TSMC: The Untold Story of Morris Chang

The story of the man who built a company that runs the world today

One of the important things I try to do in the introduction section is to give you (the reader) an idea of what you’re about to read or what the piece is all about, ensuring that I’m not setting up any false expectations or trying to make you read what you don’t want to.

Having said that, you might know about TSMC (Taiwan Semiconductor Manufacturing Company), one of the most successful semiconductor companies in the world that has 90% market share in advanced chips (3-5 nanometers) manufacturing, founded by Morris Chang.

TSMC, most importantly its founder, Morris Chang has a fascinating story that I personally think every tech-savvy person should know about. The guy founded the company at the age of 55. Yup, you heard it right—the age when most people quit hustling and plan to retire.

With its success, today TSMC runs the world—they make chips for NVIDIA, Tesla, Apple, Intel, AMD, Qualcomm, Amazon…you name it. Moreover, it's the same company that’s powering the AI boom. The catch though? It’s hard to understand TSMC without understanding Morris Chang.

So in this piece, I’ll dig deep into Chang’s story & tell you about his life’s journey—How despite working at Texas Instruments for nearly 25 years, he was a failure, and how he founded TSMC and made it successful at the time when almost everyone doubted him.

Let’s dive in!

Chang’s Childhood

Morris Chang was born on July 10, 1931 in Ningbo, China. Chang’s family was reasonably well-off: his father was in charge of finance for the local government and later became a bank manager in the city of Guangzhou.

Much of Chang's early life was shaped by wars, constantly moving from one place to another. During the Second Sino-Japanese War, which began in 1937, Guangzhou was bombed, and Chang’s family moved to Hong Kong when he was just six.

Chang did his early schooling, from age six to eleven in British Hong Kong. But in 1941, Japan occupied Hong Kong, forcing the Chang family to move to Shanghai before settling in Chongqing. A few years after the war ended, the family was forced to move back to Hong Kong again as the Chinese Civil War worsened.

In Chang’s words:

The early part of my life between birth and 18, the background was war, poverty, injustice. So those three things—war, poverty and injustice—they dominated the backdrop, the environment in which I grew up. War, first the Sino-Japanese War, then of course the Second World War, and then the [Chinese] Civil War. And I lived through all of them. China was so poor, most of the people were so poor, even middle class for me that I was born in. We didn’t starve, we were not hungry ever, but our life style was very, very modest compared to a middleclass family lifestyle now.

At this point, Chang was about to graduate from high school, but he was unsure what he should do next. Although he was a good student and had a strong command of math and physics. However, his primary interests were in novels and literature, and he wanted to become a novelist or journalist. But his father convinced him that no one makes a living as a writer and suggested that he should pursue technology or engineering for a better career path.

Chang agreed.

The problem was though, Hong Kong didn’t have good engineering universities at that time. But Chang fortunately got lucky. How? One of his uncles lived in the US. He was a professor at Northeastern University, and he could potentially help Chang get enrolled in Harvard, or at least in a good engineering university in the US.

They contacted Chang’s uncle and asked him about getting enrolled in Harvard. Since his uncle was a professor himself there, he knew how things worked in the US. Fortunately, with his help, Chang applied to Harvard and got accepted on his first attempt.

Moving to the US

Chang was 18 years old when he moved to the United States in 1949. When he got there at Harvard, he learned that in the class of 1100 students, Chang was the only Chinese student (there were 14 minorities: 1 black, 1 Japanese, 1 African, 3 Europeans, and 8 Hispanics).

Chang, from an early age, was a good student, having a strong foundation in subjects like math and physics allowed him to do well at Harvard. The result speaks for itself: by the end of his first year, he was in the top 10% of his class.

However, after one year at Harvard, Chang realized that the university was not good at engineering, planning to leave Harvard and get enrolled in MIT (Massachusetts Institute of Technology) to study mechanical engineering in his sophomore year. At MIT, he earned a Bachelor of Science in 1952, a Master of Science in 1953, and a Master of Engineering in 1955, respectively.

Chang wanted to complete his studies—getting his PhD at MIT, but he couldn’t fight the entrance exams twice. MIT had a rule: if you can’t fight the entrance exam twice, you are not allowed to give the exam a third time, leaving no other options for Chang but to discontinue his studies and get a job, as Chang did.

Sylvania Semiconductor

Chang applied and got offers from many companies since he already had a Bachelor's and Master’s degree from MIT. But narrowing his focus, he decided to do either of these two jobs:

• Ford Motor Company

• Sylvania Semiconductor

Ford was a successful company. So he thought it’d be great for job security and a stable career. On the other hand, Sylvania was a growing, less secure, riskier semiconductor company, but it had a higher salary than Ford Motor.

