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Do you think people can tell when more like fishing for T A quotes?

I think theyll be able tell on this one who.

Get true. get. Easy you with you, with you see me down, say welcome two thousand and nine episode three of .

acquired the podcast about great technology companies and the stories and playbooks behind them. I am the gilbert and I am the cofounder and managing director of seattle based pioneer square labs in our venture fund, psl ventures.

David s, and I am an angle investor based in co.

And we are your hosts. Well, listers. David, I are common at you alive, well, sort of live together from seattle in person, first time. So, a theory, an episode, David.

that's right, which was not that long ago, love that were back in the swing in the things .

I know I feels listeners, you pray, don't notice a difference. But IT feels totally different to be doing this with you in person. David, in four, three.

energy in the room is electric.

Well, today's episode is on T, S, M, C. Or the taiwan semiconductor company is your classic? Uh, most people have never heard of IT, but it's the ninth largest company in the world.

Episode is a wild, more of chain founded. S, M, C, at age fifty six, retired at seventy four, then came back seventy eight into the deal to make all of apples chips. And yeah, we're going to tell the whole story here. It's wild.

It's not. They make literally every chip in every iphone sold today and soon to be in every mac sold. If you're excited at all about NVIDIA A M D qual com or even a either chips that a amazon, microsoft, facebook, apple are making, all of those chips are nearly all of them are actually made by T S M C, along with all the chips in your cars and your smart devices, fighter jets and everything. Unbelievably, this company that the entire world relies on is on an island that some countries feel is a sovereignty, and the people's republic public of china fuels is actually theirs. So today's py ode has IT all assending from start up to tech, superpower and underdog founder, and of course, a good dose of geopolitics.

Okay.

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Well, listeners IT finally felt like the right time to do this episode amid this global chip shortage that we've got going on. The David, I think i've heard even ford has pauses the production of f one fifties because of this. So that is like a massive impact on the world. I think we've had T S M C on the agenda to do for like two and a half years now, our little google duck totally.

I feel like we haven't called IT in many series, but let's called in many series .

on semiconductors.

And like silicon episode ARM sode. This go apart, one we've done to P, M. I.

yeah. Okay, listeners, IT is time to jump in to the history and facts, and David is gna lead us in that. But as usual, even though we're going to be play very excited about some companies, less excited about other companies, the show is not investment advice.

We may have investments in the companies we discuss is for entertainment and informational purposes only. And you should do all of your own research, even if you listen to the show for research purposes. Going to do other research.

I do. You hold T, S, M. C. I don't.

I don't wish I did. I do not. I really wish I did. Starting crew pendexter well.

have to think about IT as we go to this episode. Kay speaking up. We start in ningbo, china in july nineteen and thirty one, just about one year after warn. Edward buffet was born in omaha, nebraska, and there can be quite a few parallels here as we go through the official.

But july nineteen thirty one, in the boo, china are protectionist doctor morus chain order of the propitious clouds with special grand cordon, which is the highest civilian honour that anyone in taiwan can hold. So so is like a night of taiwan, the order of propecia clouds. And then I think there's like nine ranks of IT, and the highest is special grand cordon.

And he's special grand.

He's special. Yes, he is very special. So he was born then for those who are unfamiliar with chinese geography, ningbo is a small city, just a bit south of shanghai. You know, small, like is about eight .

million people icilius.

No, but if I was still probably pretty big, but yeah, today, eight million people, crazy. So Morris's father was a county official and later became a bank manager. So the family moved around a bunch a good bit within china, as his father was transfering for work.

This is three people's republic of china. This is pre world war two. This is the leagues, a very different place.

right? The leadership is not communist.

St, no, no, no. So his early childhood years were like middle class, not wealthy, but like pretty well to do relative to your average chinese citizen. Then, when he was six, the second sio, japanese war brakes, and Morris and his mom flee the main part of china to hong kong, and they go to live in hong kung for a few years to escape the air adds in the fighting.

And then on december eighth, nineteen forty one, three hours after perl harbor, the japanese SE attack and invade. Hunk, more talks about this. Yeah, everybody knows you pro harbor like december seventeen, forty one.

What people don't often talk about is like the same thing happened in hong kong three hours later on the next day. So they are in hong kang, so they flee again back to china. They end up in shanghai this time, and they stay there for a few years until one thousand and forty eight after what were two is over.

But that's when the chinese civil war breaks out that would lead to the chinese coming this revolution. And so they flee again back hong kong. So this is crazy.

More before he turns eighteen, he has lived through three major wars, the second signal, japanese war, where were two, and the chinese civil war. crazy. So the next year, in nineteen forty nine, which is the same year as the establishment of the PRC, the people's public of china, morus turns eighteen.

And with the help of an uncle that he has in boston, his life completely changes. He gets accepted, the harvard. So he goes to the U. S. He goes college at harvard. Like, wow.

I want to change your fate.

Talk about change fate, change. C everything more says much later, my reaction entering harvard was sheer ecstasy, almost disbelief, what a country the united states was at its peak in its moral leadership and its political leadership in terms of democracy. And IT was the rich test country in the world.

not to mention stable. I mean, you could say what you want. You could count on the fact that it's likely that ten years from now, whatever economic structure, political structures exist, continue to exist. If what you want to do and what he ended up doing with his whole life is innovate, having that stability around you and all those structures enable you to do that.

yeah like we just take this for going to put this a good reminder early at the very least he's probably ly not going to have to flee boss IT and I continue his studies but he doesn't up playing harvard as what did they do so morus loved IT. It's even that quote we read like he was so overjoyed to be there. But he realizes he has kind of a new problem in american at harvard.

His parents aren't coming over. He's on his own. He's got a support himself and make his own way. And at that time, his race is probably gonna limit his opportunities.

So as he says, quote, in the early fifties in the united states, there were chinese laundry men, chinese restaurant tears, chinese engineers and chinese professors. There is where the only respectable for chinese, no lawyers, no accountants, no politicians. And what is hardly turn out, lawyers, sort of accountants, maybe politicians? yes. Yeah.

not a lot of professionals .

and professions as we will see, as we will go along more as uh is much more than a finance professional. But harper actually didn't have an undergrad engineering program at the time. Ha.

that's crazy to think about .

if you're really, really focused. You're probably gonna go down the street in cambridge from harvard to M, I T to M I T, which more does. So he only spends freshman year there.

And then for his software, he transfers to M, I, T, so that he can study mechanically engineering. We're, after the next episode that the tim cosponsors were going, have to add T S, M, C to the alami companies list. Amazing what IT is. Amazing like the number of companies and market cap that have come out of that university is incredible.

Can pilot right and pilot .

that's right. We have so many companies to add the list um all three cofounder ers from pilot mt. lums.

So Morris or man, he has learned the ways of the world in the U. S. He's focused.

He finishes his under. He starts mechanical engineering a year hind at MIT. He finishes both undergrad and his masters in the remaining three years.

And what year is this?

This would have been nineteen fifty one when he transferred, followed nine hundred fifty one.

okay. So like to contextualize what's going on in the tech world right now, quote, around IT, because is not so much a world as a very small continent. I mean, you have all of the post world war to defense spending that went in, particularly in the west coast, over with the innovations from stanford, but has fair child .

and I conductive?

So maybe shocky said my conductor.

shockley semiconductor, was probably just getting going, but we're probably .

still in vacuum to like the lab.

Like the transistor, to give a sense, silicon is years away. Transistors are probably just getting going. We're not in the integrated circuit yet and it's all being done in germania.

Not I can.

wow. So it's like this is O G. yeah. So after he gets his masters in the three years, Morris wants to stay and do A P, H, D, fully complete his technical training, but he ends up fAiling his qualifying exams twice. They give you two chances to take any. He fails twice by though.

the good time to say. So David and I watched and listen to every footage that Morris has ever spoken that has been released publicly to prepare for this. He is very funny.

Ah he's the way he talks about this. He says that unfortunately the biggest impediment to him going for that he failed the qualifying exam. But fortunately for him, they were kind enough to let him take a second time, which he also failed. And he has this really dry, clever since humor.

So one of the international ks, about one of the stanford ones, he gets a question from the audience about how did he kick his smoking habit? Yeah, that like that. The question is, like, I know you used to smoke.

Like, how did you finally stop and he's like, I never stopped. I still smoke. He's like, ninety four years old .

and he said he goes on to make the case for a while. He's a pipe smoker and actually even though smoking is hurt to his lungs is actually beneficial for mental life, so pretty sure it's prolonged .

his life but he says he's his delve into the data and pipe smokers live longer than the.

which i'm sure you can find data support that and also sure you can find plenty of data, a few a sense of humorous is okay.

So he's failed as qualifying exams. He's GTA go out and get a job and know not as A P. H. D.

He's got to go get a job as a like super energy levels is an engineer, I mean, as a masters is degree. But stop. okay.

So legend has IT. He has a couple java offers, the one he really wants. Remember, he is a mechanical iner. And this is like super early days of technology. It's not really .

think there was electrical engineering at this time.

Yes, he could the election but the like in terms of where you would want to work. Like it's not really on anybody's ready screen, especially Morris, that like you go enter the tech history, right? So he gets his dream job offer from the ford motor 点 company。

Oh, no way. Yes, I do that.

And this is, this is a.

but let's repeat the approach about to hundreds of thousands of people here.

So the legend has IT that ford offers him a salary of four hundred and seventy nine dollars a month to go take an entry level job. And then he has a competing offer from sylvania ave, new semiconductor division .

and sylva. I know of this company only because my vacuum .

growing up was a in one second. This is the competing job offer he's considering. They offer him a salary of four hundred and eighty dollars more, the one more, and has asked ford to beat him.

His offer, they didn't. And so he took the souvenir. Jb ff, sure that say one hundred percent back. Yeah, but you know, mars, he's great.

So speaking of solana, do you remember some portion of audience remembers? But do you even remember who else started their career in sylvania semiconductor division right around this exact same time? We have talked a lot about this in this person on the show. No, Donald tea valentine.

no way. Stop that. right?

So he started at sylva after for them, or maybe after .

the military.

And well, I know that was on. And then he joined the child right after the trader left start. Child.

you're Better at remembering deep details of all the episodes.

And I am what I do a lot of research, and sometimes research includes past quired episodes. We've truly like become a secular function here.

So they didn't overlap down valentine.

and they were never in the same place. Uh, they were in different locations and different job functions, very different job functions. But they were both, I believe, both at sylvan, amazing at the same time, crazy. So done is out.

Len, in california, like you you're talking about and falling in love with california, he's playing water polo is like, oh my god, I never going to leave this place Morris, he's on the ground he gets posted as a junior engineer at sylvan IaaS ipswich massachusets plant. Not quite the same glamour has done out and said in california, so remember more system mechanical engineer, he doesn't know about the engineering but is working in this new some I conduct division. So after work, he's living in a hotel, by the way, he doesn't get an apartment.

It's like some company is sponsored hotel. Like, what a sad existence. He goes home back to the hotel from work. And he studies the best textbook that he can find, a about electrical engineering, which is entitled electrons and holes in semiconductors, with applications to transient electronics, written just recently, you know, couple years before, in one thousand fifty, by William sharky.

wow.

yeah.

shocking. And two other guys basically invented the, i'm not sure I was the first transistor, but the first transistor of the type that everything else would then be sort of built upon when they were at bell labs. Not too long before this.

Yeah, not too long at all. I mean, vack like any acqua vacuum tubes. And then shocky went in the transistor, and then in a sc, we're going to talk about the integrated circuit that bob noise and jack kilby, who are going to talk about, invented, I invented.

But anyway, okay, back to this moment in time. So more, this is just studying the sharky textbook in his hotel room. But like he's not a colleague, he does not know teacher, he just has the book.

Oh, but he is very resourceful. So he figures out that one of the senior engineers at the plant is kind of an alcoholic and hits up the hotel bar almost every night. So what more does is he comes home from work in the early evening.

He studies in his room for a couple hours, and then later at night, when the older colleagues shows up at the bar, morus goes down to the bus not to drink, but he brings the textbook, and he asked the guy questions like, I don't understand this. I don't understand that grow just like buying drinks for his body. So great, incredible.

Here's the quote he says later. He, being the older colleague, didn't solve all my problems, but he solved enough so that I could move ahead. He was my main teacher, a about electrical engineering.

So great. wow. So this goes on for three years with more is like he's like role and hard, like he he's burn in the candle about ends working and at the bar, but not drinking.

Learning, but as he like is learning, the industry is coming up speed. IT becomes pretty clear to him that if he really wants to go places in this new emerging industry, sylvania not really the right bus to be unsure to speak. And obviously down valente think you have the same thing jumps to raise on and then to fair hotel. Morris says that the moment when this cristal zed for him was there was a talk that a senior manager at LV anian a gave at the plant and the quote that the sea m. Henager said that stuck with forests for the rest of his life was we at sylvania, a cannot make what we can sell, and we cannot sell what we can make real great physical .

to be in. So as a sign.

if so, no, like down more leaves so many for Green pastors, however, not to california. Half way in between is really yeah half way in between. So we talk a lot about, you know fair tile, the trader seat, so valley BBA blah, you know the place to be like here's the secret silicon value, all marketing like the biggest semiconductor company in all types.

