A Legend in Microchips Retires Just as His Industry Heats Up

(Bloomberg) -- One of the most influential technological revolutions began with an unsuccessful offer.

In 1984, an acquaintance of Morris Chang’s sought help raising $50 million to set up a chipmaker, a request he rebuffed until the friend could come up with a written proposal. The man never returned. Chang later found out his friend had located a factory willing to do the work on his behalf, so only needed a fraction of the money.

That “led me to this idea of a pure-play foundry,” said Chang, who three years later would start Taiwan Semiconductor Manufacturing Co. to make chips designed by others. “I was actually disappointed, but it also got me thinking.”

That encounter planted the seed for TSMC, which went on to pioneer the made-to-order foundry model and transform the industry by ushering in a wave of newcomers. While giants from Intel Corp. to Fairchild Semiconductor shouldered the burden of chipmaking from top to bottom, TSMC made it possible for companies such as Qualcomm Inc., Broadcom Ltd. and Nvidia Corp. to focus on design and leave production to Chang.

The 86-year-old announced last week he would step down as chairman next year, handing the reins of his $190 billion-plus company to lieutenants Mark Liu and C.C. Wei. In an interview Friday, he discussed his legacy.

“Since we established ourselves, fabless companies began to mushroom worldwide,” he said. “Most of the innovations in the semiconductor industry in the last 30 years came from those fabless companies. That’s probably my biggest pride, to have caused a lot of innovations in the industry.”

Read more: Founder of Apple’s Top Chipmaker Will Hand Over the Reins in June

Chang set up TSMC with help from the Taiwanese government and has spent the three decades since building it into the world’s largest bespoke chipmaker. That’s created a generation of industry leaders and lifted Taiwan’s economy in the process. But he may be stepping away just when he’s needed most.

The industry is again anticipating one of those fundamental shifts that shake things up every few years: this time, it’s preparing for the advent of smarter and connected devices from cars and washing machines to augmented reality devices. China’s global ascendancy also promises to disrupt a landscape dominated by ageing corporations.

The main chipmaker for Apple Inc.’s iPhones hopes to ride that next wave of growth by preparing to spend more than $20 billion on a state-of-art plant. That’s the price for staying ahead of Intel and Samsung Electronics Co. in cutting-edge production.

TSMC Ready to Spend $20 Billion on its Most Advanced Chip Plant

Liu and Wei inherit a company that is about 30 times larger than local rival United Microelectronics Corp. and commands 59 percent of the $50 billion global foundry market.

But it’s a constant struggle to stay at the top of the food chain, especially with deep-pocketed rivals Intel and Samsung vying for business and Beijing urging local champions to invest aggressively in capacity. TSMC spends some $10 billion annually to safeguard its perch but that may have to rise to $11 billion, Chang said Friday.

The founder of Taiwan’s largest corporation is considered a national hero for placing the island of 23 million on the technology industry’s map. Nvidia’s Taiwanese-born Chief Executive Officer, Jen-Hsun Huang, openly credits TSMC with empowering a generation of upstart chip designers.

Chang was born in 1931 in the coastal Chinese city of Ningbo. His earliest memories were of moving through a succession of cities as his family fled before the Japanese occupation and civil war between the Communists and Nationalists. He passed through Hong Kong before heading to Harvard and later the Massachusetts Institute of Technology to study mechanical engineering.

In 1955, he found his first job right out of MIT at Sylvania Semiconductor, before jumping ship to Texas Instruments Inc. for what would become a 25-year stint, rising through the ranks and acquiring a Stanford PhD in electrical engineering before eventually becoming the head of its global semiconductor business. TI paid his tuition, a practice that instilled in a grateful Chang a respect for in-house talent that he would carry over to the company he founded in 1987.

“Morris cherishes talent, he wouldn’t be happy if some of his people joined other companies,” said Richard Chang (not related), who followed Morris Chang from TI to TSMC but eventually helped to create Chinese rival Semiconductor Manufacturing International Corp.

Investors have so far expressed confidence in the new leadership’s ability to sustain TSMC’s upward trajectory. Its shares have surged 24 percent this year thanks to projected demand for new iPhones and other products. That helped make Chang a billionaire, according to the Bloomberg Billionaires Index.

TSMC’s now racing to meet the future demand it anticipates, from computers and connected devices in the so-called Internet of Things, from cars to home appliances and voice-activated speakers. 

Growing chipset demand from China spells another opportunity for TSMC: the country spent $227 billion importing integrated circuits in 2016, according to data from Chinese customs authorities, the fourth consecutive year that chip imports have exceeded $200 billion.

A new 12-inch wafer fabrication plant in Nanjing -- a five-hour drive from the town of his birth -- is almost ready for mass production. It’s the first plant in China capable of using 16-nanometer process technology, according to TSMC. Most domestic companies are only capable of producing 40-nanometer processors, a thicker width that essentially means a slower chip.

As Chang heads towards retirement, TSMC will celebrate its 30th anniversary on Oct. 23 with a performance of Beethoven’s 9th Symphony in Taipei attended by tech-industry royalty, including Apple Chief Operating Officer Jeff Williams, Nvidia’s Huang and Qualcomm CEO Steve Mollenkopf. Chang frequently mentions his love of the Germanic composers and Beethoven in particular at press conferences.

“The first time I heard it live was with the New York Philharmonic and Leonard Bernstein,” he said. “Since then, I’ve heard it live at least 20 times. Its simple grandeur is one reason I like it. A second reason I like it is it’s also joyful. An Ode to Joy!”

To contact the reporters on this story: Samson Ellis in Taipei at sellis29@bloomberg.net, Gao Yuan in Beijing at ygao199@bloomberg.net, Cindy Wang in Taipei at hwang61@bloomberg.net.

To contact the editors responsible for this story: Robert Fenner at rfenner@bloomberg.net, Edwin Chan, Samson Ellis