Chang decided to give Ford a chance. So he contacted Ford Motor asking if they could raise the compensation compared to Sylvania. It didn’t go well—the guy who picked up the call was rude and arrogant, refusing to negotiate. 24-year-old Chang got so angry and decided to take a job at Sylvania Semiconductor in 1955.

Rare Image of Sylvania Semiconductor around the 1950s

He joined Sylvania as an engineer and was responsible for increasing the yield. Now the thing was, Chang knew nothing about semiconductors and transistors. But one thing he knew was that semiconductors were very sensitive to impurities, heat, and chemical changes.

Working there, he quickly realized that people working at the semiconductor department were directly impacting the yield of the production due to impurities and manual work like welding. Chang guessed that there could be a better way to do things. So the first thing Chang did to increase the yield was, he developed a welding method that didn’t require so much heating.

Yield improved, and every product line adopted the new method.

Chang continued to learn more about semiconductors and transistors. He read books, asked his colleague (One who’d been working before him) a bunch of questions, and thought his way through how he could change, improve, and enhance the quality of the work he was assigned.

Chang was relentless, like Steve Jobs. He worked hard, resulting in him getting promoted, in literally no time, to the head of the R&D Department to help develop new transistor products. They made several transistors over the years from germanium. Chang also at this time began publishing his own research papers.

But things started to fall apart when he realized that the semiconductor division was doing poorly due to bad leadership. The Semiconductor division was led by sub-par people who had no idea what they were doing, had no expertise, and knowledge of the work they were doing.

In Chang’s words:

I had four job offers and just by a very lucky break I chose Sylvania Semiconductor—without really knowing the implications, the ramifications. And I worked for Sylvania Semiconductor for three years when I decided, and I was right as later events proved, that Sylvania wasn’t going anywhere in semiconductors. And I knew already that Texas Instruments was rising very fast in Texas. And so I joined Texas Instruments after three years at Sylvania.

Seeing no career progress, Chang decided to leave Sylvania and join Texas Instruments.

Texas Instruments

After leaving Sylvania Semiconductor, Chang joined Texas Instruments (TI) in 1958. As he arrived, Chang was impressed by the fact that people who were working at the company were young (most under 40), hard working, and knew what they were doing.

And unlike Sylvania, which was a company led by sub-par people with a corporate hierarchy, TI was nothing like that. There were no special spaces for executives, executives and workers ate in the same cafeteria, and anyone could chat with anyone freely. Chang loved it.

At TI, Chang was assigned to help resolve the manufacturing issues and increase the quality of transistors being made for IBM. Chang was responsible for making sure that yield rates went up and costs went down. At that time for IBM, the yield was around 5%, and when the process got transferred to TI, it didn’t seem to work at all, engineers would jokingly say, “The yields are zero and stable.”

Chang worked hard to increase the yield and decrease the costs. He made changes based on the knowledge and experience he had gained at Sylvania. Gradually, the yield started to improve, reaching around 30%, which was impressive at that time. And soon, Chang quickly got promoted to R&D Manager for germanium transistors.

Rare image of Chang at TI

Chang kept doing good work, building a reputation and leadership at TI.

Then one day, Chang's manager told him that he could eventually get assigned to the position of President of R&D, but he would need a PhD for it. He told Change that TI would cover his study and that he should get a PhD if he wanted to keep climbing the ladder.

This was a hard decision to make for Chang. He was a little skeptical that he might lose all the opportunities and benefits if he took a step back from his career and focused once again on his studies. Nonetheless, Chang enrolled at MIT to get his PhD in 1961.

3 years after the completion, when he returned to TI, he found out that his colleagues had advanced up the ladder and had been promoted, while he was stuck back in the same role. But he hoped that the knowledge he gained through his PhD would fast-track his growth, as it did.

Chang worked hard and got promoted again and again. In 1972, he was promoted to head of the entire semiconductor division, managing TI's global semiconductor business. Chang was the only reason TI applied the Learning Curve Pricing, which promotes the idea of sacrificing short-term profits to capture market share and secure long-term dominance by increasing the production volume in the beginning. Chang helped the company become a leading producer of integrated circuits and succeed in manufacturing semiconductors.

But then things started to fall off. After several successful years, around the late 1970s, Chang realized that the division he was working at wasn’t doing great, the growth had become stagnant, leadership had gotten ruined, and the yield was unimpressive. The reason? His new boss, Fred Bucy, had no semiconductor background, and his knowledge was outdated.

Chang failed to lead the division that was the backbone of the company, and there, he got demoted and moved to head of TI’s consumer products division, which was a terrible position for him since he knew nothing about consumer products.

