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TSMC's founder retires amid 'challenges from various fronts'

Morris Chang remains cautious about a trade war

A Taiwan Semiconductor Manufacturing Co. shareholder with Morris Chang, who retired on Tuesday as head of the company he founded in 1987, in Hsinchu, Taiwan. (Photo by Cheng Ting-Fang) 

HSINCHU, Taiwan -- With hundreds of shareholders and employees offering an enthusiastic standing ovation, as if they were attending a maestro’s final concert, Morris Chang, the legendary founding chairman of Taiwan Semiconductor Manufacturing Co., retired on Tuesday as head of the world’s biggest contract chipmaker and a supplier to Apple’s iPhones.

The widely revered industry leader’s retirement marks the end of an important chapter for Taiwan’s flagship chip industry, which is the world’s No. 3 by revenue after the U.S. and South Korea. However, Chang said there are still several hurdles ahead for the company that he founded in 1987.

“We are seeing challenges from various fronts … and we are treating the competition in the market very carefully,” Chang, often referred to as the godfather of Taiwan's chip industry, said at the company’s annual general meeting, which he hosted on Tuesday for the last time before stepping down.

Chang, who turns 87 in July, was referring to threats from South Korea’s Samsung Electronics and Intel of the U.S., two semiconductor giants that are looking to expand their foundry business -- making chips for others. TSMC is the market leader with 56% of the global market share. Meanwhile, China is pouring massive amounts of funds to support homegrown chip producers, such as Semiconductor Manufacturing International Corp., a distant smaller rival of TSMC.

Chang said he expects China to “make major progress” in chip manufacturing over the next five to 10 years, but added that he did not think mainland rivals could catch up with TSMC. He said that while it is easy to inject financial resources into the industry, it takes much effort to manage chip manufacturing, citing the need for experienced talent and noting the long learning curve.

 

Morris Chang speaks to shareholders on Tuesday. He announced last year that he would step down as TSMC chairman, and said two company veterans would form a leadership team to succeed him.  (Photo by Cheng Ting-Fang) 

Other looming issues that TSMC will have to contend with include the uncertainties brought on by the ongoing trade dispute between Beijing and Washington, and the growing technical hurdles in chemistry and physics that must be addressed in order to continue to churn out even powerful and advanced chips, he said.

“We have a very large customer base in the U.S., and we have a very large revenue base in China, too,” said Chang. “If the U.S. and China get into a trade dispute or it becomes something like a trade war … we will be affected in some ways. But that is something we can do little about.”

He noted that to resolve basic technical issues, TSMC has roughly 30,000 dedicated engineers -- half of whom have master’s degrees and about 2,000 of whom have Ph.D.s -- to facilitate the development of nanotechnology. But Chang also raised concerns over utilities -- and whether Taiwan, the company’s most importance production base, would be able to continue to provide secure resources of water, electricity and land over the long term.

Still, Chang was upbeat over the prospects that his successors would continue to accomplish achievements as TSMC has done over the past three decades. He said that over the next 10 years, smartphones would likely continue to play a key role in society and that further innovations will come in artificial intelligence applications that will require even more silicon chips.

Chang announced last October that he would step down as the company’s chairman, and said two company veterans -- and the company's co-chief executives -- would form a dual leadership team to succeed him.

C.C. Wei becomes the company's sole chief executive, taking over all daily operations of the entire company, while Mark Liu assumes the chairman’s post to oversee the company’s major decisions. Both men are board directors, and Chang will not hold any positions at the company.

Under Chang’s leadership, TSMC has grown into a chip empire with a market value of 5.94 trillion New Taiwan dollars ($199.37 billion) as of June 4 -- similar to that of AT&T -- and has long served as Taiwan’s largest company by market capitalization, accounting for roughly 18% of the local stock market.

TSMC has 465 customers worldwide, and employs 47,000 people. Without Chang driving innovation at the company, Apple, Qualcomm, Broadcom, Nvidia, MediaTek, Huawei’s chip unit Hisilicon Technologies and nearly all global chip makers would likely have found it much more difficult to deliver various electronic products, including iPhones, with the strong computing power they now enjoy.

“It is the bedrock that the industry’s technology is built upon,” Jensen Huang, founder and chief executive of California-based Nvidia, told reporters last week. “Not one great company that I know doesn’t rely on TSMC … you can’t mention one.”

Wu Chia-chao, chairman of Taiwan-based memory chipmaker Nanya Technology, praised the retiring executive. “Through the past three decades, Chairman Chang helped put Taiwan on the world map with its prominent semiconductor industry, and [he] cultivated a complete chip ecosystem and supply chain that supports the island’s economy,” he said. “Chang also set a high bar and served as a role model of running a business that all executives in the tech industry will always look up to.”

Born in 1931 in Ningbo, in China’s eastern Zhejiang Province, Chang moved to the U.S. at the age of 18. With a doctorate in electrical engineering from Stanford University and solid executive experience with U.S. chipmaker Texas Instruments, he was invited by the Taiwanese government to build a world-class chip industry from scratch on the island back in the 1980s. At that time, Taiwan’s average national income was $4,974, while in 2017, it reached $21,159.

TSMC's revenue has skyrocketed to NT$977.45 billion in 2017 from NT$19.3 billion since it went public in 1994. Its net profit has grown more than fortyfold during that period to NT$343.11 billion.

“It’s a good arrangement for TSMC to form the dual leadership, rather than choosing only one,” Chintay Shih, former board director of TSMC, told the Nikkei Asian Review. “At the moment, that’s probably the best way to retain top talent and executives for the company.”

For most market watchers, it will take time for TSMC’s new management to prove their ability to lead the chip company without Chang.

Professor Joseph P.H. Fan of Chinese University of Hong Kong, an expert in corporate succession issues, said new leaders need to contend with the confidence issue, and that making investors feel as secure as they have been with Chang could be difficult. “Investors might look at the company’s performance in a more strict way,” he said.

“We are still monitoring,” Andrew Lu, a Hong Kong-based analyst at Sinolink Securities told Nikkei. “If there are any major changes in the market, including competition from Samsung or any unexpected global incidents, that would be a real first test for the new leaders’ decision-making capabilities in dealing with a crisis without Chairman Chang,” he said. “Otherwise, we expect TSMC’s operations to stay smooth for the near term.”

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