian Chris Miller explores the rise of the semiconductor industry. Through his analysis and recounting of this history, Miller shows how semiconductor chips became the delivery mechanism for the binary code that powers our digital world—from personal computers to household appliances to advanced weapons systems. As Miller writes, chips have become a linchpin of geopolitical power and a resource that powerful actors, from entrepreneurs to national security strategists and politicians, have sought to control.

In this guide, we’ll explore the founding of the chip industry in the US, the emergence of Japan and Taiwan as major centers of chip design and manufacturing, and the rise of China as a new geopolitical rival in the global semiconductor competition—sparking concerns among Western firms and governments as national security interests became intertwined in the chip industry.

Throughout the guide, we’ll supplement Miller’s analysis with insights from other experts and analysts.

Can the US Bring Semiconductors Under Its Control?
Shortform Explainers

Supply chain and geopolitics lead many to believe that the US cannot continue to depend on Taiwan for the timely production and delivery of semiconductors. The US has fallen behind in its leadership of the chip industry because Asian countries have invested more in incentivizing the industry through tax policy. The recently passed CHIPS (Creating Helpful Incentives to Produce Semiconductors and Science) Act seeks to reverse that trend with a $52 billion investment.

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So you can understand the full picture and form your own opinion.
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TSMC (Remastered)

Tsmc's Geopolitical and Strategic Importance in Taiwan

TSMC faces geopolitical risks due to its location in Taiwan, a region at the center of a complex international debate. The podcast emphasizes TSMC's inextricable link to Taiwan's sovereignty and the broader implications on the global technology ecosystem.

Tsmc's Vulnerability Amid Taiwan-China Tensions

China's Control Over Taiwan Raises Concerns About Tsmc's Vital Role in the Global Technology Ecosystem

The podcast brings to light the concerns surrounding TSMC's strategic position in the global technology ecosystem against the backdrop of Taiwan-China tensions. Ben Gilbert discusses the likelihood of China taking action to assert control over Taiwan, which could have far-reaching effects on TSMC. David Rosenthal elaborates on the repercussions of China annexing Taiwan or asserting claimed sovereignty. Should Chinese control materialize, TSMC's manufacturing might cater primarily to Chinese firms, such as Huawei. This underscores the crucial role of TSMC in the global technology supply chain and the potential risks involved.

The potential loss of access to TSMC’s leading-edge chip manufacturing would significantly hamper technological progress across the world, as it's vital to numerous critical industries.

Reducing Reliance on Tsmc and Diversifying Semiconductor Manufacturing

Though the podcast does not directly address initiatives to reduce dependence on TSMC or diversify semiconductor manufacturing, it does touch on the actions TSMC is taking in response to geopolitical pressures. For instance, TSMC is investing $12 billion to establish a plant in Arizona, although it will not feature their most advanced manufacturing technology. The United States is subsidizing this new plant, reflecting a strategic initiative to relocate some semiconductor manufacturing to U.S. soil.

Morris Chang, TSMC's founder, has commented that from a business perspective, it does not make sense to have leading-edge operations outside of Taiwan, despite other countries' interest. This statement is in the context of TSMC's ongoing attempts at diversification, which include operations in China.

Taiwan's Independence and Tsmc: Strategic Tech and Economic I ...

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Tsmc's Geopolitical and Strategic Importance in Taiwan

Additional Materials

Counterarguments

  • TSMC's investment in Arizona could be seen as a strategic move to mitigate geopolitical risks, rather than a reduction in reliance on Taiwan.
  • The idea that leading-edge operations should remain in Taiwan may overlook the potential benefits of geographic diversification for business continuity and risk management.
  • While Taiwan is a significant player in semiconductor manufacturing, it is not the only focal point for global semiconductor supply, as other countries are also investing in semiconductor manufacturing capabilities.
  • The feasibility and practicality of airlifting TSMC's operations out of Taiwan could be questioned, as the logistics and intellectual property challenges might be insurmountable.
  • The assumption that China's control over Taiwan would necessarily lead to TSMC catering primarily to Chinese firms does not consider the possibility of international agreements or business strategies that could maintain a diverse client base.
  • The impact o ...

Actionables

  • Diversify your tech investments to mitigate geopolitical risks. By spreading your investments across companies and countries, you reduce the impact of any single geopolitical event on your portfolio. For instance, if you own tech stocks or funds, consider adding companies from different regions and those with varied supply chain strategies to balance out the risk associated with any one company, like TSMC, being affected by geopolitical tensions.
  • Support and use technology from a variety of sources. When buying electronics, look for brands that source their components from multiple suppliers, not just major ones like TSMC. This not only encourages a more resilient tech ecosystem but also reduces the potential personal impact of supply chain disruptions. For example, when purchasing a new smartphone, research the manufacturer's supply chain to ensure they're not solely dependent on one region or company for critical components.
  • Educate yourself on the origins of your te ...

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Chris Miller

In Chip War, economic historian Chris Miller explores the rise of the semiconductor industry. Through his analysis and recounting of this history, Miller shows how semiconductor chips became the delivery mechanism for the binary code that powers our digital world—from personal computers to household appliances to advanced weapons systems. As Miller writes, chips have become a linchpin of geopolitical power and a resource that powerful actors, from entrepreneurs to national security strategists and politicians, have sought to control.

In this guide, we’ll explore the founding of the chip industry in the US, the emergence of Japan and Taiwan as major centers of chip design and manufacturing, and the rise of China as a new geopolitical rival in the global semiconductor competition—sparking concerns among Western firms and governments as national security interests became intertwined in the chip industry.

Throughout the guide, we’ll supplement Miller’s analysis with insights from other experts and analysts.

Can the US Bring Semiconductors Under Its Control?
Shortform Explainers

Supply chain and geopolitics lead many to believe that the US cannot continue to depend on Taiwan for the timely production and delivery of semiconductors. The US has fallen behind in its leadership of the chip industry because Asian countries have invested more in incentivizing the industry through tax policy. The recently passed CHIPS (Creating Helpful Incentives to Produce Semiconductors and Science) Act seeks to reverse that trend with a $52 billion investment.

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