Chang lost control over the company. He was blamed for the failures he was not responsible for, resulting in him being demoted again to a new position, Director of Quality and Productivity in 1981. He never thought his career would take a U-turn at TI. He was the same guy who once got promoted to the top of the company was now dragged to low-management jobs.

It was a total disappointment for him. Soon, Chang realized that he would not make it at TI and would be better off leaving the company and joining another one. So after working at TI for nearly 25 years, he finally quit in 1983.

This is what Chang said:

I left TI without any job offer, and I left because I felt that essentially I had been put out in the pasture at TI. I felt sure that I would still continue to have a job, in fact even a job with a good title, but my hope of further advancement at TI was gone. Actually there was only one step further, it was the CEO, you know, and I decided that there was no hope of that, and besides I wasn’t doing anything that interested me very much any more.

General Instrument

After leaving TI, Chang got a new job at GI (General Instrument) in 1984, hired by its CEO. It was a company that would acquire and merge companies, and once those companies became successful, they’d sell them for a profitable price. Chang, to work for the company, moved from Texas to New York and started living at Trump Tower.

But he quickly realized that working at GI was even harder for Chang because he was set in a different environment, and he was no longer assigned to make semiconductors or transistors.

Chang, however, expected that he could help the company improve products and negotiate business deals. But unfortunately, he was assigned a different job. Put simply, the company just wanted him to find small businesses, look at the numbers, buy the businesses, roll around, and ultimately sell them for a higher price.

In Chang's words:

General Instrument was mainly about acquisitions, mergers, and then after a business became successful, sale of that business, so that General Instrument could acquire new businesses, and remake them, or improve them and sell them again. When I was being interviewed, I did not know that it had become that kind of a company. I mean there's nothing wrong with it being that kind of company, but it was just very different from what I was used at Texas Instruments. So after a year of General Instrument, a little more than a year, I decided to leave again.

Chang hated every moment of it. After one year working at the company, he resigned.

ITRI Taiwan

One of the important things Chang did when he worked at TI was traveling to different countries for business purposes. He was responsible for expanding TI's business globally, setting up fabs, negotiating partnerships, closing business deals, traveling to Japan, Europe, South Korea, and Asia.

And this was the time when he also had visited Taiwan many times. Taiwan, at that time, wasn’t doing well, the economy seemed stagnant, and the living standards were very poor. To solve this, one of the things the Taiwanese Government wanted to do was develop a high-tech industry.

They had already formed ITRI (Industrial Technology Research Institute) in 1973, and while Chang was still at TI, they asked if he wanted to join ITRI, to which Chang said no. But when they again asked Chang if he wanted to join it, he said yes and joined ITRI in 1985 since he was free.

Taiwan had done well in textile and electronics manufacturing. But the government wanted to explore high-tech industries like building semiconductor fabs, which is why they invited Chang (he seemed an expert and trusted) to join and consult ITRI.

Upon arrival, when Chang started working at ITRI, he learned that it was doing things the wrong way, in an academic-style research. So Chang came up with a three-step plan:

• Change the funding model

• Spin-off companies

• Punish the worst-performing employees

Sounds awesome? Unfortunately, Chang’s reform didn’t go as planned. It was a total failure: His idea to get industry funding was rejected, he was only able to maintain the employee probation program for just one year, and he was able to spin off companies, but none of them were immediate successes.

His colleagues and people who trusted him started disliking him because of his wrong moves. His employees hated him because he’d ask questions in the middle of the presentation, which was seen as rude in Taiwan, something that was considered normal in the US.

After two years working at ITRI, he quit in 1987.

Chang didn’t have a great time working at ITRI. But there’s one thing that he accomplished working there: making the government believe that building semiconductor manufacturing fabs is the only way to turn Taiwan into a high-tech industry.

This means TSMC was already there but as it was under ITRI, it was widely unknown, experimenting as a foundry project. But since the project needed funding, they had formally registered and named the company, TSMC, Taiwan Semiconductor Manufacturing Company.

Here’s how the story goes.

TSMC

At ITRI, Chang proposed a strange, hard-to-believe idea: Starting a fab that would manufacture chips for others. No design, no brand, just pure foundry. It sounded so strange to ITRI and the people involved because they believed every successful chip manufacturing company at that time was vertically integrated: they would design and also make the chips.

But Chang's core hypothesis behind this was that he knew that as chips got smaller and more complex, building fabs became astronomically expensive, and small companies couldn't afford to build them. He also knew that there was a growing number of design houses that didn’t want to build fabs—they just wanted to design and sell IP.

