Acquired Season 9 Episode 3: TSMC
Authors: Ben Gilbert, David Rosenthal, Ben Gilbert, David Rosenthal
Overview
Season 9, Episode 3 of Acquired focuses on the Taiwan Semiconductor Manufacturing Company (TSMC), the world’s leading semiconductor foundry. The episode explores TSMC’s rise from an underdog startup to its current position as a global tech superpower, dominating the semiconductor manufacturing landscape.
Target Audience: This episode caters to a diverse audience interested in technology, business, and geopolitics, including investors, entrepreneurs, engineers, and anyone curious about the intricate workings of the global tech industry. It is particularly valuable for those in the AI field who rely on advanced chips.
Relevance: The content is highly relevant to current issues such as the global chip shortage, US-China relations, and the increasing importance of semiconductors in various sectors like AI, automotive, and consumer electronics. TSMC’s crucial role in enabling these industries makes understanding its history and operations paramount.
Place within its Field: The episode aligns with Acquired’s mission of exploring the stories behind great technology companies and offers a deep dive into a critical yet often overlooked player in the tech ecosystem. It contributes to a better understanding of semiconductor industry dynamics, competitive landscapes, and geopolitical factors affecting it. It explores TSMC’s unique business model, its strategic partnerships (like with ASML), and its dominance in advanced chip manufacturing. Listeners will gain an appreciation for the complexities and challenges of semiconductor fabrication, such as EUV lithography.
Central Themes:
- TSMC’s Unconventional Founding: Morris Chang’s unique journey and TSMC’s origins as a government-backed venture in Taiwan are highlighted. The initial challenges and skepticism surrounding the pure-play foundry model are contrasted with its eventual triumph.
- The Rise of the Fabless Model: The episode explains how TSMC’s success is intertwined with the growth of fabless semiconductor companies like Nvidia, Qualcomm, and Apple. TSMC’s role in enabling these companies to design cutting-edge chips without owning expensive fabrication facilities is a key theme. It ties directly into why AI is flourishing today.
- Technological Innovation and Process Power: The episode delves into the complexities of semiconductor manufacturing, the importance of EUV lithography, and the substantial capital expenditure required to stay at the leading edge of this industry. This reinforces TSMC’s process power and its ability to outpace competitors.
- Geopolitical Implications: The episode emphasizes TSMC’s strategic location in Taiwan and the potential risks and opportunities this presents in the context of US-China relations. This geopolitical lens provides insights into the vulnerabilities and importance of TSMC in the global tech landscape and how it impacts industries reliant on semiconductors, including AI.
- Key Playbook Themes: The episode extracts several playbook themes relevant to entrepreneurs and investors, such as:
- Never make strategic decisions based on pricing.
- Indecision is paralyzing.
- If something is not making your beer taste better, and every other company is doing it too, it is a massive opportunity to create a platform company.
- Winner-take-all dynamics in high fixed-cost, process-driven businesses.
Conclusions: The episode concludes by posing the question of where TSMC belongs among the greatest tech companies ever. By outlining TSMC’s extraordinary growth, market dominance, and geopolitical significance, it highlights the company’s critical role in the semiconductor industry and its broader impact on the global technology landscape. It allows listeners to formulate their own view about TSMC’s historical significance, while providing evidence to support a top 10 placement.
Book Outline
Essential Questions
1. How did Morris Chang’s leadership and vision shape TSMC’s trajectory?
Morris Chang’s leadership, vision, and adaptability were instrumental to TSMC’s success. His early experiences at TI and the setbacks at GI shaped his understanding of the semiconductor industry. Recognizing the limitations of the traditional IDM model, he created the pure-play foundry model, which addressed the challenges faced by aspiring fabless chip designers. His focus on operational excellence, fostering relationships with key players like Philips and later Apple, and his decision to prioritize process power and technology leadership propelled TSMC to its dominant position. His return from retirement in 2009 to lead TSMC through the mobile revolution underscores his dedication and strategic foresight. His willingness to learn, adapt, and take calculated risks was crucial for navigating the evolving technological landscape and establishing TSMC as a cornerstone of the global semiconductor ecosystem.
2. How did the pure-play foundry model transform the semiconductor industry, and what role did TSMC play in its development?
