The Silicon Architect: How Morris Chang's Fusion of Culture and Strategy Redefined the Tech World

In a World Where 'Culture Eats Strategy for Breakfast,' Morris Chang's TSMC Rises to Number One, Merging Strategic Brilliance with a Thriving Company Culture

While the official figures are still to be confirmed, it seems more and more likely that TSCM just became the #1 semiconductor company in the world.

TSMC does not design its own chips. Instead, it builds the chips with extremely advanced manufacturing technology, according to the design of fabless companies such as AMD, Apple, ARM, Broadcom, Marvell, MediaTek, Qualcomm and Nvidia. While Apple is the largest customer, TSMC is also benefiting from the spectacular growth of Nvidia, a dominant global designer and supplier of AI chips, serving the booming AI market, having OpenAI, Microsoft, Alphabet and Meta as customers.

The boom of AI and the fact that foundries are less vulnerable to market fluctuations due to their customized production explain why TSMC decreased its revenues less than Samsung or Intel during the 2023 recession, leading to the #1 position.

In fact, TSMC created the foundry business and has currently "approximately 57% share of the market, controlling about 80% of high-end AI chip market, a position that has sent its stock market value up 40% so far this year to $1.73 trillion after it more than tripled in 2023.”

How was this possible? The answer is intrinsically linked to Morris Chang's story of entrepreneurship and strategy.

Morris Chang

This success is the result of a strategy designed and executed by Morris Chang, the founder and former CEO of Taiwan Semiconductor Manufacturing Company (TSMC).

Born in Ningbo, China, in 1931, Chang's journey is not just a tale of personal achievement but a chronicle of how a visionary transformed the semiconductor industry.

Educated at the MIT, Chang obtained bachelor's and master's degrees in mechanical engineering in 1952 and 1953 but failed two consecutive doctoral qualification examinations and eventually left MIT without obtaining a PhD.

This failure propelled Chang into the job market. He initiated his journey in the semiconductor world at Sylvania Semiconductor, moving to Texas Instruments three years later, where he reached the position of VP for TI’s worldwide semiconductor business.

But not everything worked out as expected. In another surprising shift in his career, and after 6 years successfully running the semiconductor business, he got transferred to lead the struggling consumer business and got demoted into a staff role, ending up with his resignation from TI in 1983 when he was 52.

However, it was his return to Taiwan that marked the start of a shift in how the world approached semiconductor manufacturing.

Taiwan Semiconductor Manufacturing Company

Upon an invitation from the government of Taiwan to help modernize the island’s technology by creating a semiconductor industry, he founded the Taiwan Semiconductor Manufacturing Company (TSMC).

He did so, upon identifying that Taiwan had no R&D, no IP and no chip design capabilities, yet a significant strength in manufacturing. So, he decided to introduce the foundry model, a radical idea at the time, focusing solely on manufacturing chips designed by other companies.

This decision, seemingly simple, was revolutionary. Under Chang's leadership, TSMC became the world's first dedicated semiconductor foundry, transforming to this day the industry's dynamics.

Even as the semiconductor industry evolved with dizzying speed and complexity, TSMC stuck to its core strategy, continuously refining and advancing its manufacturing processes, contributing to a wave of innovation in chip design, enabling smaller players to enter the market without the prohibitive cost or the time to building their own fabs.

But the journey wasn't without challenges. It started with Chang being able to initiate the business with money from the Taiwanese government and support from the Industrial Technology Research Institute, the first semiconductor company in Taiwan, but with only Philips as a flagship private investor with no more than 7% of the $220 million initial investment. Over time TSMC had to constantly stay ahead in a fiercely competitive and capital-intensive industry.

Under Chang's stewardship, TSMC not only navigated these challenges but thrived, investing heavily in research and development. This investment paid off spectacularly, with TSMC consistently leading the way in advanced semiconductor manufacturing processes.

Obviously, this is the result of a strategy that was as well designed as was executed. But this success is only possible when combining strategy with the right business culture, as was the case.

In an interview in March 2023, Morris Chang explained this well, referring to a quote from Jensen Huang, CEO of Nvidia about Intel's re-entry into the foundries business: "TSMC has learned to dance with 400 partners. Intel has always danced alone. I really like your comments that TSMC's success is not by doing things on their own, but by embedding themselves very deeply in the international supply chain."

This required once again a well-oiled strategy and culture. Despite the criticism that TSMC was just a contractor, TSMC further executed the plan with the slogan “We don’t compete with our customers.” As time went by, TSMC accumulated technology and built trust and intellectual property protection with customers. And never stopped growing.

The future

My crystal ball is broken, so I can't see the future as clearly as I would like. But what we see, particularly in the last year and a half, is that TSCM, with new actors at the helm, is not standing still.

With simultaneous plans in USA, Japan and Germany, totaling $63,5 billion, TSMC is investing more than the entire US funding via the Chips and Science Act. Yet, this is only a portion of the total $210 billion Taiwan IC suppliers are to invest over 5 years.

The company's investment in the U.S. is particularly noteworthy due to the substantial financial commitment and the potential impact on the American semiconductor sector. In a notable development from December 2022, TSMC unveiled plans to increase its investment in Arizona from an initial $12 billion to an impressive $40 billion. This expansion is set to include facilities capable of producing 3-nanometer chips.

In Europe, TSMC's strategy is tailored to the specific requirements of the German automotive industry, which shows a preference for less advanced semiconductor technology. The company is entering into a joint investment with Bosch, Infineon, and NXP. This collaboration is set to drive the total investment well beyond €10 billion, with TSMC taking the lead in operating the facility, expected to be fully operational by 2027.

In Japan. TSMC announced plans to establish a second chip factory in Japan, thereby increasing its total investment in the country to $20 billion.

But are strategy and culture still aligned?

However, despite all these investments, it is not clear that in this phase of the company's expansion, strategy and culture are completely aligned. In the same interview mentioned above, Chang said that in semiconductors, globalization is dead, alluding to the fact that “China still lags 6 years behind Taiwan”.

And then with a provocative example, according to which "If a piece of equipment breaks down at one o'clock in the morning, then in the US, it will be fixed by nine. In Taiwan, however, it will be fixed at two a.m.". Of course, this is not true today, but the main message is very clear.

To this I add the news that TSMC has encountered challenges in launching its Arizona operations, reporting difficulties in recruiting sufficiently skilled workers for its plants. This obstacle has led to a delay in the commencement of mass production, now rescheduled for 2025.

Perhaps one the reasons for this investment is to re-capture global investment, sometime after Warren Buffet divested billions from TSMC although praising it for being “one of the best-managed companies and important companies in the world” and claiming “there's no one in the chip industry that's in their league”. The reason? “I don’t like its location”, he said.

At the same time, and despite all these investments abroad, it seems their most advanced production, the 2nm, will likely remain in Taiwan. Whether this is because TSMC remains the “sacred mountain” or “silicon shield” that protects the country from China, or because they could not yet find a second place where strategy and culture are aligned, we still need to find out.

With all these data points, it is not at all clear that strategy and culture are properly aligned in this new phase of the company's investments. On the other hand, times seem to be different now, and it looks like TSMC is preparing for a more uncertain future, especially when it comes to geostrategy.

But for now, the TSMC and Morris Chang’s stories are an inspiration and serve as a powerful reminder to all companies, regardless of industry, that the ones who are able to preserve the value of clarity and consistency in strategy and culture will win.

?