Building something like TSMC was a dope idea.

But the biggest problem was that building gigantic fabs would require a huge amount of capital investment. The question was who was going to provide the funds, costing around $100 million? ITRI was intrigued by the idea, but investing such amounts with no surety, they felt, it would be a gamble.

ITRI didn’t say it wouldn’t invest, what they said though was, it wasn’t going to allocate the full capital. Meaning, they should raise funding from private investors. Because ITRI couldn’t afford to lose $100 million or so if the plan didn’t work out.

Raising capital was the solution.

Chang had built a reputation around the world. So to raise capital, he began asking semiconductor manufacturers like Intel, Texas Instruments, Motorola, AMD, Panasonic, and Sony if they wanted to invest in it. Guess what happened? None of them showed interest.

But there was one company that showed interest: Philips.

Philips (A Dutch company, based in Netherlands) already had electronic fabs in Taiwan, and they were looking to expand their business there. They weren’t specifically interested in Chang’s idea. Instead, they saw it as an opportunity to deepen the relationship with the Taiwanese government and decided to invest $58 million in the new venture at a 27.5% stake. Additional capital came from private investors and the Taiwanese government.

And with that, the Groundwork Began.

TSMC Taiwan Today

Ready to Work

As expected, TSMC’s first customers were Taiwanese semiconductor companies.

But things took off when in late 1987, TSMC got an unexpected visit from Intel. They wanted to produce some of Intel’s older, less advanced products so it could free up capacity to produce more leading-edge chips. TSMC managed to secure Intel as its first American customer, which signaled TSMC’s competence worldwide.

To go all in, Chang had already resigned from ITRI in February 1987 and went hard on making TSMC successful. Chang knew that the only way to make the company profitable and successful was to go abroad and find international customers from the US, UK, Canada, etc. Luckily, it was only a matter of time. After seeing Intel outsourcing its chips to TSMC, many big companies followed.

By 1988, TSMC had a cash-flow positive, and built its second factory. And actually, this was the factory that defined TSMC’s real success. It was brand new, and much larger than the previous one (30,00 wafers a month vs 13,000 in the first factory), resulting in lower per-unit production costs.

Scaling

By the early 1990s, TSMC was profitable, reinvesting everything into capex: New fabs, better process nodes, etc. Under Chang’s leadership, TSMC grew from a fledgling startup to the world’s largest semiconductor foundry.

These were a few mantras TSMC lived by:

• Customer Neutrality: They said, “No, we’re not going to compete with our clients and customers. Instead, we’ll provide them what they need.”

• Manufacturing excellence: They hit yields that rivaled internal company fabs

• Trust and confidentiality: They made sure no one’s data gets leaked, putting firewalls in place.

By 1990, the revenue had hit $110 million, followed by going public on the Taiwan Stock Exchange and the NYSE in 1994 with a total market cap of $2 billion.

By 1995, TSMC had surpassed $1 billion in total revenue. And by 2000, it had five factories, producing more than 3 million wafers a year, which is mindboggling. The company also started building fabs globally, for example in Arizona. Chang's strategy behind customer obsession, taking a different approach, and relentless investment in R&D worked so perfectly well.

TSMC Arizona:

Retiring

Chang led TSMC as CEO from 1987 to 2005.

But then something unexpected happened. Rick Tsai, who became the new CEO, slowed down the company’s growth due to his poor leadership style, management style, decision-making, and lack of deep knowledge in the field.

As a result, Chang returned to the company in 2009, taking the CEO role again. He was 78 years old when he came back to the company, which is so impressive. Many questioned, but he knew that the company would die if it was not taken in the right direction at the right time.

Upon arrival, he knew that the company was taking an approach that Chang had long avoided: design service. So first, Chang killed the design service. And then he doubled down on yield, process leadership, and reliability, focusing on 28nm, 16nm, and then 7nm chips.

He worked for the company again for almost 10 years before finally retiring in 2018, at the age 86. And this time, he had taken the company to another level, the company's market cap touching $200 billion. Moreover, today, it’s market cap hovers around $1 trillion, making it the top 10 most valuable companies in the world.

Link to Image

Chang is now 94 years old with a net worth of $5 billion.

But if you observe carefully, you’ll realize that most of his life in the corporate world was a failure (let’s actually not call it a failure, but a disaster). He worked at Sylvania and General Instrument, but what happened in the end? Proven worthless. He did work for Texas Instruments for 25 years, but what happened in the end? He was proven worthless.

However, none of those were a failure, it’s just that he was constantly dragging into the wrong positions that he was either not qualified for or not interested in. But it helped him gain experience and learn valuable knowledge he wouldn’t have otherwise.