Semiconductor Market 'Paradigm' Changed by 'Super Eul' TSMC [Hidden Industry Story]

Maurice Chang, Head of Taiwan Industrial Technology Research Institute
Founded TSMC at Age 56
Devised 'Pure Foundry' Model in the Era of Integrated Semiconductor Companies
Led Formation of Modern Global Semiconductor Division of Labor System

TSMC logo. / Photo by Yonhap News

[Asia Economy Reporter Lim Juhyung] The semiconductor industry is highly advanced in global division of labor, centered around 'fabless' companies that focus on design and foundries specialized in contract manufacturing. Among them, the company 'TSMC,' recognized today as the world's largest foundry, is not only the pride of Taiwan's semiconductor industry but also solidifies its position as a so-called 'super subcontractor' in the global semiconductor market.

TSMC is the world's largest foundry and also the first foundry in the world. This is because Morris Chang, the founder and former chairman who established TSMC, was the first to devise the foundry business model. Known by the nickname "Father of Taiwan's Semiconductor Industry," how did Chang build TSMC into the world's largest foundry company?

◆From U.S. Semiconductor Engineer to Taiwan Research Institute Director

Morris Chang was born in 1931 in Ningbo City, Zhejiang Province, China. Chang's family fled from the Chinese Civil War and the Second Sino-Japanese War, moving through Chinese cities such as Nanjing and Guangzhou before finally settling in the United States. Originally named Zhang Zhongmao, Chang was called Morris, an unfamiliar English name.

Chang entered Harvard University in 1949 and from 1952 to 1953 earned a bachelor's and master's degree in mechanical engineering from the Massachusetts Institute of Technology (MIT), then entered the semiconductor industry.

Chang joined Texas Instruments (TI), a major U.S. semiconductor company at the time, as an engineer and rose to the position of vice president of the entire group by 1978. In 1983, he moved to the electronics company General Instruments, where he was in charge of research and development (R&D).

Already a respected engineer in the U.S., Chang left America at age 54 in 1985 and headed to Taiwan. At that time, the Taiwanese government was seeking someone to lead the Industrial Technology Research Institute (ITRI) to foster advanced industries, and they offered the position to Chang. He accepted the Taiwanese government's request and took on the role of ITRI director, tasked with researching Taiwan's future industries.

Morris Chang, Founder and Former Chairman of TSMC / Photo by Yonhap News

◆Founding the World's First 'Pure Foundry' TSMC

In 1987, at age 56, Chang founded TSMC. The reason for founding the company was to strengthen Taiwan's national competitiveness by fostering the advanced semiconductor industry.

Based on his long experience as a semiconductor engineer in the U.S., Chang devised a new business model called the 'foundry,' and TSMC was the first company in the world to apply this business model.

At that time, the global semiconductor industry was dominated by integrated device manufacturers (IDMs) such as IBM and TI in the U.S. and Toshiba in Japan. IDMs are companies that handle both semiconductor design and manufacturing.

The semiconductor industry, dealing with circuits at the nanometer scale, is very demanding in both design and production. Design requires excellent engineering talent and R&D, while production requires astronomical capital and know-how to build and manage semiconductor manufacturing facilities and factories. IDMs used their massive scale to pressure smaller fabless companies for technology transfer and hindered competition.

At this time, Chang conceived the pure foundry concept, which does not compete with design companies but focuses solely on contract manufacturing. Small fabless companies could place semiconductor orders with TSMC, establishing a stable business environment, and TSMC was able to grow rapidly.

Subsequently, fabless companies such as Broadcom, Marvell, and Nvidia, which focus solely on semiconductor design, emerged, and TSMC took on their contract manufacturing, establishing itself as an indispensable 'super subcontractor' in the semiconductor industry. It became the company leading the global semiconductor division of labor between design and manufacturing.

Taiwan TSMC Wafer Factory / Photo by Yonhap News

◆Saving the Company from Crisis at Age 74 with a Frail Body

Chang retired in 2005 at age 74. However, just four years later, when TSMC faced a crisis due to the global financial crisis triggered by the subprime mortgage crisis, he returned to the front lines of management despite his frail health. After returning as chairman, Chang first reinstated laid-off skilled employees and aggressively expanded investments.

Unlike other executives who predicted the financial crisis aftermath would continue, he forecasted that demand in the semiconductor industry would recover.

Chang's aggressive investment strategy quickly paid off. TSMC's 2010 revenue rebounded, recording 419.5 billion Taiwan dollars (approximately 16.264 trillion Korean won), a 41.95% increase from the previous year.

◆"TSMC's Success Secret Lies in Its Partners"

Last year, TSMC recorded its highest-ever revenue of 1.07 trillion Taiwan dollars (approximately 41 trillion Korean won). According to semiconductor market research firm TrendForce, as of the fourth quarter of the same year, TSMC's global foundry market share was 52.7%, overwhelmingly leading second-place Samsung Electronics (17.8%).

What is the secret to TSMC's success? Five days after announcing his retirement, on October 7, 2017, Chang emphasized in an interview with the Japanese media outlet Nikkei Asia Review, "TSMC does not create its own brand or sell products directly."

According to Chang, TSMC's company motto, from its founding to the present, has been "Do not compete with customers." Instead, building strong trust relationships with partners who have high chances of success is the most critical factor in growing the company.

Chang said, "Why has TSMC been successful so far? Because it has always discovered the right partners. In the era of graphics, it did business with Nvidia; in the era of mobile phones, with companies like Apple and Qualcomm," he emphasized.