Digital, analogue. Everything at that time was not in california. He was in dallas, texas. IT was texas instruments, which.

of course, me, you many people in our generation know of as the people that made our crafting and calculators in high school, college. But of course, at this time, I don't even think they had a consumer division yet.

No, no, no. That's going come up later. No, T, I was the john n.

aleg. Now was silicon valley is sick valley. But then I was like, yeah, OK, california, west coast.

Like T I was the bag on comment. They were the dog. T, I actually got its start. I no idea before doing the research here in the thirties. Like, you're like, how did the technology company end up in an assembly?

Elector company end up in dallas, texas? They started making instruments, texas instruments, for measuring seism activity for oil exploration. So all the oil company.

they were like the T, S.

C. League, the technology provider to oil companies. And that's what made them into computing and into digital to power. That is wow.

And yes, like they were huge, not just huge in terms of lake the company, but they were the technology leader. So bob noise, like I was saying a minute to, is credited. You know, when he was a fair child, inventing the integrated circuit all that well, he was a coin.

Venter simultaneously was complemented by jack kilby, who was T. I. And jack was actually the one who got the nobel prize for inventing the integrated circuit. Gord Moore, who was also in a fair child and then found in til on with noise, he would coin morse law.

The jack has a great quote, too, about the implications of the integrated circuit and some I conductors he says what we didn't realize then this was a little latter when when they were inventing IT, was that the integrated circuit would reduce the cost of electronic functions by a factor of a million to one. Nothing had ever done that for anything before. It's such a great way to frame IT too. Like this doesn't never happened in human history. Well, like there is this lake, this thing that used to be x expensive in terms of resources, and then magically one day it's a million times cheaper.

Yeah, that's crazy. I didn't realize that was on that scale. This is probably a good time to talk about some definitions because there are some things that we've thrown around already that it's worth I think everyone has a general understanding of what these things are, but it's worth understanding more precisely before we move on.

The first of which is a transistor. The best way to think about a transistor is not the tiny little transistor that's on a silicon die today, but think about IT as a little in case piece of circuitry with three prongs coming out of IT. And those three prongs will save the technical names.

Basically have an input and output, and something that controls the input, the output, it's switch. IT has two purposes, the first of which is being a switch where you can decide that either. Lots of stuff is gonna through its stuff being voltage, current or none or IT rounds to none.

And so that way you can decide, hey, this binary piece of equipment is either of zero or on one. okay? So that's a transistor.

Now a transistor can be made out of lots of different things that can take any implementation. Why is everybody talking about silicon? Well, silicon as an element is a semiconductor.

IT is a meta loyd. IT has some properties that make IT like a metal, like a conductor. IT has some properties that make IT non conductive, like imagine trying to move electrical signal through a piece of wood.

It's not gonna, but imagine moving IT through copper. It's going to work well and you're never going to be to intercept. Well, jez, wouldn't IT be great if we had some material, a semiconductor, where we could modify .

whether current .

was falling through IT or not.

Lot of doctors, junior was the main material for a while. But like germanium, ms, expensive, rare. I said it's like the .

second most planner, full, mindful element on earth.

Um yeah, it's right. Yeah, what major thing talking about transitions the integrated circuit the integrated circuit to insist you know like it's a switch before the people are making switch, like can make one switch at the time you wire IT to another switch that's like you know if you've seen photos of of any ACC and vacuum tubes, like literally they're plugged in one tube into another, still doing that, which transistors when noise and kilby invent the I see now you can put a lot of switches on one thing and you know afford today, like you know the latest processors. You know, the five animals tre processors that T, S, M, C M, basically nobody else is turning out. The billions, trillions of switches are.

And like a tiny little .

great test irca without the integrated circuit that never what happened. So this invention, this oraculous invention of the integrated circuit, IT, happened in one thousand fifty eight. When did morus chang join texas instruments? One thousand nine hundred .

and fifty eight? fascinating. coincident?

yes. Totally solution.

A coincident. And again, the piggin history here were still, I think, ten years before the found out of intel.

Yes, exactly ten years yet, more obviously wasn't working directly with jack on inventing the I C. But like this gives you a sense, like T I, like this is the place is a google plus .

facebook out the .

world attention to. So morus gets a sign as the first project to a sort of a problem child within T. I. They have entered into a deal with IBM.

IBM is working on their first main frame computer, major project that's going to use transistor o logic instead of vacuum tubes. The IBM seventy ninety. And the anticipates so much demand for this product, usually IBM manufacturer, everything for all their products themselves.

But therefore, we need more chips than we're going to be able to make ourselves. So we need a second source for our chips. They turn the T I. And they're, hey, we give you all the designs for, you know, how to do this, this group that we want for our product. We want you to additionally manufactured some of these in addition to our own line.

You might even say almost like a you know contract manufacturing of chips or like like a founder business almost you know HMM interesting, but it's not going to well. So I bms own plant is turning out transistors with about a ten percent yield, which means that of you know, every hundred chips that they turn out of the plane, ninety percent of them fail and only ten percent of them work. Yeah, that's the first party.

Why the T, I line has about a zero percent yield like they're they're got any that where almost everything coming off the line fails. A, T. I, when Morris shows up.

So morus would say about this later quote, the supervisor was concerned, the Operators were concerned, everybody was concerned. So mori, remember, he's mecco engineer by training, right? So he starts inker ings, like, well, I know, you know, this is a mechanical process, you chemical, mechanical process creating this stuff.

I'm gna use my training and like optimize IT, like a good mechanical al engineer. So he starts to doing himself. And after after about four months, he gets the yields at the T I.

Plant up to twenty percent. So twice as good as the first party line at IBM. And there's a great profile.

There was one of the main sources for the episode in I tripoli spectrum. Oh yeah, great industry magazine that will call from here. They suddenly even T.

I. President pat hegarty, new morses name IBM thought chain had just gotten lucky. But when the company IBM send engineers down to talk to him, morus described the theories he had been testing and explained why his experimental process worked.

This achievement propelled him into his first managerial job, creating a germanium transistor development department with twenty plus engineers reporting to. So this is the first big win here in the founder business. So on the back of all this, T, I is like, we ve got a rising star here. They offered to sponsor him to go finally get his P, H, D. They even offered to continue paying his full salary while he's getting his p.

which are paying for .

very highly. I mean, this one probably made the millions doing this in nineteen fifty eight.

It's funny. Don't know anything about the commercial success of that particular IBM mainframe, but if it's the first one that transistor based instead of being vacuum to bed, I have to imagine that was like far more efficient for customer as customers apply lining up for IT.

I bet there's a lot of debut. Me know what's more is making a year like twenty thousand dollars. Maybe you know how much the cost of a stanford then? Not much.

So a telic shirt. So more stanford like he's now like a big mud. He has found his calling.

He can't wait to get back to texas, back to T. I. So if he finishes his P H.

D in two and a half years, wild um one of the ford of uses with uh john henney, the president stanford at the time and they're joking a valley like john like how tell the students how did you finish your P. H. D.

And two and half years I was focused. I didn't do my else. So by one thousand nine hundred and sixty four he's done his back at T. I. And this is right as people discovered, the silicon is like way more cost effective and scales up way Better than.

and if I remember right, the initial attempts at using silicon or that people didn't know how to work with IT yet. And so even though he was more abundant and cheaper, there's some particular manufacturing process that you have to do to silicon in order to make IT as viable as IT became. Yes.

that is definitely correct. I don't remember exactly what IT is, is one of them. You know there are so many silicon and my conductor terms like it's not a meos I conductor that comes later we're going to talk about. It's some one of those things that's like an innovation about how to transform, how to do p silicon to make IT work as a function and produce that scale as a some I connector.

And listening is this is where you should start to get the idea that, especially today, manufacturing these products involves the most advanced process in human history, consisting of layers of innovation and chemistry, physics, mathematics. It's breakthrough after breakthrough after breakthrough, all building on top of each other, which need to all happen in the manufacturing process.

So even here in one nine hundred 4， we're starting to get into the level of complexity. Where is some of the most advanced science ever done being applied in an engineering and manufacturing fashion to get even marginal results? You know, twenty percent yellow of .

the manufacturing line. And you know, low previewed fast ford today. T S M C, their contract manufacturing for silicon, that is what they are.

T S M C has forty percent Operating margins as a contract manufacturer. It's not like this is just like there's no technology or the like. They are one of the most advanced technology organizations in the whole world.

Like there is so much IP just in the manufacturing, take out the design, take out the functions, just like making this stuff is so hard. I mean, now and I can involves like lasers like it's well, get to IT later, it's going to blow your mind how this stuff is done. But if more is like he's coming up, he's learning like literally as this whole industry is going developing, he's were right there.

So a couple years after he gets back from stanford, he still rising through the ranks in nineteen sixty seven, T. I makes him a general manager of one of the divisions within the semiconductor. And that's where he has is next big breakthrough.

And this is on the business side. So morus notices what they're doing, setting up these new plans for you, all these successive new methodologies and processes of manufacturing, you know, at this point, integrated circuits and silicon like mi conductors and pumping out these chips. It's super expensive to do this, like super cost capital intensive.

So what T I and everybody else in the industry did when they would start a new product client that would use a new, you know, fab for chips, they charged a lot of money for IT. Like then they put a lot of money into these things. So like red of the gate, you want the latest, you know, new hotness in the end products, the T, I, selling.

They are my forum. More is realized that he, that's not actually optimal to do that, because as evidence by his first big win, A, T, I, with IBM line, there is a learning her till, like getting the yellow right and learning how to manufacturer and new process. And in the beginning, you're gna have a really low yield.

And so what you want, ideally from a you know, fabrication perspective, is you want to have a ton of volume from the deco, like as soon as the plan is online, you want to be running a max capacity so that you can a learn as fast as possible, yet yields up to the profitable levels. And then you want to still be running at max capacity as long as possible because you already spend the fixed cost, right, to make the plant. Basically, you always want max capacity. So when you started out by pricing so high, you kept demand low and you were unable to get up to capacity fast IT.

almost like they didn't realize the benefit of the potential Operating leverage that they had because they were just passing their exact economics under their customers and saying, you basically have to pay us for us to do all this fixed costs and then you'll get all the benefits of the how cheap IT is to stamp IT off the press every time, whether what they really should have been doing is saying we will make an investment. You know, we'll eat the cost of having to spend all this up, but boy, are we going to be super profitable on every trip that comes off the line.

So more is thinking about this. He hires bcg and they come up with the idea of actually pricing low to start to drive this volume and speed up the yellow curve. And then also the sid benefit, that is, if they are pricing low and everybody else is pricing high, there are can have a ton of market are I, I, I.

This was in the late sixties, and boston consulting group was a very small outfit when we did this. And we use loads of data, a lot of theory and a lot of effort. The result was so called learning curve pricing.

We would automatically reduce, so start low, and then continually automatic reduced the Price every corner, even when the market did not demand IT. And this was a very successful effort, even though I was somewhat controversial, a lot of people thought we were being foolish. Why would you reduce the Price when you didn't have to? But we did IT because we believed in IT.

And indeed, our market chair just kept expanding. That, combined with other strategies, made the T I integrated circuits business the biggest icc business in the world and also the most profitable. So this is like, right when intel's getting fat is so like, screw fair child, screw national, screw into like T, I is kicking all of their buts. And it's thanks to Morris that was well, huh? And .

interestingly enough, the ecosystem around T I maybe i'm off on this, but the reason why I thought that fair child was sort of so I suppose, successful in those days was out of all the defence spending and research that was being done at stand for the government as a customer. But is taxi insurance playing in that .

ecosystem at all? Good question, probably. I mean, I think this is a case of like the rising tide is floating all boats like, yeah fair child killing IT.

Intel's killed in IT. Nationals killed in IT. T S. Just killing IT bigger than anybody else I see.

So on the back of this, moist gets promoted to V P A. T. I like one level below the C.

E. O. Running the entire time. I conductive to business that happens in one thousand hundred and seventy two.

And he becomes the obvious leading canada to be the next CEO of T. I, which she's like, yeah, I want to do that like, i'm focused. This is like.

I love this, my go to the bar for three years, a text book.

but might be flared to say history turns out a knife point. Things don't entirely go as planned. There's three different viewpoints as far as I could identify on what happens next to Morris at T. I. He does not become the next CEO v ously view point.

Number one, he is simply improve bly fair that he was just discriminated against because he was ethnically chinese, although at this point i'm pretty sure already he was an american citizen but anyway, and he got passed over for I have no evidence for IT, but not yet all surprised that that was part of what was going on. Yes, so that's one two second point, which more is totally acknowledges. T I was a really big company, the sammi on ductor division, he admit, probably the most successful and the most fastest rising division within the company.

But you mention calculators. They were starting to launched the consumer products division at this time. And so in one thousand nine hundred seventy eight, so six years, he's running the semiconductor division, sv p.

They move him over to VP of consumer products in one thousand hundred and seventy eight because this was a big new strategic condition of and IT wasn't going super well. And then I got more is a great manager. He can fix this in turn .

IT around different set of competence. Ces, though, I mean.

mark, yeah, here's more this quote on this. Mark shepard, then chairman, and CEO T. I agreed with the prevAiling wisdom at the time that a good manager could manage anything. In this case, I think he was wrong. I found the consumer business to be very different. Like you're sing, the customer said completely different, the market completely different and what you need to get ahead in that businesses different to in the semi conductor business, it's just technology and costs in consumer technology helps, but it's also the appeal to consumers, which is a nebulous thing. And not not more is a strong suit, least not anything is trained them.

