Morris Chang: The semiconductor industry cannot stand still

Source: Content from China Business Network, thank you.

Where are the limits of Moore's Law?

In the view of TSMC founder Morris Chang, Moore's Law has actually long been no longer applicable in the semiconductor industry.

"Because the original definition is that transistor density will double every 18 to 24 months, but we have been developing semiconductor processes at a speed much faster than Moore's Law, and will double transistor density faster than Moore's Law and maintain it until at least 2025." On October 23, at TSMC's 30th anniversary forum, Morris Chang said this.

The 8-hour event attracted a number of bigwigs nicknamed "global AI arms dealers" including Apple COO Jeff Williams, NVIDIA CEO Huang Renxun, Qualcomm CEO Steve Mollenkopf, ADI (Analog Devices Appoints) CEO Vincent Roche, ARM CEO Simon Segars, etc. The 86-year-old Morris Chang, with his full head of white hair, personally served as the host and enthusiastically invited everyone to listen to the symphony - his favorite Beethoven's "Ninth Symphony". The majestic movement is perhaps the best portrayal of Morris Chang and TSMC's 30-year development.

Just over half a month ago, the godfather of Taiwan's semiconductor industry announced that he would retire in June next year, when Chairman Liu Deyin and President Wei Zhejia would take over TSMC. He stressed that he would not work for TSMC in the future.

Morris Chang, who founded TSMC and made it one of the world's largest semiconductor companies by market value, is undoubtedly the soul and spiritual leader of this company. However, this is not the first time that Morris Chang has announced his retirement. The global semiconductor industry has undergone drastic changes in recent years, and Taiwan's semiconductor industry advantages have also been gradually reduced. As the synonym of Taiwan's semiconductors, where will the fate of TSMC, an industry giant, go in the future? What changes will Morris Chang's retirement bring to TSMC?

Zhang Zhongmou was born in Ningbo, Zhejiang in 1931. He entered Harvard University at the age of 18 and was the only Chinese among more than 1,000 freshmen. Zhang Zhongmou later transferred to the Massachusetts Institute of Technology and obtained a master's degree in mechanical engineering and a doctorate in electrical engineering from Stanford University.

In 1955, 24-year-old Morris Chang entered the semiconductor industry at the same time as Moore, the pioneer of semiconductors and founder of Intel, and has been involved in the industry ever since. At that time, the newly emerging semiconductor industry itself was only 3 years old.

Interestingly, for such an important figure, what initially prompted him to choose to enter the semiconductor industry was the "rebellion" caused by a one-dollar difference in salary.

After graduating from MIT with a master's degree, Morris Chang began looking for a job and finally chose between Ford Motor and Sylvania Semiconductor. As a graduate of the Department of Mechanical Engineering, he had a suitable major and good pay, so it seemed reasonable for him to choose Ford; but Sylvania Semiconductor offered him one dollar more pay than Ford.

Morris Chang believed that he was better at Ford's work and deserved a higher monthly salary. So he tried to negotiate with Ford about his salary. In his autobiography, Morris Chang recalled the negotiation with the other party: "I respectfully said that I really wanted to come to Ford, but the monthly salary of another company was higher than Ford's. Could you please consider raising my starting salary?" As a result, the HR specialist who had been chatting and laughing with him during the interview was particularly indifferent: "If you want to come, come. If you don't want to come, it's up to you." The young and energetic Morris Chang was angry and unwilling to admit defeat. He reflected on himself, "Am I unwilling to take the risk of going to Sylvania to do something I am not sure of?"

Looking back, Morris Chang once lamented: "The turning points in life are sometimes so unexpected! A short phone call, coupled with the impulsive feelings of youth, actually brought me a lifelong bond with semiconductors!"

Later, Morris Chang joined Texas Instruments twice, becoming the first Chinese to enter the top management of a large American company. In 1986, Morris Chang returned to Taiwan and founded the world's first foundry company, Taiwan Semiconductor Manufacturing Company (TSMC).

Prior to this, the global semiconductor industry adopted the IDM (Integrated Device Manufacture) model. Typical IDM manufacturers include Intel, Samsung, TI (Texas Instruments), ST (STMicroelectronics), etc. They are vertically integrated semiconductor companies that design, manufacture, package and test, and sell their own brand ICs. Morris Chang pioneered the foundry model, "My company does not produce its own products, but only manufactures products for semiconductor design companies." This model was not favored in that era, and there were no independent semiconductor design companies at that time.

