Morris Chang, founder and CEO of Taiwan Semiconductor Manufacturing Company, will officially retire today (June 5) after leading the company for 31 years.

At the age of 86, Chang is not as young as tech CEOs like Mark Zuckerberg or Jeff Bezos. His company is not a household name, despite its valuation of nearly $200 billion.

But his influence on the tech industry has been just as great as those founders. Speaking at Stanford in 2007, Nvidia CEO Jensen Huang described TSMC as a “platform” company, a term often used to describe firms like Microsoft or Amazon. Similar to how those giants enabled new businesses for software and e-commerce, TSMC did much to create the $100 billion fabless semiconductor industry.

A fabulous discovery

Before founding TSMC in 1987, Chang already epitomized the successful American immigrant. After leaving China around the time of the civil war to attend Harvard, he transferred to MIT and earned a master’s degree in mechanical engineering, followed by a PhD in electrical engineering from Stanford. In 1958, he began working at Texas Instruments, where he remained for 25 years and rose to become head of all its semiconductor businesses. He later served a short stint at General Instruments, one of its rivals.

In 1987, Chang could have retired. Instead, the government of Taiwan recruited him to found a company that would help boost the country’s high-tech sector, which lagged behind those of Japan and the US. He conceived of TSMC as a remedy to problems faced by the global semiconductor industry, and to ones faced by Taiwan itself.

At the time, chipmaking companies were concentrated largely in the US and Japan. The leading firms—Intel, AMD, NEC, Fujitsu—both designed and manufactured the chips used in any number of gadgets. This model posed problems for the industry. Maintaining a factory for producing chips—known as a “fab”—was expensive. Equipment quickly grew obsolete as chips became more difficult to manufacture. Meanwhile, startups with ideas for new chips had to either build their own factories or rely upon existing chip giants to manufacture for them. Speaking with the Computer History Museum in 2007, Chang said:

“When I was at TI and General Instrument I saw a lot of IC designers wanting to leave and set up their own business, but the only thing, or the biggest thing that stopped them from leaving those companies was that they couldn’t raise enough money to form their own company. Because at that time it was thought that every company needed manufacturing, needed wafer manufacturing, and that was the most capital intensive part of a semiconductor company, of an IC company. And I saw all those people wanting to leave, but being stopped by the lack of ability to raise a lot of money to build a wafer fab.”

Chang’s key breakthrough was to focus solely on manufacturing—TSMC would design no chips of its own, and build a business that solely involved making chips for other companies. Taiwan’s government, Philips Electronics, and a group of private investors pooled together $220 million (link to video) to fund the venture.

Another factor that led to Chang pursuing the pure-play model was his location. Taiwan, in his view, could not compete with major chip companies in design. But it had enough experience making products for other companies to potentially become a leading manufacturer of chips.

“We had no strength in research and development, or very little anyway. We had no strength in circuit design, IC product design. We had little strength in sales and marketing, and we had almost no strength in intellectual property. The only possible strength that Taiwan had, and even that was a potential one, not an obvious one, was semiconductor manufacturing, wafer manufacturing. And so what kind of company would you create to fit that strength and avoid all the other weaknesses? The answer was pure-play foundry.”

The “godfather”

Over the next two decades, TSMC paved the way for a surge in “fabless” chip companies that design chips but outsource manufacturing. An industry once dominated by large tech conglomerates suddenly opened to startups with minimal capital. Between 1999 and 2015, sales from fabless chip companies quadrupled (pdf), and went from making up 7% of total semiconductor sales to 29%.

Most of this money goes to TSMC. It’s by far the world’s largest semiconductor foundry, capturing 60% of the industry’s sales according to research firm Trendforce. Chang became known as the “godfather” of the chip industry.

Qualcomm and MediaTek, which design the processors for most of the world’s mobile handsets, are each fabless companies that have worked with TSMC. Nvidia, which designs graphics processing units (GPUs) for computers, is also a TSMC customer. So is Apple—In 2016, 17% of TSMC’s revenue (paywall) came from the phone maker, which relies on it to produce its most important chips.

TSMC also manufactures for hundreds of other chip companies, large and small, that the average consumer has never heard of. In 2016, TSMC states, it manufactured 9,275 different products for 449 customers. “Name any fabless firm that came after TSMC. It’s hard to see them as embarking on this path without TSMC,” says Doug Fuller, who researches Asia’s semiconductor industry at Zhejiang University.

Decades since its founding, TSMC is now Taiwan’s true tech behemoth. It’s the most valuable company on the island, with a market cap more than three times that of Foxconn Technology Group, one of Apple’s major manufacturing partners.

End of an era

Nvidia’s Huang, speaking to Taiwanese media, called Chang’s resignation the “end of an era,” adding (link in Chinese), “Every time I meet with him, he’ll always ask me more than 50 questions, starting from the time I sit down. He’s constantly learning and his memory is excellent.”

Chang is handing off TSMC to two successors: C.C. Wei, who will serve as chief executive, and Mark Liu, who will serve as chairman. They’ll face significant challenges.

Global smartphone sales are slowing, and the new iPhone isn’t selling well (paywall). Bitcoin mining rigs might bring in potential new business, but the cryptocurrency’s volatility could affect demand. Meanwhile, the US-China trade spat could upset the broader supply chain for electronics (paywall), leaving TSMC with fewer orders.

Chang, who in interviews maintains a placid demeanor, told reporters (link in Chinese) in Taiwan he’s not worried. “The future definitely has its challenges—demand for semiconductors always advances as technology progresses. It’s possible the world will need TSMC even more in the future than it does now.”

By: DocMemory
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