Yeah, I makes total sense.

So in one thousand nine hundred eighty three, five years after he gets moved over the take up for the consumer business, he hasn't turned IT around, is still struggling. He gets demoted, to quote head of quality and people effectiveness, which is like prety much to slap in the face, like build your semiconductor business.

Is this when he says he was .

put out to pasture? exactly. So that's the number two. Here's number three. I found some evidence on this is unclear my how much this is Morris for versus his successor.

But while morus was definitely responsible for making T, I, I conductor a powerhouse at some point towards either the end of his tenure running IT or under his successor, they totally dropped the ball. And this is when silicon valley, california takes over. So in the mid seventies, the semitic doctor industry transitioned over to the metal .

oxide process.

Smos, you are here to the and T. I again was, well, they are the best engineers. They were well position to, like lead this transition.

They didn't. And actually most of the talent within T. I that were the ones that let the industry transition to mos left, including probably was prominently a guy named L, J.

Seven, who left and founded a company called, and then he later became a second conductor venture capitalist and founded seven rose and ventures, which was one of the early B. C. firm.

So he was A T, I. Guy, and he left in the culture at T. I, as shown by more.

This experience was this was not like trader, say, silicon valley, leave IT was like your company. Man, now stay at the company. So motorola proxy, the whole bunch of mos engineers from T, I.

And at all, kind of fell part, culminating in the biggest huge loss of that. This is really history, turning on a knife point in nineteen eighty. So more society transition 的 consumer products。 I B M puts out a secret R F P bid proposal for a secret project that they're working on. This is one thousand nine hundred eighty by a new group based at a boca ron, florida.

Do you know i'm talking about then? I have no idea.

So some less is, might I know what I am talking about? This is the secret project. This is the R, F P. To be the microprocessor, the CPU for the secret project.

喂喂喂， nineteen, what is the nineteen eighty? eighty? eighty? No, I have no idea. The I.

B, M, P, C, ah.

okay, that was not a book of return. yeah.

Was a secret project like A N court division of IBM to build the P, C, which is a big G I B, M, is the main for you going to build a personal computer. So skunkworks project. And T I, you know, a couple years earlier on the Morris wouf been the leaving an obvious candidate member.

He had a relationship with IBM. Go all the way back. T, I probably should have been the processor chosen, right? Instead, of course, IT was. IT was the eighty eighty eight that was chosen .

for that first. wow.

And well then the architecture and dizen on x sex and like bombs, there goes the whole next generation of computer .

away from T I over the into this sort of family of IBM with intel .

processors and eventually running microsoft s.

running L S in the highway of history. T I actually really took the off rap there.

They no o so is, I don't know all three of these things like certainly some discrimination, certainly like the cultural at T I was we rotate you around. You're going to fix consumer. He didn't fix consumer but couldn't.

And then this, like the semiconductor powerhouse, took an off rap, as you say, all that like his career, he is basically over. So he was the rising star. He was, everybody thought he was going to be in the next C.

E. O. And IT is fifty two in one thousand nine hundred, and eighty three after he stays a couple years.

being the ahead of whatever. And he was something staff.

yeah, yeah, he just resigns and he's like, wow. Well, I guess this is that my career at T. I, thirty years done, he still regarded super highly in the industry that all in the industry. So people start calling him with opportunities.

And he wants to be A C E O.

And that that he wanted to be C E O. I D didn't happen when he wants to be C E O. But he winds IT down to two opportunities going to consider.

One is to go to a competitor called general instrument, which people may have heard of. Another one of these old 这 companies who was based in new york， in manhattan, in new york city, actually, to go be there. C, O, the number two there, without like understanding the OK.

Things go well. And couple years you'll reached the C E O, become the C E O there, or to become a venture capitalist, really? yeah. So he was working to, I don't know where or how I couldn't find that out, but he was wing.

These two opportunities, the V, C, idea is going to come back up in a big way in a second, but obviously, ly, he goes with general instruments. G, I, A, he, his dream is to be CEO. B, he's got this chip on his shoulder from the way T, I ended.

So you great. So he goes off to new york. Now he leaves taxi, he goes, lives in manhattan, are going to work out A G I thing is, A G I had a very different culture than T.

I was. This research, like, build, develop technology, push the ball forward. G I is this like new york based? They were almost like at the time, like a proto tech private equity firm.

Their strategy was they just acquired lots of different semiconductor businesses, either independent companies or divisions from other company. No, they would require them. They would like get these business units in good shape.

And then it'll him again, oh really yeah what they were like a financial engineering firm, basically definitely not more is his cup of tea. So he only stays there a year. It's clear that like that's not a good fit.

So he resigned again. So within you know less than eighteen months, he had two major, major set backs in his career. And basically, you know, his dream is over early.

Here's the quote from hemi says after these two setbacks, S A T I N, G, I. I did not think that my aspiration to be the C. E.

O of a major U. S. Company was in the cards. Well, turns out he was right.

He was not going to be the sea of a major U. S. company.

So how do we go from like this dude in his mid fifties, former rising star, now washed up. From that to leak is in taiwan, is C. T.

M. C. I don't think you could ever scrip this. I think this is probably the most unique.

Every founding story is unique, but I think this might be the most unique founding story we've found on acquired so far. So back when morning was A T. I, he was running the the semiconductor business there.

He went over the taiwan a couple times to talk about building a manufacturing plant there. T, I would own and build a manufacturing ing play. But I like outsor to tai an not like A T M C style business.

Like is A T I plan there? anyway? He had no connection to taiwan.

Member, he's chinese. Like he's not. He's not from taiwan. The people like, oh, more as he went back to taiwan.

he can go to ian. Yeah he talks about how the taiwan was a strange land to him when he first got there. That is not going back. So it's not the land is a strange place to him. But like if he is gna call some place home and return there is that the people's .

republic of china? Well, I think he would say this, amErica is america. Well, I don't know what he would say. It's complicated.

So anyway, so he had met a bunch of government officials in taiwan when he was talking about building this plan over there. And that was back in the seventies. Now were in the eighties, mid eighties.

Tai an, at this point, it's a manufacturing nation. You know, they have no IP. They have no technology.

Like the great more quote, do you have IT OK the quotes? Great are right. This is Morris.

We had no strength in research development or very little anyway. We had no strength and circuit design, icc product design. We had little strength and cells in marketing. And this, of course, refer to taiwan as a nation.

And we had almost no strength in intellective property, the only possible during the taiwan that we had, and even that was just a potential one, not an obvious one, was semiconductor manufacturing way for manufacturing. And so what kind of company would you create to fit that strength and avoids all the other weaknesses? The answer was a peer play foundry.

I mean, I was tawana the time. So to give you a sense, the typical gross margin, like the average gross margin of a taiwan's company at this point time in the middle is four to five percent zero, four to zero five percent gross .

before you even have overhead .

Operating costs. I mean, was like, you know if you were group around when band I did, you know that have born in the eighties in the U. S. You see made in taiwan on everything like bardo toys close like everything made taiwan now was made in china or made in the vietnam elsewhere. But main taiwan was super low end, like physical manufacturing stuff.

And we pull forward the seven power section, like as hamilton hamor r of explained, if your margins, particularly your gross margins, are only four, five percent, you're in at an industry or a business where all the profits are arbitral ged away and everyone's just race to the bottom on Prices and no one's able to build and he real and Price value because everyone's just out competing each other for pure commodity.

I mean, four to five percent gross margins. Look, people used to hammer on, like amazon, I guess, for being like a low gross margin business in the like forty percent. no. Anyways, I can even imagine running a company with that level of gross margins.

So the time when is government though you want to come up in the world? This is not where we, this is where we are now, is not where we want to be. So they knew the technology was the way.

And so they had decided back in the seventies that they would establish an initiative called the industrial technology research institute, or entry. And the goal was IT for IT to become like the bell labs of taiwan, till, like, do some tech transfers from the U. S. And elsewhere, and like homegrown real technology businesses in taiwan, so that, you know, maybe they can lift businesses out of poverty there at this.

And I wasn't, no, he .

was. I name kt lee. But because of this, he would also become like venerated in tavi esty.

He's known as the father of taiwan's economic miracle. Literally, because of this ww, he recruits Morris to come over and run, eat like, be like. They had to bell ABS taiwan.

And this is like a ridiculous thing for more is to do like he had been, you know, captain in of american semi ductor industry. The fourth, this is like he was put out to past A T. I.

But at least he was still A T I. And then he was like, C, O, O, A general instrument. He's going go to taiwan and and run like a research park there.

like and like, every time someone starts something like this, IT doesn't go well. A government top down innovation Mandate from a country that's not a world power tends not to turn into a dragani economic success.

This is like all know countries and cities in the like that are like, oh, we are earn to build the next silicon valley in total, X, Y, Z. And we are good some former silicon valley person to come to do that. It's going to work, probably not going to work.

you. So everybody tells him not to do this. All is one where colleagues is, you know, wife at the time tell me not to do this.

His marriage was actually falling apart, maybe in part because of this. And you know, he's handle these experience. He's like, you know what I just, I need to change to see in, I gotto get out of here. So he takes the job and he figures, you know, it's, this is .

like about this, the retirement into by then .

I was financially pretty secure. I was not rich. But you also have to realize that the standards of wealth were much lower back in one thousand and eighty five. And he's going to live in dione, where, you know, corporate magnets have five percent cross margins, but he says, but still in absolute standards, I was financially secure, which meant that I could live according to a desire which was actually pretty modest for the rest of my life, without to earn a living or a salary. This is retirement.

He he also makes a joke. I remember after that about how, by the way, interest rates were higher back that so that was much more activable on less principle.

So one nine hundred and eighty five he goes over. He takes over as president of eh, it's kind of a culture class. So this is retirement from Morris, but he's still coming from this hard charging industry. All of the employees of the tree are people in government jobs in taiwan. And government jobs, not even, you know, in like a democracy, because taiwan is like, they like get under martial law.

I think that I just ended, you know, this is not a the same, this, like jobs, believe you're a government official in non democracy, a type organza more says, back then, they considered me a foreigner who suddenly became their boss. They were scared of me and they were right to be scared of him. So there was one thing though that the government had done right before Morris showed up, which was they had successful ly negotiated one technology transfer license in the same I conductor industry from did you did do you find out what the company this was? This is probably what they were trying to negotiate with T. I, for.

But I two is a three letter that.

oh yes, we haven't talked much about IT on this show, but this is another yeah talking about captain of american industry. R, C, A. R, C, A, that's right.

yeah. So R C, A, dur, one. And the government, in the seventies, the taiwanese government had negotiated tech transfer.

But this is like ten year old conductor technology, right? This is not like the latest generation.

no. T I N L, and everybody like there, the bleating edge of manufacturing process. R C A was already at least a generation behind by the time, and actually gets onto the ground. In taiwan. There are two and half generations behind the leading producers.

So it's like the only thing that you can do with that .

is super loan ced.

right? There are some category of goods that don't need a faster the latest processor.

Even when intel or samsung, who ever built a fab, the leading edge fabs, they produce the leading edge stuff for a while. And then the new generations come on. They don't shut down the old ones, right? It's just chips that don't need the same breeding at performance. Yeah they keep getting made on ten.

That's automotive or now what we think of as I O T, but got the stuff in your smart phone, obviously.

is the the living eah. So the government etty does actually spin out the company, uh, using this old R C, A technology that would be called U M C. United mico electronics corporation, not a technology leader.

IT actually does okay in long run. They would later spin out their own chip design business. So u MC was doing both fabrication for their pretty clients and designing some of their own chips with the fab that they created.

They spin out their chip design business later that becomes media attack. Oh, no way. yeah. Which is a fifty billion dollar today.

So like, know, the government did pretty good like, yes, pretty good, totally were doing and you know one more and arrives because of this. He's not starting from a standing start because not good. But so they .

created a company. There's a paved path is work .

on transforming the organization into a high performing organization and then always not to nowhere kt lee comes back to him and is like, hey, great, you're run you know, our bell lab. You're in any trip now I want you to start a company like a is like a he's like, yeah ah you know no, I don't want I don't want you to have somebody else need to do I want you more string to start a new semiconductor company here in tai an and I want you to make them into a global leader.

Where is this? Like, okay, I did know I think he doesn't say this directly, but what he's got a great quote, I want to say a minute but like I remember is not a democracy in tai and time Morris also on his third job in three years and like, yeah, he doesn't need a salary to survive but like he's kind of the end of the road for. And like if he gets fired here at the tree, like he like down, done, done, done. So china doesn't have a choice here. The quote, this is so more as so great he says, um IT was like in the movie the godfather he was an offer I couldn't refuse .

and I do think the implication was go start an intel or go start IBM IT wasn't go start the very first peer .

play foundry lee, a government minister, he was. Go start to semiconductor company.

make IT a world leader, right? Those semiconductor companies, they do really well. So go do that here. And that, of course, when Morris says, okay, i'm being told I should do this. I have some attitude I can take in some liberties I can take on how I do IT in the quote that I read earlier about evaluating exactly what type of semiconductor should I start that, how he sort of informs the business plan.