The pure-play foundry model, pioneered by TSMC, revolutionized the semiconductor industry by decoupling chip design from manufacturing. This enabled the rise of fabless companies like Nvidia, Qualcomm, and Apple, who could focus on design innovation without the burden of owning expensive fabrication facilities. TSMC’s focus on advanced manufacturing processes and economies of scale allowed them to provide cost-effective and cutting-edge production capabilities to these fabless companies. This symbiotic relationship fostered innovation and competition within the semiconductor sector, leading to a dramatic increase in the variety and performance of electronic devices and enabling the current era of AI and mobile computing.
3. What is the significance of TSMC’s strategic partnerships, particularly with ASML, in maintaining their competitive edge?
TSMC’s strategic partnerships, particularly with ASML, have been vital to their success. ASML’s exclusive development of EUV lithography machines provides TSMC with access to the most advanced manufacturing technology, allowing them to produce the smallest and most powerful chips. This partnership is a cornerstone of TSMC’s process power. By securing access to this critical resource and investing heavily in ASML’s equipment, TSMC has solidified its position at the forefront of semiconductor manufacturing, making it extremely difficult for competitors to catch up. This, in turn, attracts the largest and most innovative fabless companies as customers, further reinforcing TSMC’s position.
4. What are the geopolitical implications of TSMC’s concentrated manufacturing capacity in Taiwan?
TSMC’s dominance in semiconductor manufacturing has significant geopolitical implications, especially given its location in Taiwan. The company’s control over advanced chip production makes it a critical player in the global tech landscape and its concentration in Taiwan creates both vulnerability and strategic importance. As tensions between China and Taiwan remain high, the potential disruption to TSMC’s operations could have cascading effects on the global economy and national security, impacting industries from consumer electronics and AI to defense. This unique position requires careful navigation by TSMC, its customers, and governments worldwide.
Key Takeaways
1. Focus on Core Competencies
TSMC’s success demonstrates the power of specialization. By focusing solely on manufacturing, they achieved economies of scale and process power that allowed them to outperform integrated device manufacturers (IDMs). This specialization enabled the growth of the fabless semiconductor industry, fostering innovation and competition. The takeaway here is that companies can gain a significant advantage by focusing on their core competencies and outsourcing non-core functions to specialized providers, which is especially true in rapidly changing, technically demanding sectors such as AI.
Practical Application:
A software company can recognize that managing its own server infrastructure is not a core competency. By outsourcing server management to a cloud provider like AWS or Azure, the company can free up resources to focus on software development and innovation, similar to how fabless companies outsource manufacturing to TSMC.
2. Strategic Partnerships are Key
TSMC’s partnerships, especially with ASML for EUV lithography, underscore the importance of strategic alliances. Access to advanced technology and specialized expertise can be crucial for maintaining a competitive edge. By collaborating with partners who possess complementary strengths, companies can accelerate innovation and access resources they might not be able to develop independently, especially in capital intensive industries with high technological barriers to entry, like AI.
Practical Application:
A startup developing a new AI algorithm can partner with a company specializing in hardware acceleration to optimize the algorithm’s performance, much like Apple partnered with TSMC to manufacture its custom-designed chips.
3. Reinvest for Technology Leadership
TSMC’s ability to invest heavily in advanced manufacturing technology and capacity demonstrates how reinvesting profits to maintain technology leadership can create a powerful moat. This continuous reinvestment allows TSMC to stay ahead of the competition and maintain its position as the preferred foundry for leading fabless companies. For companies in fast-moving fields like AI, the relentless pursuit of technological advancement through reinvestment is essential for long-term survival and success.
Practical Application:
An AI product engineer developing a new AI model could leverage cloud-based TPUs or GPUs, focusing on model design and training rather than investing in expensive hardware.
1. Focus on Core Competencies
TSMC’s success demonstrates the power of specialization. By focusing solely on manufacturing, they achieved economies of scale and process power that allowed them to outperform integrated device manufacturers (IDMs). This specialization enabled the growth of the fabless semiconductor industry, fostering innovation and competition. The takeaway here is that companies can gain a significant advantage by focusing on their core competencies and outsourcing non-core functions to specialized providers, which is especially true in rapidly changing, technically demanding sectors such as AI.
