Introduction
In the ever-evolving semiconductor industry, few names resonate as powerfully as Morris Chang, the founder of Taiwan Semiconductor Manufacturing Company (TSMC). His decision to return as CEO in 2009 marked a pivotal moment in the company’s history, steering it through turbulent times and setting the stage for its rise as a global semiconductor powerhouse. This blog delves into the circumstances surrounding Chang’s return, the challenges TSMC faced, and the strategic moves that solidified its dominance.
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The Transition to Rick Tsai: A Promising Start
In 2005, Morris Chang stepped down as CEO of TSMC, passing the reins to Rick Tsai, a trusted executive who had been with the company since 1989. Tsai’s tenure began on a high note, with TSMC achieving record revenues of $9.7 billion in 2006.
Tsai’s leadership mirrored Morris Chang’s disciplined and ambitious style. He set bold goals and pursued them with determination.
In 2007, TSMC faced a challenge when Goldman Sachs proposed a Management Buyout (MBO). Both Chang and Tsai rejected the offer.
Their decision was wise. An MBO would have limited TSMC’s ability to raise capital, hindering partnerships with major clients like Apple.
The Pivotal Apple-TSMC Partnership
A defining chapter in Apple’s history unfolded when the company sought to produce its own in-house processors for the iPhone, aiming to reduce its reliance on Samsung—a key competitor that ironically supplied processors for Apple’s flagship product in its early days. Around the same time, Apple had announced a partnership with Intel to supply x86 processors for its Mac computers. Initially, Apple approached Intel to design these mobile processors, but then-CEO Paul Otellini declined Steve Jobs’ proposal.
Intel, at the time, underestimated the potential of the mobile processor market, deeming it too small to justify the significant R&D investment required. Chip design is an expensive endeavor, and Intel believed the market wouldn’t deliver the manufacturing volumes needed to recover costs. In hindsight, this decision is often considered one of the most significant business missteps, with Otellini later admitting they miscalculated the market size by a factor of 100. Today, smartphones account for nearly a third of global chip sales, as noted in Chris Miller’s Chip War.
With Intel out of the picture and Samsung not an option, Apple decided to design its own chips—one of the few companies with the resources to take on such a monumental task. This decision marked the genesis of Apple Silicon, which would eventually lead to Apple phasing out Intel processors from its Mac lineup.
For manufacturing, Apple turned to TSMC, the world’s most advanced and trusted foundry. TSMC’s cutting-edge process technologies brought Apple’s A-series chips for iPhones and iPads to life, and later, the M-series chips for Macs. This collaboration was transformative for both companies, playing a significant role in Apple’s rise to becoming the world’s largest company.
Apple’s in-house chip advancements, paired with its user-friendly software, enabled the company to create unparalleled integration between its hardware and software. This ecosystem fostered strong customer loyalty and recurring revenue streams. As of Q3 FY2024, Apple reported an astonishing $199 billion in revenue from iPhone sales alone, not including its high-margin services segment, which includes the App Store, iCloud, and other subscriptions.
The Surge in iPhone Sales (2008–2024)
The timing of Apple’s alliance with TSMC couldn’t have been more opportune, even if it didn’t seem so initially. In 2008, the global financial crisis gripped economies worldwide, causing the highly cyclical semiconductor industry to slow dramatically. However, Morris Chang, TSMC’s chairman and a veteran of the industry, had seen similar downturns before. He understood that companies investing during downturns often emerged stronger when the market recovered.
At 77 years old, Chang stepped back into leadership, reclaiming the CEO role after stepping down in 2005. Amid the economic turmoil, he launched an ambitious multibillion-dollar investment program to ensure TSMC maintained its market leadership. This bold move paid off. The global economy rebounded, and TSMC emerged in an even stronger position, solidifying its dominance.
Reflecting on the 2008 downturn in TSMC’s annual report, Chang wrote:
“…the global recession will likely result in a long period of slower business recovery. […] Historically, TSMC has leveraged periodic challenges to become stronger. The challenges of 2009 are clear, and all TSMC employees are committed to do our utmost to emerge from this global economic crisis stronger than ever.”
Challenges Mount: The 2008 Financial Crisis
The global financial crisis of 2008 brought unprecedented challenges. TSMC faced internal turmoil, including significant layoffs, and external pressures from competitors and clients.
The company’s technological roadmap and operational efficiency were under strain, threatening its market position. Recognizing the gravity of the situation, Morris Chang made the extraordinary decision to return as CEO in 2009.
Chang’s Return: A Masterclass in Leadership
Morris Chang’s return was nothing short of transformative. Within minutes of reassuming his role, he recruited Rick Tsai to lead a critical department, ensuring continuity and leveraging Tsai’s expertise. Chang’s leadership during this period was marked by decisive actions and strategic foresight, addressing both immediate challenges and long-term goals.
- Reconciliation with Nvidia In 2009, TSMC faced a significant issue with its 40nm technology, resulting in production delays and financial losses for Nvidia, a key customer. To resolve the crisis, TSMC compensated Nvidia with hundreds of millions of dollars. This move not only salvaged the relationship but also underscored TSMC’s commitment to its clients.
- Securing Apple as a Major Customer TSMC’s pursuit of Apple began in 2007, but it was Morris Chang’s strategic acumen that sealed the deal. In 2010, through an introduction by Terry Gou, Chairman of Foxconn, Apple’s Jeff Williams met with Chang to discuss a potential partnership. Apple’s proposal included a 40% gross profit margin for TSMC, making it a lucrative opportunity. Despite competition from Intel, Chang’s direct engagement with Apple’s leadership—including a meeting with Tim Cook in 2011—secured the partnership. This decision was a turning point, as Apple’s business became a cornerstone of TSMC’s growth.
Strategic Outcomes: TSMC’s Resurgence
Morris Chang’s leadership catalyzed a series of strategic outcomes that positioned TSMC as the world’s leading semiconductor foundry:
- Technological Leadership: Under Morris Chang, TSMC pushed innovation forward. It overcame challenges at the 40nm node and advanced to smaller geometries.Client-Centric Approach: Chang prioritized client needs. TSMC reconciled with Nvidia and built a strong partnership with Apple.
- Financial Stability: Chang’s return ensured that TSMC remained financially agile, enabling investments in cutting-edge technology and capacity expansion.
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The Legacy Continues
By 2017, Rick Tsai transitioned to become the CEO of MediaTek, where he continued to emphasize talent development and industry trends like 5G and AI. Meanwhile, TSMC’s trajectory under Morris Chang’s renewed leadership became a case study in resilience and strategic brilliance.
Chang’s comeback not only rescued TSMC from a precarious position but also laid the foundation for its dominance in the semiconductor industry. His ability to navigate crises, foster critical partnerships, and drive innovation underscores the importance of visionary leadership in shaping the future of technology.
Conclusion
As TSMC continues to lead the semiconductor industry, Morris Chang’s strategic decisions during his second tenure as CEO remain a testament to his unparalleled impact on the company and the broader tech ecosystem. His legacy serves as an inspiration for leaders navigating the complexities of a dynamic and competitive industry.