However, precisely because of this, after TSMC got on the right track, fabless IC design companies continued to emerge, giving rise to a number of well-known semiconductor design companies such as Qualcomm, Nvidia, MediaTek, and Broadcom.

Therefore, the emergence of the foundry model founded by Morris Chang not only promoted the development of the entire wafer foundry industry, but also created many chip design companies such as NVIDIA. Unlike ordinary labor-intensive manufacturing industries, the semiconductor manufacturing industry is a capital and technology-intensive industry. Not only do factories need to be built, but also a large amount of money needs to be invested in purchasing equipment and raw materials. Therefore, the emergence of the foundry model allows new players entering the semiconductor industry to specialize in design business without investing in factory manufacturing, and also establishes a threshold for the industry.

Michael Porter, a famous management professor at Harvard University, once summarized Morris Chang’s business model innovation: “TSMC not only created its own industry (semiconductor manufacturing foundry industry), but also created its customers’ industry (semiconductor design industry).”

Nvidia founder and CEO Jensen Huang was invited to attend TSMC's 30th anniversary celebration. He regards Morris Chang as his benefactor and says, "If it weren't for TSMC, I would just be the boss of a small company."

Morris Chang also recalled his first contact with Huang Renxun with a smile. At that time, Nvidia was just a venture capital company in the United States with a revenue of only about 27 million US dollars. One day, he received a letter from Huang Renxun, asking TSMC to help manufacture semiconductors. When he called Huang Renxun to introduce himself, he found that the voice on the other end of the phone was very noisy. "I heard Huang Renxun say, 'Quiet, Morris Chang called me'". Since reaching a cooperation with TSMC, Nvidia has grown by more than 70% every year.

Nowadays, foundry is becoming more and more mainstream, and only a few companies such as Samsung and Intel still take charge of designing and manufacturing chips.

Morris Chang has the spirit of facing challenges head-on. As long as he does something, he will strive to be the best. He has great ambitions but is also willing to be down-to-earth. He has always emphasized the need to build a world-class company, and understands that if semiconductor companies want to prosper in the long term, they can only do so by becoming world-class.

This may be related to his growth experience: he was born and raised in mainland China, experienced the turmoil and hustle and bustle of the war, later studied and worked in the West, and finally returned to Taiwan, China to start a business. He has the calmness to deal with complex environments and the foresight to look at the world.

As early as 1999, Morris Chang proposed the strategies that Taiwan's semiconductor industry should adopt in a book discussing the economic and industrial situation in Taiwan: including targeting the world market and adopting world-class business practices.

He pointed out that international trade in semiconductors is very smooth, the market has lost national boundaries, the market and competition are international, and every semiconductor company should target the world market, adopt world-class management methods, and recognize that the flow of senior talent in the semiconductor industry has also become globalized.

When TSMC was first established, in order to get more orders, Morris Chang used his personal connections to invite his old friend, Andy Grove, the newly appointed president of Intel, to Taiwan to certify TSMC. During the initial inspection, Grove found that TSMC's products had as many as 200 defects, but under the high standards and world standards insisted by Morris Chang, through continuous improvement and adjustment, the team finally obtained Intel's certification and took its orders.

In 2002, TSMC became one of the top ten semiconductor companies in the world in terms of revenue for the first time; in 2010, it entered the top three in terms of revenue. Until March 21 this year, Intel's market value fell to around US$165 billion, while TSMC, benefiting from the good development of the mobile market, saw its stock price rise all the way, and its market value surpassed chip giant Intel for the first time that day.

At this point, TSMC’s position as a semiconductor giant in the industry has been completely established.

As of press time on October 24, TSMC's market value in the United States has risen by 47.05% from the beginning of the year to US$213.7 billion, 11.4% higher than Intel's US$191.9 billion. If Samsung is not counted as a pure semiconductor company, TSMC is already the world's largest semiconductor company.

It can be said that the dream that Morris Chang had when he first founded the company has been realized.