So lee is, like, are good wear copei were clear, like, come back to me a week with a business plan. Tell me what you need, where make this happen, right? So much, okay, a week, all right.

And then like a day later, suppose like, actually I need, i'm going to need to come in on friday, so like three days. And you know, they say necessity is the mother invention, and yet these three days are like what creates the, you know, now sixth most valuable company in the world. Morus comes up with this brilliant idea to create a peer play foundry company to be a contract manufactured.

sounds good and hidden side, as Steve jobs would say, no. It's easy to connect the us. Looking backwards. But at that time, was this a good idea event?

Well, no. The answer is no. You know, like we've sort of settle along all the chip companies, all the know american and european and you know japanese, all the other leading.

So I conductor companies, they made their own stuff. You know when there was some sharing of production and some you know companies were emerging that were borrowing production from, you know the big guys. There's a great quote around the time from Jerry Sanders, who is the co founder and C.

O. AMD. And he famously said in the mid one thousand nineteen eighties that quote, real men have fabs, right? What so ironic because in the two thousand AMD would spin out its ABS yeah and go familist lobo founders ies yeah, into global founders ies.

But yeah, this is not an another idea. If you wanted to be a real time, I conductor company, you you made your own ships. And the idea was like, yeah, I am. So this isn't like manufacturing Barbie doll here. Like, this is a real technology like you need to control of soup to nuts.

And already at this point in history, I mean, this is an important point to make because I I didn't realize this coming in where I thought, wow, apple really outsource is their manufacturing. The outsource some of IT to T S M C and some of IT to fox con. And like maybe some of those people will start to do each other other's work.

No, this is a completely different thing. Assembling an iphone is completely, completely different than taking a brand new design for the next generation ship and manufacturing that ship. A, one is manufacturing and one is alchemy. The alchemy can only be done by alchemists. I think even here in the ladies, we're already at the point where, like, it's manufacturing .

small .

but yeah, it's not like, well, I got a factory.

No, no, no, no, no, no. Far the opposite of that. When we said minute o, this is a bad idea.

So Moore says, no. However, there was one problem with the peer play foundry model. And IT was a fatal problem.

IT could be a failure problem, which was where's the market? He sounds like down valentine, where's the market? Show me the market. This whole idea. IT was really a solution, looking for a problem.

And of course, the solution being that like all we have is manufacturing capability here. So let's start a company that just manufacturer and it's like you're looking around like, okay.

maps and real, I think there are start up these startups are build their own fabs like nobody wants to do. So nonetheless, you know he has to start a company. Um he literally got a gun to his ad.

but he does have the core insight here. It's interesting these companies don't exist yet. But morus has reason believe that people will want to to start fabulous chip companies is that they will need a foundry to fab those chips. And so he says when I was at T I in general instrument, I saw a lot of any greatest circuit designers wanting to leave and set up their own business.

But the one thing or the biggest thing that stopped them from leaving those companies was they couldn't raise enough money to form their own company because of the time, as we were just saying, real men IT was thought that every company needed manufacturing, needed their way for manufacturing. And the most capital intensive part of assets, c conductor company of an icc company, does the manufacturing. And so I saw those people wanting to leave, but being stopped by the lack of ability to raise a lot of money and build away for fab.

Totally right? But those companies this, like if you build that, they will come. They haven't started vento come. They haven't come yet. So more is kind of get like he knows what the long term market is gonna, but he's got a find.

The short term market, he needs some very real politics here like so what is that? gonna? So he says, well, maybe I can go around to the big guys. They've been doing you just like my first thing back at T I.

They've been doing some line sharing, you know, for either new products that they need excess capacity for or for older products that they need to transition some faves, but they still need to make components. Maybe I can take some of that off their hands. And so he goes around, he goes, he talks to tell, he talks to T.

I. He talked to everybody in the industry and like, yeah, he talked to motorola. Sure, fine. And the government had told them, okay, you know, figure out it's gonna me. We know what's going.

Take a lot money to set up a fab, very good for half of IT, but you gotta raise the other half of IT. And we want you to raise IT from like an intel T. I, you know, somebody who's going to your first customer and they're going to but in so is like, so he does the around.

He goes to talk to everybody. He gets meetings with the entel. He gets meets with T. I. And both like, you know more as we like you. But so he said the last year effort and he has a meeting with phillips, the dutch company, they have a semi conductor business so more as he has a great quote about this he says he would describe phillips as um the first wrong of the second readers in some my conductors but they were the only interested option. So if they put up twenty eight percent of the capital government, puts up fifty percent IT, ends up being two hundred and twenty million in total.

one hundred ten, a lot more than the tawana SE government. T they are Better here.

And then literally, the premiere of taiwan, like the head of the government has to then go around to all the other business leaders in taiwan and like strong armed them into investing the rest of IT. The other, what is twenty two percent? I guess?

Yeah, we also should quick here say, remember that phillips was a dutch company because that's gna come in to play later.

I don't know how OK. Okay.

we got surprised.

And i'm going to be surprised here. We're in real, real time life. This may be the creative part about the whole T, M, C.

Finding story. Nine nine point person, then you do not know this rule. Do you know what the pre money valuation was on tsc?

No, I couldn't find that anywhere.

IT was zero dollars. Morris chang got no equity in the table.

So one hundred percent of the company was owned by the investors.

fifty percent by the government. The other fifty percent were owned by the investors.

Morals got nothing and just got to keep .

his salary is a government?

wow.

Thereby the Grace .

of the government.

Oh my god, isn't that unbelievable? Like, this is so three billion .

dollars today.

Well, what he did put all his money into buying. He bought his own shares in the company. I don't know. He was on the private made privately before they went public in on the taiwan stock exchange in one thousand and eighty four and then the new york stock exchange in ninety eighty seven. But yeah, he put basically all of his like access cash flow into into buying tsc shares.

Oh my god.

isn't that wild? So the government .

owned fifty percent of the whole business.

And you can see their perspective to delicate. We hired you to do. We told you to. You are our foot soldier, you know, we are the mafia.

wow. Yeah, things had really not gone well in his career that he was willing to take that deal.

Yeah, crazy. right? And okay, before we go on in the T, S, M, C story, we need to have two very quick side bars.

Yeah, we're doing. This is one thousand nine hundred eighty seven. Yes, when T, S, M, C gets officially stood up there, raise the money.

Zero to your prety money valuation. Do you know what other two come? What other other company? Other big thing happened in one thousand nine hundred eighty seven.

We've covered IT on this show in the tip world.

Is this the founding of ARM? Yes, ARM. J V, between apple acorn and V L S I O logic, which was the sort of manufacturing partner there were an a six company that's a whole other side, but we're not going to get into. But yeah one thousand nine, eight, seven.

what a year brand new unconventional instruction set architecture is totally different than E X eighty six staff that the whole industry and world seems to have standardized on at this point.

The anesthetic Bellas for the next ductor industry .

and useless rates in one thousand and seven and ten strong is very few instructions. Pcs are always plugged in. So what do we need a low power chip for?

The things pathetic, real man have fabs and real man news power. Okay, that's side by number one.

I M get started. okay. I was wondering, I don't actually know the relationship. Obviously, today, a huge amount of volume of T, S, M C manufacturing is making chips for iphone, which sends the outset has used ARM chips .

that are using all mobile devices, iphones and android, all of which are ARM and lots of servers.

There are some relationship coming between T S M C and ARM.

Um well, there are they're really close partners. I mean, the way now like this stuff is so integrated yeah the architecture companies like ARM, the design, the E, D A companies like some of these guys, all deep, like the engine, all deeply in bed with one another.

okay. So you mentioned E, D, A. This is, i'm going to take your side bar and i'm gonz you want to raise you one war side bar. So listeners were two clicks out here.

So this is a pretty good point to talk about, uh, how the value chain went from um one company that created transistors and then they designed the chip, they manufactured the chip, they market at the chip. Here's how the value chain looks today. And I think you've already eluded to like, I think, in the eighties that already started to look like this.

First, there's E D. A. There's electronic design automation. This is the software that chip designers, like professional chip designers used to do their work. So and options, I think .

cda leaders that's like.

So that's category one of four. And of course, as you can imagine, the software to design the chips probably has to be very aware of the manufacturing capability of who's going to be manufacturing the chips. But I put a pod in that for a second. So then, of course, there is the fabulous chip design companies. So today, think apple and video qual come eventually, A M, D, after they stopped being real man startups.

Now, like a serbs.

P, A, I, before .

quired. P, M, I is come. A K, okay.

So you've got the E, D, A companies that are making the software, the fabulous companies that are designing the chips using the software. Then third, there's one company that we have not talked about yet one component of the value chain. And these are the people that manufactured the machines. Oh yes, that go into the factories that the founders ies.

there's actually one between, well, no, I actually think above E, D, A. There is one more part of the valley chain. There's a fifth of which is I P.

That's all like ARM. Oh right. Yeah like architecture. I, P, there's actually time of companies now that do just straight up. I P.

And I thought before this episode is like, oh, just shell companies that sew on another about IP. It's not that systems are on a chip like everything is on like one chip. Basically, you need a USB functionality in your chip. You don't need a design and that you just buy some IP off the shelf. That's like so body do that.

Yeah okay. So it's a good point to that. Our fifth sort of like I P, they only the instructions of architecture.

They kind of create the general rules that you're playing by when you're designing a chip such that whoever is writing the compiler knows what assembly language they're targeting that can then Operate on the chip that's going to be designed. So we covered the E D A. We covered the I P.

We covered the fabulous companies. There's somebody before we get to the founders ies, which is the equipment manufacturers that sell to T S M C. So more history, ally.

You've got lam research. You've got apply materials in the us. You've got tokyo electron, japan. But today, I just want to give everyone a taste this and they will get more to IT later. There's a company that is also dutch based.

There is there IT is a sl.

which was originally asm lithography and lithography is marginally in scope for the episode. There is a whole thing we could do on the magical process, that is.

my high school photo.

right? And l know is lower graphs that the company originally called A S M pytho graphs. They make the most advanced chip manufacturing machines in the world.

They are the only company that makes them. They're located still in the netherlands. Their biggest customer is T S S M.

C. They and this is where I want to bring all the way back around. And we of course, we'll talk about the magic that is these machines later. IT was founded in one nine hundred eighty four as a joint venture between advanced semiconductor materials international ASM3 and phillips h。

Wow, I did not know that.

So that that's crazy. Is the beginning of the relationship between tmc and there provider .

and what is strategic point? I mean because like well, it's it's tms in scene capital Operating casual production that enables them to spend backs above him but he else that loves them to buy moral equipment than anyone else but that relationship well, I mean, these machines like will get into a later yeah you can blow your mind what this stuff does. Okay, back to my second side bar.

Also gonna worth at P. S. M. I, right? We did an episode ve as like, episode. This.

like acquired was a very different show, what IT was like actually about small acquisitions.

So I don't know that we actually covered this, but I uncovered in research for this episode do you know the origin of P S M?

I?

No, I don't. okay. So ARM my side bar number one. No nineteen ninety seven also created, right? They're just an I P design company like I was saying in your side bar um so like inception over here.

So they just .

license out the ARM architecture to other companies that then design using the ARM architect. One of their original licenses was dec digital equipment corporation like O G you know way back in the day. So they took the ARM architecture, and they tuned IT for performance. And they called what they did, a deck, their version of ARM, that they created strong ARM. And that product line within deck would later be acquired by intel, of all places.

Okay, crazy.

What intellects quired .

an ARM market texture, right?

I X eight, six, yea, E N to the core engineers on the am, the decks team that been working with ARM from back in the day. And they are like, he's going to quit by intel. What the health will .

you to screw interest in alternative .

chief engineers, we can go start our own company. That's P S M I, P M I. So the the underpinnings .

of all of apple trips today.

holy. So the lining age of all of apple silicon, probably the most valuable, defensible part of apple today in terms of like technology, was deck the army, deck to intel, the B, S, M, I.

to apple, that wild. So I don't think guy ever knew that you can trace apple silicon all the way back to apple.

Yeah, because ARM was A J, V. right? A with apple. yeah. Crazy with intel. Wow, okay, vacuity MC.

So like the short term market is like more is basically begging all of his old colleagues in the U. S. And european, no.

And japanese, some may conduct our industries to disable the drugs to T, S, M, C. And IT really was the drugs. So here's morison on what this was.

The items would let us manufacturer their wafers only when they didn't have capacity, when they didn't want to manufacturer the stuff themselves anymore. Now when they didn't have the capacity and asked us to do the manufacturing, then as soon as they got the capacity, they would stop giving us orders. So IT wasn't a stable market.

so wasn't actually a thing. They wanted outsource.

They were capacity. They needed some extra access in space. Then they got the facility online.

They took IT away, right? And then when they the tips that they gave us that they didn't want to make anymore, well, the reason they didn't want to make IT was there was losing money. So like they basically are just transfering their losses on producing these chips.

So how do they get out of this so much uses the communal conclusion at the time was that there was no market. That's why the people I founder idea was so poorly thought of what very few people saw. And I can't tell you that I saw was the rise of the fabulous industry.

I only hoped for IT. And then as you said, but I had Better reasons for hoping for IT than the people that intel A T I motor a, because I was now standing outside when I was at T I and generalists, and I saw out of these icc designers warning to start their own businesses. And the constraint was setting up their own fabs.