Practical Application:
A software company can recognize that managing its own server infrastructure is not a core competency. By outsourcing server management to a cloud provider like AWS or Azure, the company can free up resources to focus on software development and innovation, similar to how fabless companies outsource manufacturing to TSMC.
2. Strategic Partnerships are Key
TSMC’s partnerships, especially with ASML for EUV lithography, underscore the importance of strategic alliances. Access to advanced technology and specialized expertise can be crucial for maintaining a competitive edge. By collaborating with partners who possess complementary strengths, companies can accelerate innovation and access resources they might not be able to develop independently, especially in capital intensive industries with high technological barriers to entry, like AI.
Practical Application:
A startup developing a new AI algorithm can partner with a company specializing in hardware acceleration to optimize the algorithm’s performance, much like Apple partnered with TSMC to manufacture its custom-designed chips.
3. Reinvest for Technology Leadership
TSMC’s ability to invest heavily in advanced manufacturing technology and capacity demonstrates how reinvesting profits to maintain technology leadership can create a powerful moat. This continuous reinvestment allows TSMC to stay ahead of the competition and maintain its position as the preferred foundry for leading fabless companies. For companies in fast-moving fields like AI, the relentless pursuit of technological advancement through reinvestment is essential for long-term survival and success.
Practical Application:
An AI product engineer developing a new AI model could leverage cloud-based TPUs or GPUs, focusing on model design and training rather than investing in expensive hardware.
Suggested Deep Dive
Chapter: The Rise of the Fabless Model”, “Technological Innovation and Process Power”
These sections offer a crucial understanding of the dynamics between design and manufacturing, which are essential for any AI product engineer working with hardware-dependent AI systems.
Memorable Quotes
Comparative Analysis
Acquired’s episode on TSMC can be compared to other analyses of technology companies, such as those featured in books like “Bad Blood” by John Carreyrou or “The Innovator’s Dilemma” by Clayton M. Christensen. While “Bad Blood” focuses on the downfall of a fraudulent company, it shares a similar theme of ambition and risk-taking with the TSMC story, albeit with vastly different outcomes. “The Innovator’s Dilemma” provides a framework for understanding how established companies can be disrupted by new technologies, a concept directly applicable to TSMC’s impact on the semiconductor industry and the rise of the fabless model. Unlike other tech company case studies that often focus on product or market dynamics, Acquired’s TSMC episode uniquely highlights the power of manufacturing and process excellence. It provides a contrasting perspective to narratives that center on software or platform businesses, showcasing how a focus on a critical link in the value chain can lead to global dominance.
Reflection
TSMC’s story provides a fascinating lens through which to view broader trends in the technology industry and global economics. Their dominance highlights the increasing specialization and interdependence within the tech sector. While the fabless model has unlocked tremendous innovation, it also creates concentrated points of power and potential vulnerability, as exemplified by TSMC’s strategic importance and the geopolitical risks associated with its location in Taiwan. The episode raises important questions about the long-term sustainability of this model, particularly in a world marked by increasing geopolitical uncertainty and potential supply chain disruptions. While TSMC’s current moat seems formidable, future technological breakthroughs or political events could reshape the semiconductor landscape. One must also consider the environmental impact of TSMC’s massive manufacturing operations and the industry’s increasing energy demands. Despite these challenges, TSMC’s journey provides a compelling case study of how a company can achieve extraordinary success through specialization, strategic partnerships, and a relentless focus on process power. It remains to be seen how they will navigate the future and if they will be able to maintain their extraordinary trajectory.”
Flashcards
Who is the founder of TSMC?
Morris Chang
Where is TSMC headquartered?
Taiwan
When was TSMC founded?
1987
What is TSMC’s business model?
Pure-play foundry
Which company provides TSMC with EUV lithography machines?
ASML
What is the most advanced process node TSMC currently offers?
5 nanometers (currently)
Name three prominent fabless companies that rely on TSMC.
Nvidia, Qualcomm, Apple
Who is the founder of TSMC?
Morris Chang
Where is TSMC headquartered?
Taiwan
When was TSMC founded?
1987
What is TSMC’s business model?
Pure-play foundry
Which company provides TSMC with EUV lithography machines?
ASML
What is the most advanced process node TSMC currently offers?
5 nanometers (currently)
Name three prominent fabless companies that rely on TSMC.
Nvidia, Qualcomm, Apple