The development of any enterprise will not always be smooth sailing. In 2005, when TSMC was at its peak, Morris Chang handed over the CEO position to Rick Tsai, who was the successor selected after rotation training. However, in early 2009, the financial crisis hit, and TSMC had a labor dispute. Morris Chang, who had originally retreated to the second line, had to remove Rick Tsai, who he had trained, and resumed the position of CEO of TSMC. This move directly triggered internal shocks at TSMC, and foreign capital also frantically sold TSMC stocks.

When recalling the situation back then, a TSMC employee told the First Financial reporter that the focus during the Tsai Lik-shing era was on cost. "That was the worst time for TSMC. I happened to have lived through it. That's where the importance of the CEO comes from. He created an atmosphere and organizational culture for the company. Tsai Lik-shing emphasized cost every day, how you should manage your expenses, and what you should do to help the boss is how to do more with fewer people." He believes that focusing on cost is only suitable for factories, not business thinking.

"Morris' (Zhang Zhongmou) leadership style has its own charm. It is strong and aggressive. The previous CEO was far from that level and was more conservative. But in the semiconductor industry, you have to keep moving forward. The CEO's strategy has a great impact on the company." The employee commented.

Unlike the negative and conservative industry atmosphere at the time, Morris Chang, who wanted to build a world-class company, significantly increased capital expenditure as soon as he returned. On the one hand, he expanded new factories, but more importantly, he accelerated the research and development of new technologies.

Since 2009, TSMC's revenue, market value, net profit and capital expenditure have all increased significantly. A reporter from China Business News checked TSMC's financial reports over the years and found that in 2009, TSMC's operating income was NT$309.66 billion, which rose to NT$506.75 billion in 2016. In 2009, TSMC's R&D investment was NT$21.6 billion. The second year after Morris Chang returned, it rose to NT$29.7 billion. In 2016, it was NT$71.2 billion, an increase of 229.6% in 7 years. The capital expenditure in 2009 was US$2.67 billion. After Morris Chang returned in 2010, the capital expenditure immediately doubled to US$5.94 billion. By 2016, the figure was US$10.19 billion, an increase of 281.6% in 7 years. TSMC expects capital expenditure to continue to increase in 2017, reaching US$10.8 billion.

At that time, Morris Chang wanted to increase capital expenditure, but the outside world was not optimistic, and even two independent directors opposed it. When Morris Chang could not convince them, he had to forcefully say: "Consider me the head of the company, and you have to follow me."

With the wave of smartphones led by Apple's iPhone, TSMC's revenue and market share have been rising. In the technology war over 28 nanometers, TSMC has a clear advantage in technology, and its 28 nanometer process leads the world in mass production. At an investor conference in early 2013, Morris Chang said that the company's market share of 28 nanometer process chips in 2012 was close to 100%.

Morris Chang's ambitions have no limits. In the documentary "The Autobiography of Morris Chang", he said: "I think that in the semiconductor industry and the technology industry, success depends on innovation. In the past, I challenged myself and my employees to innovate. We were the first to innovate, but later, others began to compete with us and imitated us. At this time, I was absolutely not polite."

At the 30th anniversary celebration, Morris Chang predicted that the future growth value of the global semiconductor industry will be higher than the global GDP, with a compound annual growth rate of between 4.5% and 5.5%, and TSMC's performance will be better than the global semiconductor industry average, with a growth rate of between 5% and 10%.

He pointed out that mobile devices, high-performance computing, automotive electronics and the Internet of Things will be the four major markets that support TSMC's continued growth. He believes that mobile devices will continue to maintain strong development.

However, it is not easy to maintain a high profit under high investment. Sheng Linghai, research director of Gartner China, told the reporter of China Business Network that high-tech industries such as semiconductors change too fast, and any company that does not advance will retreat. For TSMC, it is also difficult to maintain a very high profit margin and lead the industry in the face of increasingly difficult progress.

Morris Chang is undoubtedly the most important soul figure for TSMC, and many TSMC employees regard him as an "idol".

The above-mentioned TSMC employee said that the internal management environment of TSMC is a centralized and high-pressure working environment. "TSMC has so many people and so many systems. In order to avoid mistakes, his management requirements are relatively strict, so he hopes that these people will not make mistakes in the process, so daily reviews are required, and even some monitors are used to monitor these things. He takes this matter very seriously."