Now remember this suit? Yes, he saw that a tea member, he had been considering becoming A V, C. Instead of going over to, eh, yeah. So this is the ultimate intern. He becomes essentially like the world's best semiconductor VC. He takes an index out on the whole future innovation and and you know entrepreneurship market and set my conductors by becoming the platform that they're gonna build on instead of going and investing in them like he enables all of me.

He's like the idea of conductors in many ways, the and of course does investing, but the idea that you could get distribution through, we chat. It's kind of like it's not distribution but IT. Is you manufacturing like there is a thing that you have to raise ten to twenty percent of the capital that you otherwise would have needed to raise if T, S, M C exists? job.

And just like on valentine, you know, kind of when he is left to go join V, C, A generation earlier, again, is not V, C, it's T, S, M to do the platform. But Morris is a hero. So all these engineers, they all look up to him and you know he knows a lot .

of them personally.

He doesn't stuff.

It's interesting because it's like with the incumbent, of course, because they had IT in their DNA to be a manufacturer. Of course, they wanted to take the most profitable things in manufacture them in house. But if you actually are betting on all these startups that will never develop DNA to be their own manufacturer, they never wanna take that back.

yeah. And so Morris is not going validation and is like all these great designs, like we're an option for you. Now if you wants to leave, you want to start Young.

You don't need a fab, will be your fab. You know, IT takes a couple years for a couple years. T, S, M, C, S, to survive on the drugs from the the ms, the big guys.

But after a couple of years, they start of skiing a little. Companies like calm, broken marble, invidia. These are all started with T S M C N.

Video was started in one nine hundred, and ninety three only ever raised twenty million dollars and never opened their own fab hundred per.

I believe, a one hundred percent with T, S, M, C. wow. To this. Well, maybe they have other source, other founders to be like the vast matter of their business from the beginning. And jenson talked about this.

Jen hung, though I took him to actually a little while to get on on Morris radar, but once he did in the mass, vast maturity of the videos, chips, t sc. Makes them and videos, what like. And fifty four hundred billion dollar market company now wild and only raised twenty million dollars like that.

Just would this, like that? E, W, S, for, you know, tip companies never would have been possible before. So this is what super cool.

I don't think more. I saw this like, this even exceeds his wild dreams. He was hoping for the this familias market to take off, but this creates this insane fly wheel for M.

C. So the famous market starts to grow. What's the early exceeding and enabling IT as that happens, tms revenue gross.

And because they have fifty percent growth margins and forty percent Operating margins, they can take that profit and ly, more and more.

babs advanced the level of their technology member. They were starting from behind. And technology within about ten years, they catch up and then they start to exceed everybody else.

So as they pushed manufacturing process technology forward, their manufacturing Better chips with smaller wave of processing engine, they're enabling their customers, which are the families companies, get Better and Better performance. As they get Better performance, the famous companies can address more of the market and more use cases. So there are existing customers get bigger and new file bos customers start.

Which gives them more revenue, which repeats the whole cycle. And you know, IT goes slowly like any fly will like IT takes a lot of effort and a lot of time to start turning IT. But fast forward to now.

So in the early two thousands, when T. S. M, C. Finally caught up to the level, the bleeding at level of technology with other semicon darc companies, there were twenty two companies that were at the leading edge.

I think IT was like, I know, let's call a one hundred and fifty and tiete process or something like at that point time, twenty two in tmc finally broke in to the pack. There are one of the twenty two by the late two thousands have gone from twenty two down to fourteen. They were at the living edge by the mid twenty tens. There are six.

especially samsung and T, S, M C.

right today there. Two at five antiethical processes. The current leading edge.

Only T, S, M, C and samsung, intel has been trying to get there, but they haven't been able to. They fall in behind. And the next process is going to be three nanometers. T, S, M, C is going .

to watch that next year slip .

six months. And well, samsung, I slipped. Well, so very likely in the next process is just can be to c, which means that .

you will see that on an apple slide somewhere announcing the next iphone, talking about how it's a process. It'll all the credit for IT and cmc totally find with that because their job is not to markets to empower their customers.

This file against just like unreal, who what happens here, they run the table on the whole industry.

IT is interesting that mean the industry went from vertical, the horizon online integrated, where the very best products in the market became horizontal integrated. And it's interesting how i've trying to figure out what drove that because at some point, I guess, there's a couple components to IT. One is the speed at which mos law happens makes IT such that you can't be good at everything.

You can't be good at everything from E, D, A to making the manufacturing equipment to running the manufacturing process, to designing the chips. You're not going to write your own instruction set architecture. People didn't need to break in the .

best of club more has got this great quote about this that I haven't here. So he says the semiconductor business is like a tread mill that speeds up all the time. If you can keep up, you fall off and that's more law from twenty two down to two down to one. Like even when the competitors are only doing the one thing the T S M C is done, like you fall behind by a step, your toast, right?

And it's because I mean that there's this big part of IT that you're talking about that hasn't come up on other episodes because we tend not to talk about companies that require a lot of manufacturing process. But in order to stay on that tread mill, the number of tens of billions of dollars that you need to be spending in the capex is going up. So you need to be enormously profitable so you can build the factories for the next generation.

Yeah, I mean, well, there are two things. So yes, that is one hundred percent true. And the scale of this now, I mean, T, S, M C just announce they going to spend one hundred billion dollars in capex over the next three years, thirty billion dollars this year, sixty over the next two.

And I bet that keeping going up. So that's a lot of billions. Now here's that you might even say, like, this is so strategically important, and people are talking about this, certain ly, china is talking about this.

The U. S. Governments not talking about this. Governments might deed to come in and just like with a bazooka of money and create other options.

Because, like almost all their manufacturing in taiwan is in this like straggly geopolitically chAllenge location, we need to read, share some of this in the U. S. China course once their own.

You can't just spend the money and do this. U. S. Government can come in and say, we're going to spend a trillion dollars this year to do this.

They can do IT because we're going to the powers later. But there's like this marriage of scale economies and process power. The T S, M C. Like in this industry, there is no amount of money. You could spend the catch up next year. You can't because the engineering is so hard and the learning curve takes decades to like, get to this point where, you know, I was, listen, I guess lots, I guess about this, where they are talking about this and the reporter who covers T, S, M, C. Great china, if they ask some question like the will, china could just spend a billion dollars do this, create their own webs.

They're doing this. What's the couple call? S, M I S. Basically, T S M C seems to have picked aside in the U. S. And so with a little bit of padding, i'm sure, from various presidential administrations over the last five years.

you the guy covers seems like they can do that. They are doing that, but they wouldn't know what to do with that. And it's not because they're dumb.

It's the hardest thing, the harder thing in the world. Yes, to do this stuff, to make the equipment that A S M L does and to manufacturer the way that T S M C does IT is the harder thing to do in the world.

Yes, anybody else could get all the same equipment for a sl? Actually, that's not true. So no, i'm even if you could, you wouldn't know. And it's not because you're done. It's like they're only like a small number people in the world they can Operate this stuff.

I'm jumping on my c here so I have to, i'm, i'm going to do the air smell thing now. So the reason that some people can get their hands on the S. M.

Equipment is because the netherlands did not renew their trade agreement with china. Also likely likely IT has been reported that probably that is because of U. S.

Brought to say, hey, these pieces of equipment you are making seem pretty specialized. You the only people in the world who can do IT and IT makes the most cutting edge. So we conduct manufacturing technology 啊。

Maybe let's not sell that to S, M, I, C. In china. And so they're not doing that. Now you might say, like okon, how hard can this stuff be? Well.

these machines. Es, well.

first of all, they cost two hundred million dollars for a machine that makes the chips. And that's onna go up to, like three hundred million dollars. And by the way, on a lot of this, we have a lot thank you for join bathgate and britain Jones from the episode of the knowledge project that they went on to talk about a lot of this stuff. IT takes four, seven, forty seven to ship one of these machines so you know you buy one, your your T S M C um you buy one and arrives and of course the seven forty seventh, then there's a crew of S M L employees on site, not only to assemble but then they help you run IT. So like you mention, these companies are deeply integrated with each other to be .

able to pull this off. O what is machine to?

okay. So IT becomes expansion. Ally, harder to manufacturer chips, the more dense they are. So David, you mention that hundred and fifty anoma ters or so from several years back, and we know now that the m ones are made on this five and meter process. Well, the wavelength th of White light of regular light is one hundred and ninety three hundred meters.

That seems like a problem. Well.

it's certainly wide, but now we're humans that we come up with clever solution, we can solve this. And so you shoot, throw a winds and maybe you shoot IT through some .

water like a laser.

Well, not yet. But even that really only gets us to like eleven animators. So how the hacker we supposed to make these chips, where the transistors are ostensibly only of five nanometers apart, when what we've done to date, shooting through lens and shooting through water gets us to eleven antimatter.

Well, okay, so this is crazy. You have to create a, so what they do, and this is called extreme ultraViolet lighter. U.

V. This is a process that is just wild. On one side of machine, you drop multon thin.

On the other side of machine, you then hit IT with a highly specialized laser. You perfectly pulse them. IT explodes into a plasma, which creates extreme ultraViolet light. Now, of course, this is hard enough to do, as you can imagine, how that might work. But you actually to do that fifty thousand times per second.

yeah. And what I read is that the accuracy with which that laser needs to hit the drop of modern is more precise than the calculations to send the polo missions to the room. And you got to do that fifty thousand times a second.

unbelievable. And now, of course, think a little bit more about this will wait a minute. That wave length is so small we're going, you know, shy of eleven animators here we're going five animals, ters three and meters.

That actually IT is absorbed by all known meres, which were used to reflecting light, but they don't reflect to this light because the wave link is so small. So part of this process involves reflecting IT, like a bunch of times, like twenty or something, before itching the silicon. So what do we do? Well, A S M L actually need to invent a new type of mirror to do this.

And they also needed a contract with a german company to make this special type of laser, which is the only known company in the world capable of making IT. So like, this is crazy hard stuff. They only make fifty of these machines per year or so.

They used to have competitors like icon used to compete with S M, L. On this, but it's too hard they gave up. That's how hard extreme motor Violet lathom phy is.

And of course, we haven't talked a lot about this, and I think it's outside the scope of the show. But just as overly simplify photography is kind of the process of taking that silicon and way for and echo a design on IT. And if we wanted do that in smaller and smaller ways, we get to do with more and more specialized equipment. And at the end of the day, if you want to make the m to the m three, you know, the a eighteen x pyo ic, whatever it's gonna called, there is no other way to make IT than this extreme cutting edge alchemy.

IT truly is actually. So, you know.

been so like you are government.

you want to throw one hundred and acquired, doing really well. We are on here, know got power. We got a power.

We got all we. We got network kito economies. We got our community like were doing well.

We should invest in that with this opportunity, we should compete with tmc. Grew the government, we've got a couple hundred million dollars will buy this stuff. You know you have A C S degree. You know you're the more time one of a you can run this stuff right. You can when we get the shipments from sml.

you can make this happen. Won't know the first thing to it's like even if we could invest the cash, even if we could build the facility, even if we could buy the machines, which, by the way, that's going to be hard because there's fifty sum on backwater. So like I can't even even get IT takes people who have done the most advanced manufacturing in the world ever in history in order to know how to do the next version of IT.

And this is Y T M C S. Forty percent .

Operating margins. It's crazy.

totally crazy. I'm just like in all of this completely. okay. So a little while back before we get totally geek out on the witch was awesome.

You said something like how do we get the five whee fact? You know, it's great. But like how do we really get from tmc started taking the drugs from the ms, then the fabulous animating along. How do we get from there to like now there's another really important chapter here and you're .

going to flash as ford from like ninety three, ninety five to like twenty ten ish, about to two eight.

Well, well, first we will, will stop in two thousand five. Two thousand five. You know, things are, well, Better than more is ever imagine.

And these famous companies, again, started in videos. Killin, I mean, I was making gaming pcs at the time. I wanted .

those in video. G, P, U, but in video wasn't a top twenty .

stock in the world. Video, come on, right, real men have fabs. Okay, maybe we will be ond that part. But like they were making GPU like invidious stock track, like whether they won the next stony contract, great market. But it's not what it's not about .

machine learning. It's not about crypto. It's like, is the next play station? Can I include your ship?

Not totally, but still great for T, S. M. C is awesome. Two thousand and five more is is seventy four years old. His leg are.

I did IT, I did IT have been bian tmc stock with my own money. It's done well enough. I don't really need to work anyway.

I'm, I call IT tire ready, retire ready. Ride off in the sunset he hands the reins of tsf c over to his long time lutte rick sai, and he retires. He spent a couple years, is just chill out, know what is do easily that loves literature. Y is like reading all service is on a second marriage to the credit the second wife for, like really reinvent ating him and inspiring him. Then the summer of two thousand and nine.

by the way, that's right around the time that people were starting to speculate that U V. Might work like.

All, yeah, well, this is going to make what happens even more sense. The financial crisis had happened in two thousand name. And you okay everywhere.

We've talked about a lots on this show. Surprise press conference. T. S, M, C, seven or two thousand and nine. Uh, they announce that morus returning to lead T S M C.

S, C, O, rick is out more coming back for the third act of his career. I even know what number he's wearing is not forty five because I was of the second active like joran. He's beyond Jordan at this point.

