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TSMC Chairman Morris Chang:

The Best Is Yet to Come


The Best Is Yet to Come


In this exclusive interview, the venerable leader of Taiwan's semiconductor industry ponders his current battle for market share, and the passion that's needed for victory.



The Best Is Yet to Come

By Hsiao-Wen Wang and Jimmy Hsiung
From CommonWealth Magazine (vol. 508 )

"These are the best of times for TSMC, and also the worst," observes one veteran entrepreneur.

They are the best of times because the chipmaker's chairman Morris Chang is a battle-steeled industry veteran who boasts the richest experience in the global semiconductor sector and the most accurate judgment when it comes to business trends.

In October 2011 he offered this bold prediction for the Taiwanese economy: "Next year we won't yet see the light at the end of the tunnel."

Government officials, however, responded with a much more optimistic outlook. For a while the old general was a lone voice in the wilderness. But in hindsight, the old warhorse at the frontline of the industry has again proven his acute judgment.

These are the worst of times for TSMC, because it looks to the outside world that after 25 years in the business the chipmaker has finally met two towering rivals – Intel and Samsung.

In the Taiwanese business world, few can afford to go directly head to head with global industry powerhouses, yet Morris Chang sports a smile, and even enjoys the competition.

It should not come as a surprise that Chang again emerged as the top-ranked business leader in CommonWealth Magazine's Most Admired Entrepreneurs survey this year. No other entrepreneur won higher scores than Chang in the two categories "excellent management skills and operational performance" as well as "leadership charisma."

Faced with much larger competitors – Intel is four times bigger than TSMC and Samsung LSI twice as big – Chang remains calm and composed, with a winning strategy at hand.

Over the past three years, TSMC has massively increased R&D expenditure and capital expenditure. Now it is preparing to reap the fruits of its technological lead.

"The best is yet to come," Chang predicts with confidence.

Following are highlights from his interview with CommonWealth Magazine:

Q: You have said that TSMC is spending US$1.3 billion on R&D this year, while Samsung is spending US$3 billion and Intel US$5 billion. But you also said that together with its customers TSMC can exceed the other two. How does TSMC do R&D in concert with its customers, and how do you realize synergies?

A: TSMC has its own ecosystem, which we call our Open Innovation Platform. It's open to all our customers. Our customers create the designs; we create the manufacturing processes. The open innovation platform allows us to attract customers to use our production processes.

It's because on this platform you can find a lot of our own intellectual property, but also the intellectual property of quite a number of partners. Customers can leverage our ecosystem. This platform is very attractive to our customers. Without it they would be forced to make a very huge effort to build their own intellectual property bank.

Openness: The Competitive Edge

That's our secret weapon for competing with Intel. Intel has its own R&D, but they also create designs on top of the manufacturing processes. Of course, Intel itself has a lot of intellectual property, but they don't let outsiders use it, because what Intel built is a closed ecosystem.

Samsung, for its part, is planning to establish its own complete ecosystem. You need to understand, Samsung became big as a memory maker, but they don't have a long history as a manufacturer of logic ICs. In recent years they suddenly made a fortune and became big with handsets and tablet computers, so they wanted to integrate vertically. They're not only manufacturing ICs for their own products, but also want to increase the ratio of products that use their own-brand ICs. At the same time they want to enter the field of contract chip manufacturing.

They decided to go into the dedicated foundry business, because they have seen that TSMC has been very successful and that our profit margins are higher than any products they make. But for the time being they have not been very successful.

Greater Determination than Samsung

While Samsung has hammered out a strategy, they are not fighting to stay alive like TSMC. Samsung has many other fields of business, so contract chip making is just another business that can help them boost profits. They are different from us. We have been a dedicated foundry since our founding until today. This is our specialty act. If we don't perform well in this show, then our company will not survive!

Q: The determination is not the same?

A: Yes, our determination is different, but I came to realize very early on that semiconductors mean world-class competition.

Twenty-seven years ago when I had just come to Taiwan, I said right from the beginning that Taiwan will face world-class competition if it is going to make semiconductors. If it wants to be successful, it must have the ability to withstand world-class competition.

Someone once asked me what my most important contributions to Taiwan were. Without even having to think, I said back then if you want to make semiconductors you need to make world-class products. That's the most important concept that I gave Taiwan.

Overall, our management philosophy, "Don't compete with the customer," will be a very sharp weapon in facing competition from Intel and Samsung.

Q: How do you feel about the situation that you are currently facing?

A: I feel very good. I feel the best is yet to come.

Q: Why?

A: Our R&D expenditure keeps breaking records. This year we will spend US$1.3 billion, next year even more. Our capital expenditure stands at US$8.5 billion this year, which is a four-fold increase over the average of some US$2 billion that we spent in the years before I returned to the CEO position.

In fact, the effects of increased R&D and capital expenditure over the past years are already visible. During the past three years, for instance, our EPS stood at an average NT$6 compared to an EPS of over NT$4 in the years before, so our results are already beginning to improve.

Q: What's your take on the economy in the coming year?

A: In the short term the global economic situation will still face problems not just next year, but also the year after that. Don't think that this is just another economic cycle like in the past that will last two or three years at most and then we'll see a recovery. This time it's a long-term problem.

When I went to the United States to go to university at the age of 18, all my schoolmates had gone through the great depression. Their childhoods had been full of hardship, and these hard times lasted a long time. Although the situation now is not as disastrous, it will also last a rather long period. Low growth, high unemployment, university students going overseas to work – I think all this is likely to happen.

Q: How do you keep up a fighting spirit in the face of incessant competition?

A: I believe the will to fight is fueled by passion. Passion is not about making money. If this were the case, it would easily fizzle out. True passion means doing something until you are successful or to compete until you clinch victory. It means you are only satisfied if you fight on eternally and always keep winning.

Translated from the Chinese by Susanne Ganz