However, TSMC can still give employees some room for growth. The employee believes that Morris Chang is not like many businessmen who only consider costs and squeeze the value of employees. "TSMC really has some space. Of course, it may not be as open as other multinational companies, but within the framework it gives you some space for training or projects. Therefore, many people are grateful for his retirement."

When announcing his retirement, Morris Chang said, "I will not continue to serve as a director for the next term, nor will I participate in any management work."

After the shareholders' meeting in early June 2018, TSMC will adopt a dual-head parallel leadership system. Liu Deyin will serve as chairman, overseeing the final decision and responsible for TSMC's external affairs; Wei Zhejia will serve as president, managing the company's internal operations, management and other affairs.

It is difficult to conquer the world, but it is even more difficult to defend it. In order to smoothly complete the handover of the world's largest foundry manufacturing company, Morris Chang's layout over the past four years was extremely critical. Because he was not handing over the baton to one person, but to a team.

Unlike the last handover, in the past four years, he not only mentored Liu Deyin and the management personnel changes, but also included their subordinates, including the deputy general manager and the subordinates below the deputy general manager to the director-level supervisor, in his successor training plan, including many talents in their forties. He, Wei Zhejia, Liu Deyin and others, trained "successors" together. He also said frankly that the two successors have not yet reached his standard for businessmen, but they have improved compared to the past.

At the third quarter earnings conference this year, in response to analysts' questions about the impact of management personnel changes on the company's future, Wei Zhejia said that TSMC will continue to maintain its previous strategy and operating methods, and will continue to cooperate with Liu Deyin. Liu said that there are still eight months until June next year, and the two can complete the handover smoothly.

However, the outside world cannot help but worry about this: from a strong person holding all the power to two heads of parallel leadership, will it be the case that the successor trained last time is very different from expectations?

An engineer from TSMC told the First Financial reporter: "It's hard to say, but Mark (Liu Deyin) and CC (Wei Zhejia) have both been specially trained in recent years, and they should not go back to those old ways."

Another employee revealed, "When Morris came back, he said that if it happened again, he would prevent it. As a sophisticated person, he would definitely have his own arrangements." But he also admitted, "There will definitely be changes." He pointed out that TSMC has a very special phenomenon. When there are some changes in the top management, "there will be a big wind that will blow everything apart and replace some (people). Before Morris retires, there will be a big change in IT and procurement. I believe the change will be significant, and everyone will guess how it will change."

In addition to the speculation about Morris Chang's retirement, competition in the semiconductor industry has also intensified as the growth rate has slowed. Broadcom CEO Hock Tan said at a forum on the 23rd that from the 30% compound annual growth rate in the 1980s to less than 5% annual output growth today, the golden age of rapid semiconductor growth has passed.

In this context, in March, Intel announced that it would rebuild its chip foundry business and claimed that its manufacturing process was still ahead of Samsung and TSMC. Samsung, TSMC's biggest competitor in chip foundry business, spun off the business into an independent department to strengthen its chip foundry business, trying to ease the concerns of potential customers who compete with Samsung.

In Sheng Linghai's view, Intel itself is not a semiconductor foundry company. Even if it enters the foundry business, it will keep the most advanced technology for its own use rather than developing it for customers. In the foundry industry, from the overall volume, Samsung itself focuses on high-end, while TSMC covers high, medium and low, and will also infiltrate some other new technologies.

Sheng Linghai revealed to the reporter of China Business Network that the industry has expressed a positive welcome to Morris Chang's departure. "The industry is most afraid that his health will suddenly deteriorate and the handover work has not been done well. Now the strategy of gradual handover he has formulated is actually a good thing for TSMC. It is better to be prepared than not to be prepared." He believes that compared with the last handover to Li Xing Tsai, this time, in addition to being more fully prepared, the environment of the semiconductor industry itself is also changing. "At that time, there were more players in the entire industry, and TSMC's dominant position was not as obvious as it is now."

Gong Bin, managing director of Beijing Boshi Consulting, said in an interview with the First Financial reporter that Morris Chang's retirement will not have much impact on TSMC in the short term. "The wafer foundry's technology introduction plan and R&D arrangements for the next five years are all proceeding step by step, and the future planning arrangements will be very detailed and rigorous. The entire rhythm from R&D to production is already very mature, unless there are changes such as quantum computing and materials that replace silicon."

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