Coming back is going to be A C. E. O again at age seventy eight. Uh, rick would actually have a second act himself.

Do you know what rickles do? No, no, Ricky, see of media tech, which spout of A U. M.

C. So like he he don't find rick doing, but more comes back. Why is more is come back?

But this is hair that is like kind of a botched transition, right?

Well.

there's a lot of stuff going like from Morris to reach people kind of view that as like you didn't really do a great job bring in the next .

year the company maybe I don't know enough to say OK, I think maybe, but also like there's a luck going on at this moment. I was to the financial crisis. Yeah, that's like a crisis that affecting everybody.

So that's one thing, but the other thing. So in the press release, there's quote from Morris, he says, one, this move will not affect T, S, M, C, fighting spirit and is likely to spur greater intensity. But two, he says that he sees, quote, golden opportunities ahead. What are these golden opportunities that he he's referring to? Two thousand, nine mobile.

right, a smart phone. Two thousand and seven. In july, the iphone comes out. Two thousand and eight. The iphone 3 g comes out with the APP store for the first time， the S, D, K, L, these developers building for IT. But of course, an android comes into dozen.

Yep, apple had to this point, well, building, you know, this Operating system, the scale down version of O S ten. It's unix, but they weren't designing their own chips. They just used them off the shelf. Samsung chip, they ve got a right. We were saying, like we use ARM these things because in a really low power device, so they've done actual god's work and magi C2Be abl e to bri ng APC X A D s ix Ope rating sys tem, creative sub Operating system from and totally that runs on ARM like a miracle bud. Of course it's enough the shelf samsung .

processor totally well, even that great for it's not make okay. So that's one when you talk .

more about that. But we should say and samsung also fabled IT because samsung is both chip designer .

and a but the point on mobile, the previous whole paradise of computing and C, P, C stuff, plug into a all. Yeah, he was intel. He was x eighty six.

And like G, T, S, M C, could now access some of that as A M D one. fabulous. But like, come on. But now all of the leading companies that are going to make silicon for designs, ARM companies .

mean apple.

okay. So that's a big opportunity. Who knows all of those people, Morris.

and we should say to two thousand. And I was an interesting tipping point, because if you will remember back to the two thousand and seven introductions of the iphone, Steve jobs has a slide where he says their hope, their goal is to get one percent of the existing smartphone market. So apple had known notion, I mean, google had no notion of how big smart phones were about to become in two thousand and nine.

We're starting to see I think the iphone four came out. We're starting to see a ton of different o EMS. Making android phones. You're moving into this era where everyone looking each other going over.

This might actually be the next computing. Well, there was half of the next computing pair time, remember back. And this is when I started bc, there were two waves that, like everybody .

was .

sumer shifting on the good desire.

everything shifting the mobile. That was what bring your device.

Well, sorry, you're on the right track. What happened in the enterprise? The cloud, the cloud, you got mobile and you got cloud. And it's like, so simpler stic. But like that, those the two things that drove trillions of dollars a market cap over the next decade.

Well, what's the cloud? So first, the cloud is good for intel, right? Eighty six you're put in CPU in the cloud is the .

best thing that ever happened for intel. Incredible server architecture.

IT was the best thing that ever happened until. But as the cloud progressed and computing workloads progress, the C, P, U, became a lot less important. Like what's A I started becoming a thing CPU. Like again, I I mean, maybe you need some of that, maybe you will use intel.

maybe you'll use ARM, like whatever. But like, what really do you?

Why is in video now a four hundred, three hundred and four billion dollar market of confidence.

not because of the police station and it's bigger than intel, right? An n videos, two x and tells market cap something like that, yet cloud the notion of chips that are really good at paralyzed processing, which is GPU and matrix motivation, effectively effector math versus the CPU, which are sort of these general purpose war courses built for the Operating system that runs on your computer. Super good for cereal. Of course, there's like multi corporation of the sixty four cores on A C P U. Now there are good at paralyzing too but like all this stuff, especially machine learning as G P U.

G S. And specially like the that's not x eighty six.

Oh yeah, we're in this. I mean, the other thing that founders ies enabled, the fabulous era enabled is the custom chip. Like everybody's building custom chips for all sorts of things.

So they are these two big golden opportunities that are coming online. And Morris, like I got this when we .

should say, we should clarify to, I think tesla uses samsung interesting and not T. S. M, C, at least for part of IT.

And I think they actually even fab their chips in Austin in the U. S. really? yes.

So this is like the beginning of the like. What everyone sort of hoping for in the U. S. Is this like return to american manufacturing of chips? Yes.

they are going to have to go to T S, M C though in the next generation because like you want three anoma .

ter IT depends, I mean, that depends what .

the workloads are. You need what depends what you need. Well, anyway, point is intel's dominances over and the index on all that's gonna over is T S, M, C.

And Morris ride back in. He he comes in, he gets these deals done. So like the apple deal, twenty twelve more is chang seventy eighty years old.

like and I think the apple rap on that was jeff Williams, the classic tim cooks. Tim cook, that's right.

I think there .

was something where IT was even like a one went over to the other's house for dinner, something. And that was like a living room conversation to make the deal for, uh, hey, we bought this company, P A M. I. We've been designing our own ship architecture in house.

We're going to launch, I think I was the a four four one, and I was apple basically saying, we think a lot of people gna buy a lot of iphones in the future, and we are competing head ahead with samsung because there are a company that is not clear on strategy. They have a consumer angle here with the galaxy phones. They think they're also kind of a foundry.

which we jobs. Hated samsung, famous. He call them some derogatory term.

wow. There has been a few interesting things. There was Steve jobs saying he was a wage nuclear war that was on google.

Alright.

I think that was.

But he had some like, oh, samsung, there's just like coffee, like something that like really .

put them in like IT was about the lawsuit. IT was like when they kept stealing apples like designs. And then there was something else where someone this is later. But tim cook read the quote on stage of about of being a toxic health to.

Doesn't anyone Better in that?

no. But bloomberg reported that IT was a really big risk for both companies, both apple ntc. Apple was relying on a company that was then seen as an also ran.

And the quote is if we were a bit, I think, the sexually jeff Williams, if we were to bet heavily on tmc, there would be no backup plan. And for T, S, M, C, IT meant an initial investment of nine billion dollars. Fabs are expensive to build.

And devoting six thousand employees to building a dedicated plan for apple in just a eleven months. IT took several years before I even began producing the chips. So that was in twenty ten.

And then I think twenty twelve was the launch of the a 4， designed by apple, built on the P. A. M. I. Acquired and of course, faced by the c.

And think IT wasn't until I on six, which was what twenty fourteen, twenty thirteen like that.

that they were solid. M. C.

I think so. And that was like the huge hit product because the member of the six was when they first increase the screen size and those things flew .

off the shelves like i'm pretty sure some iphone had samsung fab ed yeah a four and five and them and some had D M. C.

I think. Were huge winner, but I think the sex was like mea mega winner. And I think that was all T S.

M C H nine billion of manufacturing capacity just for a deal with one company paid off.

That was a bit farm deal and kind of something that only more this .

could do totally. I mean, I really speaks to founder graphic. S, yeah.

even if he had, no, I could. As a founder, no, I could. That didn't buy. So after again, that deal done n in two and thirteen more is steps down to see you again. But he stays on his chairman and then finally once like IT all plays out and T S M C is on up in june of twenty eight, mos retires.

probably for real. He even stepped down from the chairman.

fully retirees from chairman eighty. Oh my god.

crazy.

Wow, that's twenty years. So I mean, let's say go announced twenty twenty T S, M, C. We are lead to this Operating profit of twenty billion dollars on forty eight billion dollars of revenue.

They took seventeen of the twenty nine billion dollars in Operating profit and cloud IT all back in the capex last year in ti, beginning of this year, january twenty twenty one. They give guidance that they will raise capex from seventeen last year and twenty twenty to twenty five to twenty eight billion in twenty twenty one in April. This year twenty twenty one, they raised again to thirty billion forecast for the year and one hundred billion over the next three years. And this is when like that's like the real shot across about that, everybody wakes up, the financial markets wake up like hopelessness. Rap, tmc is corner the market, even sam s not not going to be able to keep up .

with this is wild. IT is wild.

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In fact, it's pretty wild. There are over one hundred and twenty five thousand businesses now using countries, and they rave about IT from the hill tops. They were voted by customers in the g two rankings as the industry leader in end point detection and response for the eight consecutive season and the industry leader in manage detection and response again this summer.

Yeah so if you want cutting edge cyber security solutions backed by a twenty four, seven team of experts who monitor, investigate and respond to threats with precision, head on over to hunters ous dot com slash acquired or click the link in the show. Notes are huge. Thanks to huntress. So more on today, David. Yeah, T S, M, C, today.

Well, okay, so I think this is the day of point to release, kind of says everything. So since the first IPO in taiwan in one thousand nine hundred ninety four, T S, M C has had compound annual revenue growth of seventeen point four percent for twenty seven years. Revenue growth seventeen, twenty four percent compounded for twenty seven years now the I R, the quality evaluation on market cap.

So I was four billion market cap in the taiwan ibo in nineteen ninety four. Today is five hundred and fifty and lion. So that is a twenty, like a nineteen, twenty nine percent I R R, starting from a four billion dollar base over the last seven years.

Twenty percent I are over twenty seven years, incredible by any means, starting from a four billion dollar base. IT is now the eighth. And currently as we record the night most valuable .

company in the world. And I think other than saudi arco IT is the army company in the top ten that we haven't .

done on acquired. Oh interesting as yeah, the oil companies are not other than the rank of the U. S. Oil companies are no longer.

I mean, there they are in hollow grounds at this point. The other thing that just talking about financials today, so crazy that they grew thirty one percent in revenue from twenty nine to twenty.

so they doubled their tiger from twenty, twenty.

twenty.

Talk about accelerate and growth o so .

in twenty twenty, there just in that income was seventeen billion dollars. How are they gonna go spend a hundred billion over three years? Is that gna be out of profits of each of those years? Or do you they're doing some kind of financing?

I don't know. I don't actually don't know if they ve done any financing. I'm quite confident i'll make enough profit to funded organically because big news just in the past week, they started this allow early here. But now that really they are getting away from more, this second .

big innovation of the producing producing .

Prices announcement, cut Prices and then they just announced are going to raise Prices. Nobody y's ever done this since .

the prey morois pricing .

power and action. totally. I mean, what a clear picture of how they have taken a commodity business and turned IT into. I think this is gotta be one of the biggest modes of all time.

totally. I mean, you've got twenty eight billion of cash, cash, a clever ones on the baLance sheet, and they are going to use that and all the cash that they generate from their Operations to plot directly back in to making sure that everybody else is five plus years .

behind undeliverable.

The other thing is that they already are the largest. They have over fifty percent of the market for founders ies, like for all contract manufacturing of chips .

and like ninety five plus percent of the profit.

correct. I thought where you're gone with that IT is also true that they have ninety percent market share on the current generation like the leading edge yeah .

exact in in the five anoma ter. Samsung has like five ten percent market chair and T M C 还 ninety plus percent in many .

ways going to one hundred。 There are the apple of semi icon doctors. They don't have all the market share, but they have all the .

most profitable market share. Yeah, exactly. It's that they are the iphone of semiconductor is that you can still buy previous gender worse technology from and plenty of you on the outlets pocket.

This was actually, they talked about like the bare case going for for T S M, C N. One potential one is that, oh, well, the processing power is so good that like, you're not gonna need the leading and anymore, I find that are really weak. Our event, like you always need the leading edge lake. You think text doesn't want the leading age, you think apple doesn't .

want the leaving is software will always match the complexity on the most advanced work can run on, which is why, like I love people like apple slowing down my computer. I'm like, guess, i'm sure that what happened and they wrote special code that they are putting on there to make the consumer know if it's because every piece of software just always assumes that IT has the most advanced processor on earth. And I always gets to developers, sure, they test on two and three year old equipment, but no one's making sure that the six and seven year old laptops are as performance the software design .

for the current generation oogly amazon gona be like now we're good, right? Hello, IT actually .

is worth touching on. There's one other interesting bit about this five nanometer process, which first of all is a marketing name at this point. At what I used to originally referred to was the length on the gate, on the transistor.

At this point, it's not exactly five animations and the additional performance is not going to come from and you know making smaller gates here is the interesting thing though, you actually can't put these transistor is much closer to each other. So if you think about silicon Adams that are between the transistors, you can only fit five of them in an animator. So in a three animator process, sure, marketing to be right, like at some point, you cannot sub divide silicon anymore. So either we need to change the substrate or the innovations are sort of going to come .

from else elsewhere, which has always been the case like more law was technically the doubling of the number of transistors on an integrated circuit.

Now IT comes from multi core. IT comes from all the other advancements of figuring out how to make chips do more stuff faster yeah .

that I think is gonna keep going. And I think it's gona keep being expensive and getting more expensive. And I think tc is the only company that can be able to keep up at the living end.

yeah. Do you know David about more second law?

No, I don't.

So everyone knows about more is law, but there is the second one, which is also known .

as rocks law after thur thrax .

yeah IT states that the cost of a semiconductor chip fabrication plant doubles every four years. So with fabs today costing fifteen, twenty billion dollars, I don't know that that's proven exactly true. But it's .

certainly if we just look at cap ics forecasting, they're gone from seventeen to thirty yeah to sixty over two years. So it's a wave faster than four years.

So the interesting thing is when you combine these two things, the long more second law, IT, implies that the leading company, the most profitable company, will become the on monopoly I take on.

They go. And it's .

fascinating that both of these things, these laws aren't actually in conflict because morals law is about effectively, when you really look at IT from a financial perspective, Operating expenses, when producing at scale and rocks law is about the upfront capital expenditure to enable all that production.

So it's everything we talk about on the show, is being able to pile investment into fixed cost as much as possible at huge scale in order to realize the benefits of making as many of the things as humanly possible at global scale. And T S. M C, interestingly, is the most perfect example of this.

And I I say interestingly, because we almost always talk about Operating leveraged and scale in the context of software. internet. This is how venture capital started because actually manufacturing chips, the Operating leveraged that comes from huge and to fix costs into founders ies to make chips and then hopefully be very profitable, fifty percent gross margin on those chips.

Venture capital financing was built for that for semi doctors and IT, just so happened to work just as well. Or even Better with software on the internet, even Better in the notion that growth margins of software can be eighty to ninety percent, not fifty percent. But I would back that down because IT doesn't have these sort of mote defensive ability characteristics that being able to pour your capex into manufacturing capability does. Yes.

we do power. absolutely. Let's do IT. Let's do IT. So for folks you to the show, this is one of the discussion topics we do for every episode as we go through hamilton and helmers.

ExcEllent seven powers, the best business theory book to with .

out hamilton on the show. He's amazing to read the book you have. He identified seven powers essentially know sources of defensively being, which he defines as long term differential profit margins versus your competitors.

As we've been talking about on the whole show, you the seven the t identifies are counter positioning, scale economies, switching cars, network economies, process power, branding and cornered resources. And we almost always talk about network economies. We talk about counter positioning on the show.

Sometimes we talk about brand day, sometimes talking about talking about none of those this time.

Yes, we sometimes talk about scale economies. Definite talk here, but I think we're going to have our first process power if a forecast. But let's art, let's good analyst counter positioning. I mean.

like maybe you when they were starting and in particularly, would the incumbent have started with the exact business model? No, because their profit center was the integration that all the margin you get of integrating design, manufacturing. And by saying no, we're going to be a airplane manufacturer.

MC theoretically was saying, no, we're going to take less gross margin and we're just going to make IT up in volume. I'm actually not sure IT played out that way. I think they have more. I don't know what you know what intel's gross margins.

I actually don't know. I would suspect their higher.

but I don't know. right?

Yeah I actually yeah, there was kind of position here. I don't think I said this when we are going to IT before T S. M. C. And the pier play founder model, if you were either a famous company, one of the very, very few, or you were another I D M.

And you are trying to get some access capacity run IT from another idm, most of them are you like, okay, you strongly them you ve got a grave or strategic al relationship will give you some capacity. But they also demanded the rate to market your products under their brand too. So like which obviously T S M, C wasn't to. Yeah, there was counter positioning. The ms, no way they were going to do at do right?

Uh, okay, scale economy is that is the biggest one to top to with process power. You, in my opinion.

switching costs well, is funding. Now there are huge switching. You can switch off T, S, M, C, no.

unless you're going to stop being on the leading a edge. If you're going to change from being a phone company to automotive company, you can switch off of them.

Well, I think it's even even than that. Again, haven't gone. Listen, probably think we've gone deep technical on this offset. We even scratch the service to. But yes, if you want the leading edge now you got to be tmc, but you gotta be so integrated with T, S, M C. To do this.

Say you want to switch to global founders ies, or know of the other competitors out there, which there are a few, you can just call up global founders ies and ballet. Hey, important. over.

Expect my business on monday when I takes years. You're so deeply integrated with the process. Yeah so yeah big switch costs.

network economies, it's not really worth talking about.

not in the traditional sense. You is not facebook .

here and and none of T S, M, C. Customers really benefit from other customers being on IT?

No, I do think there actually is I don't think hamilton captures this in his seven powers, and I don't know if he would consider this one. But there is like an ecosystem aspect here because the edm companies and the IP companies are so deeply integrated with t sm c. If you want to be using ARM for its sensor, you know they're kind of the best integrated with. Now I don't think that network economies that is kind of like this ecosystem, T S M C actual is a name for this. They called IT like the open innovation, something or other know it's some corporate name, but like that means this.

I do wonder if it's actually worse for a lot of people that apple is A T S M C customer because who .

else has access to the right? yes. Good point. Process power.

Yes, I think about the pixar. This is the first time we've really, although we weren't doing seven powers .

during yeah to me this is the clearest example I could ever imagine.

A process power IT takes all forty years of T S M C S. History to have arrived at where they are today. And even if ten people left and try to start the next sm C2Be abl e to cre ate wha t the y've cre ated at thi s poi nt fro m scr atch.

virtually all of their I P, all of their, you know, people, all of them know how all of their relationships with S M L. In the lake. Yes, no money. Money can replicate IT.

I think the only thing that will unc T S M C is a complete paradigm shift. Yeah something where like what mobile did the desktop if there's something where the computer required in the future is unable to be provided by anything that T M C is good at today.

the crazy in S M L stuff we are talking about, if all the sun, there's discovered a new, either different or way cheaper, way equant computing. Yes, way to do this. Then that kind of could reset the plane field. yes. Yeah, yeah, totally.

But even little shifts, I bet, theyd be fine if if everyone figured out that, like k silicon s not the best substrates, and we can figure out a Better substrate .

if they were like an A W S moment of which is funny ous TM t is the A W S equal. But like where something happened that just made a weight cheaper, then IT you, sumi, you could now get access to the technology. And the know how orders a magnet too cheaper than IT is now that would take away a big part of, yes, they're power, but I don't see that happening.

No absence, a paradise. ft. This is T, S, M, C.

To lose. They're pretty much. They're in the group. So I think we should skip branding and corner resource for now.

like I just don't. It's really worth time and anthems to brands. Apple brand.

it's so how do you define? So this is, I think, is a good time to enter our geopolitics discussion because I was thinking about the other way that T S. M, C could fail, would be that china decides the moment is right to go on a third of force and take over taiwan.

depending on how you see IT other N X taiwan or assert s has always claimed sovereign.

Tai, yes, actually started forcing has been right whole time, I think. Guess they would sort of say, yes, picking in my casual tone in english from america, then doing all this business with the west, I have to imagine that assuming that I didn't start a full war like an an actual world war, which may then, of course, they would start using all the T, S, M C manufacturing capacity for all .

the chinese .

and and how always .

bin A T S T off?

yeah. So how do you capture that in power? What is the power? Or maybe like.

let's not right.

let's not get too specific on this, but maybe in a general sense, how do you capture the power that the company has that comes from regulatory environment? Where would that get classified under that? Like they they have a lot of room to be Operating .

safely um maybe corner resource, I guess. So you are think this is like an .

entire power for yeah I suppose that all that matters is things that you have that your direct competitors don't. So I in the strange dong man that i'm putting together IT would really be about what if you were allocated in a country that none of your competitors were also domicile then and being there gave you some special ability to be more .

profitable than others, which they, basically the mafia boss, was like, this is happening. We are going to make. We're going a strong ARM everybody in the old business leaders in the country to investing in this where going to make sure that this to happens now okay.

let's put a pin in that because you write IT turns out that it's actually not a perfect power discussion. But the geopolitics thing .

is interesting.

I think is the place right that to me, absent an enormous computing paradise shift is the way that T S M C has an enormous risk in the business yeah totally.

Which doesn't make a kinds surprising that you know they haven't diversified their geographical Operation very much.

So this is interesting. So they're facing a lot of pressure for this. They are spending, I think, twelve billion dollars this year to start a plant in arizona, which will not be the three aniele.

I don't even think that will be the five anomalous. It's not the most advanced manufacturing. I think the U.

S is subsidizing in a big way. I think this part of the by administration's most recent bill to try and bring some semiconductor manufacturing here. But they're also starting a fab in japan that came out on their last startings call. So they're doing .

some questions. China, I believe.

to yeah, they're doing some diversification. But I don't think it's for this reason. I think it's because they're basically getting free money to open fabs and other places.

And Morris has even made comments like I don't think that makes any business sense for us to have the leading edge in those countries, even though those countries want us to have them there, I think can make sense based on the ecosystem that we've created in taiwan to keep Operating IT here. So the question is, if IT directly helps, let's take the U. S.

For example. The U. S, is process as a semiconductor manufacturing force in the world to have T S M C, arizona plant.

Or if its religious indirect in the ideas like let's try this as a first step, will get more people in the U. S. Familiar with doing this again, in case we need to .

restore this. yes. Yeah really the I mean, this is a scary, scary future to contemplate and I hope to got IT doesn't happen. But really the thought exercise is what would happen if china and excess yes, I want tomorrow.

Which is scary for a number of reasons, the smallest of which is this corporate takeover.

It's scary for a lot of people, yes, but I wouldn't say it's the small everything, right? Like imagine if we didn't have access to semiconductors anymore til leaving at semiconductor or like.

yeah, that's everything.

And what part of our lives do not run, right? So my four can make up from fifties right now. I feel like if you like, basically all of our technological progress would stop.

Yeah, you're right. So I think the .

question is I don't enough to answer this. What would happen, right? Like, would IT be possible to air lift the process power that T S M C has physically out of taiwan to somewhere else? You get all the people.

A, S M L now sends the stuff somewhere else. You are left. Everybody out there is an evacuation. Does the process power come with IT or not? Like I don't know.

Have a good question. I mean, if the toyota production system is an example where a toyota tried, there was that factory, that adventure with G, M.

toilet.

trying to replicate their process somewhere else, didn't work. Now, IT wasn't .

under threat of water.

right? This one would need to actually a good question. If you think about, like the U. S.

Is so of strategic defensive weaknesses, what's more important, having onshore semi icon ductor capability to continue advanced technology in the nation, or boy like our ability to build, which which we've always held up as this example of the U. S. Needs that to stay U.

S. Own, to stay Operating, stay profitable, to stay prosperous. Because IT is a matter of the U. S.

Way of life that were able .

to a great point. So we are now outside our depth. But is that actually more important to have cutting a semiconductor capability here than than airplanes or any other, other, other sort of defense supply chain?

And you know maybe the answer here is like, it's like her like, same with situation. Existing career is really, north korea is right there. You know, been there, have been to north korea.

Like I went to the dm, like, so weird. It's like a useful park. Irb, it's super, super weird and bizarre. But yeah, north korea right there, you know, maybe it's the same like china's right there, but this isn't actually going to happen. But like I know IT feels in the last year, like the risk of IT actually happening has ratted IT up quite a bit.

I think so. I mean, it's like globalization as a whole. IT is in the best interest of everyone to continue to share resources, to continue to entangle everything until somebody decides that it's not. And we have a big problem and hopefully for lots of reasons that just continues to be OK that T S. M C is located on island that is a of disputed claim.

Maybe the best which way is the end of the episode? Can we can indulge where here?

Um maybe the best thing that could happen is um my car without a while back was the book by the harvard teethe harvard after physics department about a the visit the that he passes as a was an alien spaceship maybe if we discovered that aliens are real, that's a bad list can going to be the united force you all these conflicts seem pretty pretty yeah I wouldn't use that as an investment, please. no. okay.

Before we get into the playback and just hit some things that I think we missed during the narrative, or at least didn't put a fine enough point on in the narrative, I have a, what would have happened otherwise .

that I would hit? No, we haven't.

So and i'll just read this as a direct quote from bloomberg. And there were some awesome sources for the episode, all of which are are linked in the showing. Tes in the mid two thousands, as apple inc. Is preparing for the release of its new smartphone. Steve jobs approached then CEO of intel auto li about providing the chips for the iphone l already sold iphone, the processors that .

ran on its max but jobs, but out on stage during .

the intel l transition and wearing the power PC is, say this, know this is the future. This is the partnership. So, okay, but jobs made what oh, considered a lobo offer.

An apple awarded the contract to samsung IT later began designing the chips itself, eventually outsource production at T S, M, C, A contract manufacturing in taiwan. 888。 So what could have been apple went to intel and said, do you want this contract?

Because they were partners .

on the back totally. And apparently, IT was less about the the fact that i'm sorry, you wanted use ARM, what with the company. And IT was more about we felt that .

was a lobo offer biggest strategy air of all time. I want to possible to play book team. I'm preformed as a possible more than a playbook team that what's the you know like in geometry, there's like the there's like laws that approved within.

There's like postures that all you can't prove them, but like our fundamental understanding, the universe doesn't work if they don't work, whatever that is acms. I don't know whatever that going to put one of those out there. Please never make strategic decisions based on economics.

This is a prime example.

Like the number of if we talk about this all the time on the show, like VC is passing over valuation on something no and during getting cold feet, about a three hundred million down evaluation on uber yeah right. This intel move passing on you on be partnering with .

apple and maybe more specifically than economics cause like you could imagine that you would anna pass on this if intel in candidate the upside from the deal, assuming that the structure is right, then passing because a number is too low in the structure .

or ford motor company not hiring or is change over one dollar? You know, like whatever like is just like, uh, humans are so prone to cutting off their noses despite their faces.

So we already have the rose file doctor, and i've never been Better against internet, but now we have the rose file post, which has never make distress. He gic decisions based on Prices.

based on Price on not economic Prices.

I like IT. I need a new section of the .

acquired website. Alright.

alright. Next on playbook is another one on intel fading. So IT takes a very long time to become irrelevant. So despite intel's sort of stock Price being, I think, T S M C, like two and a half x intel stock Price as a matter of effect, A S M L is actually larger than intel by market cap. Now they are the sole source provider of one thing in the value chain to mostly one company, and they're bigger than intel. Be fascinated.

okay. So public markets, investors who are listening should does D M. In slack or or .

post in A T.

A, R, whatever channel works for your twitter, whatever. Be super curious how you if you are along these these us that were sort of laying out on the show, how are you playing IT between T S M C and A S M L.

which is now europe's most valuable company.

right? I mean, probably you just invest in both. But like, yeah what is like how do .

you think about that, right? And what's the like up and come that speculative at this point, but could be an another puzzle piece here.

Are you also shorting intel through all the what do you do here?

All right. So my point on until is IT takes a long time to become irrelevant. They still control eighty percent of the computer processor market and they even even bigger share in servers. So like despite everything we're saying, still huge worths running on CPU that are in computers and on the cloud, pretty big business.

The majority of workloads that are happening in the cloud is not tesla, do jo, you know it's you know I don't know some company that's not a tech company somewhere and in the world running their outlook server on office three sixty five, yes, doesn't need five enemy to process .

two other until things. One is that indecision has been very tough on the company. Bob swan, who was the former C.

E O, started to prepare to outsource manufacturing of intel design ships. Two T, S, M, C like that. I think even like two years ago, this was like the plan they finally decided thrown in the top uc. turing.

They talk about .

their feelings. Bob swan is no longer the C. E. O of intel. And now, in a complete reversal, their new CEO, pat gelsinger, wants to turn intel into a foundry themselves by which other fabulous companies can contract with intel to build. Maybe that right.

But if so, they gotta figure out, and I think they're taking about this the right way. They said it's going to be a fully separate autonomous division. They ve got to run out like a completely separate independent company of the rest of intel. And if so, I don't actually know why .

until owns IT. Yeah, I mean, well, a let's like A A M D here, right? They did this. They span out. They are manufacturing into global founders ies.

which has been good for a global founders ies. And A, M, D, like global .

founders ies is getting ready to I, P, C decision. It's not going so well. I mean, like it's going fast. It's going Better probably then if they are not done that, but IT wasn't they're not a winner here. Like T, C is the winner.

Yeah I guess the the play vacation there is indecision is paralyzing. I mean, this company has fun, its wheels, one direction or the other. And all it's done is make itself deeper in the mud.

Ah, I just looked up. I was trying to remember this. Glaser was the vm where, C, E, O, he started his career in til and then went E, M C, and then E, M, C, on the majority of em came to C, O, V, M, where, yeah.

And he was the outside candidate to replace bomar as microsoft. C, yeah. Uh, you know.

I here is really revealed in the organization that people think he's really going going to make some good change there. We'll see the last thing on intel. And funny, this is not the intel episode, but there is a thing that happened here that is very similar to the fact that kodak developed the digital camera first in their lab.

They knew and they knew this was the future, and they didn't commercialize IT because it's impossible to counter position yourself because the innovation salama. Intel actually saw extreme U V lathom. phy.

U. V. first. So intel was the biggest early investor in A U. V, committing more than four billion to IT in twenty twelve. Well, IT was slower than its main rivals, and this is from the wall street journal in adopting the technology and skeptical about whether that would work eventually until calculated that IT was a sure bet to try and improve existing ways of handling pytheos phy. And of course, where we are today, you we completely enabled the .

next generation of chips T. Totally get until was there they invested in IT. They saw IT and therefore .

they put four billion in. And I think even to this day, there is not a shipping intel ship that was manufactured by intel using U. V.

Wow.

that's crazy. If you're right, that is the most perfect pure example of the innovators to luma and action why .

you need to start ups.

Yep.

we're going to talk about that on our next series. We have shadows season yeah .

to go alright. My next one is that if you're only looking at the outcomes that happened, you cannot reverse engineer what the problem ability that what what happened is. And this is a very abstract way of missing the strategy of if you build that, they will come.

That Morris implemented is a bad strategy. And IT also worked. Coin .

valentine hated they would never invest in developing a market that was like, rule number one, like we invest when the market R T exists, not when we need to develop IT.

And this is like the classic problem. This is the knock appear cy at all. There's a lot of people spinning out a microsoft starting companies. Classically, people coming at a microsoft would always want to build platforms because microsoft is a platform company and they would always have a small too small understanding of the market of people that wanted that platform today. And they assume if you do, they become morus was that exact problem. And yet if something is gonna true ten percent of the time and fail ninety percent of the time, one at the ten times, it's gonna and IT may have been the case. So I I guess what i'm saying here, if you're starting to start up, it's impossible to know if this was actually a good strategy or if there was a bad strategy that probabilistic ally just happen to work.

I mean, there's is a thing that start after that is like there are all these rules, right? But like they can all be broken. There is no formula.

Yep, totally. All right. Other playbook themes.

I just have one more than again, we talked about a bunch in the episode. I want to highly and actually had one spin on here, talk about IT all the way back in the beginning, in the the pilot sponsorship, you know, the japs quote about A U. S. As a start of anything that doesn't make your beer taste Better. The log back to the german beer factories and outdoor .

electricity generation R.

T, S, on makes the beer, your beer, whatever that is proverbially taste Better. And everything that is not that like financing accounting out serves to pilot you don't know, like it's Better double underscore that. But this is obvious, so obvious.

But obviously based us didn't say IT directly and I think we don't highly ted enough the kind of paint to that is anytime you see something that is like people are lots of people, lots of companies are doing is not making their beer tase Better. That is a massive opportunity to go build a platform company. That is how you build a platform company.

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We were thinking for greeting. Look, we agree, like, I don't know taiwan's decision to do this.

the fifty percent of the whatever.

like, you know, uh, apple, as you know, not not interesting. So we had that we thought experiment will try this for um this episode rather than like letter grading. This will ask a question, where does T S M C belong in the pantheon of great technology companies of all time is IT fang level is at like top five is the top ten?

Is IT like top twenty, like a wear? Is this what is the right context in which we should be placing T S M C this whole story? The company, the power, all of IT so .

interesting, because IT really does raise this question of value chain. When we talked about the like five part value chain that exists today for making chips. And so it's interesting because you could sort of say, well, IT belongs wherever intel belonging, circa two thousand. Or you could say, well, the set of products that T S M C manufacturer have a hundred x, the scale that intel in circuit o two thousand had.

Like if you think about IT, all this stuff that everyone's all excited about every time someone talks about the next wave of computing, and they are like machine learning, or they are alike cyp to, or they're like five g, or they're like anything they tell you is something T S M C makes that enables at all when marking. Recently, software is eating the world. So in the world, because T S M C has made IT so freaking cheap to manufacturer silicon.

And then you can run whatever you want on that silicon. And is the cost of compute essential ally approaches zero because T S M C, T S M C, T S M C. So how much do we describe to them versus A S.

M L? How much do we scribe to them versus the entire landscape of talented chip designers out there, including the like six hundred chip designers at apple? Working on the apple silicon is harder to ambiguity that. So where is that belong? I mean, it's probably the most successful and important be to be hardware company of all time.

I think we can safely say at this point, its surpasses in tell I mean gosh right like that's a big statement to say rel silicon value. The trader say like all of IT more is law.

but in compounding, all the value shows up at the end. So IT is true that the value that T S M C will create in the world over the next year, two years, three years, probably more than the entire silicon industry leading up to this point combined.

I mean, held a thirty percent list like already on imaginable scale, like intel's not doing that, right? okay. I think we can say it's above intel.

I probably wouldn't say IT is above facebook. Game is on apple, microsoft, google in terms of pure value creation in the world.

I mean, devil s evoke. You could argue that none of the innovation things those companies are doing now .

happens without T. S. M. C. Yeah, unless the foundry model, the files model was inevitable.

Yeah, maybe somebody else would have done IT, maybe.

but they didn't. They didn't arrested.

I mean, guess the thing that I would like is really just beaten me over the head this episode. We we probably beaten all of you over the head with really I have is, look, there is the geopolitical risk with being in taiwan. Other than that, I don't know that there is a stronger mode that any company has in the entire world than T S M C compared all the fan companies in microsoft, like those are very, very strong votes.

But like we've seen all of those theyve changed their new companies. They've emerged. They've like no microsoft fell. And then now I came back with new strategy and like facebook's not that old, and google is not that old. T, S, M.

C is inpenetrable yeah at their business model. And the cost required to compete are .

such that they have it's like .

bullets of it's .

everything but bulletproof yeah told sadly say yeah sadly yeah so you know I don't know, maybe we're exactly because we like so deep and I like we always we always go native on these episodes.

Only way I could be more valuable as if the company had an army. It's like that people talk about the U. S.

Dollar is backed up by the the full faith of the U. S. Government, which implies guns. yes. And so it's only because everybody's currently playing by the rules that any business gets to stay in business. And so this one just happened to be a little bit more at risk than other ones when IT comes to that.

So I think we can safely say top ten. And the question is.

is a tough five. Well, defensible is interesting question. So in thirty years, will T, S, M, C be a .

huge company? Will we've got this dynamic going right now with this fly? Well, like structurally, nobody can catch them. Something unforeseen has to change.

but something unforeseen will .

change because I always change true.

Who's had the most similar dynamic in the past? Standard oil.

either been successful .

or unsuccessful. Senate oil, a good one.

Cough for shadowing. I mean, that kind of way that like that is a very different style, but same sort of dynamics. Standard oil, right, was like they crowded alec structurally how they were set up. We'll talk way more about this later. Nobody else could compete the to keep getting written .

and they kind of still exist.

That's the best that is the best part. They still exist. Yeah.

all right, i'm with you. I'm algo top ten, but probably not top five.

Yeah, that is her. What i'm restless with this is how much of IT is just like marketing, and I don't be marketing in a bad way, but like intentionally tsc u rides under the rather like they intentionally have no brand. The brand is the customers. They want the customers to succeed. So we don't hear all the time about them like we do the fan companies.

Yeah, we will start to I think anybody who turns into this episode really saw the name of the episode and then thought I should turn into that because i've seen more about this thing, but I didn't know about kind .

like we did, like we should do this episode.

It's finally time yeah yeah. All right. Well, that I want to leave you with grading so well.

i'll put taking the great I am going to say I think i'm with you top ten, not five yet. But you know, maybe we need to revisit .

I will definitely say it's the most successful B2Be har dware com pany. And the question is, is that the most successful beat da beat company ever to say it's probably just competing with microsoft there yeah I mean.

again, maybe even like across all industry, right like look, I mean, shoot, semiconductors run everything yeah and they run semicon conductors.

Mi conductors are oil, David.

Uh, okay, okay, enough, enough, enough. We we bring this one hot t lets do IT. I've two gene. I were just down the ana barber for couple weeks, ranted and be down there. So great we did that last year, hopefully becomes the annual summer, the freezing conferences go summer.

Um the um so why we're done, we don't we don't watch a lot of TV usually but you know was like change to see summer time in a new place like I want some TV together at night. So this is like for the percentage of you out there who are like living under a rock like me with TV. We've watched now most of the last so season one selebi term, but season that made me think, oh, if people are this upset about season too, that mean season one was really good.

It's so good if you have not, what. So good love IT and then the other T V show we watched this was Jenny suggestion old school threw back uh so called greek which air in the mid two thousands and is about, oh yeah Green like like charity and ferny life elections university. And like, it's just so good.

Like what that is hard warming. Like, you know, period pieces. But like IT was great from, like when we were in college again in fun.

nice. Alright, David, watching T V, who knows what could change in the world?

Maybe T, S M C S mode isn't as deep thought.

right? All my is a book that has been recommended to me for two or three years now. And I finally got around to reading, and IT was awesome, called who is Michael of its? And then if you've read shoot dog and you've read the right of lifetime, and you've read what's the ford one in american icon, these like .

iconic clastic america, yes.

this one needs to be on your list, especially if you've enjoyed any movies or T, V shows that were put together in the last, let's let's be specific, like to work .

injury or series.

totally from, like 11 seventy five to two thousand。 Michael ovis put everything together. And IT is this wonderfully written book about an unbelievable business story, the strategy behind IT, the way that with creative, our agency, they just completely up under the entire industry in hollywood and did IT really without ever talking to the press.

And we're very tight lipped about IT. For some hollywood outsider, I found the book really, really wonderful, really compelling. I also think I previously had only read the right of a lifetime and watched the disney plus special about sort of the history of disney and disney. I don't feel I had a full I had a one sided view of Michael based .

on just his short ten at disney totally.

And what kicked off was doing the in recent episodes and you know, hearing about how they how they based IT on C A, A. So especially if you like those episodes, or if you like the disney episodes, or if you are a movie fan, or if you like this, like classic CEO business stories.

who is my global was just an awesome read. Know, like you probably even more so because we were kids, but IT was the adult movie. Is that would come any kids movies too? But like, know, when you a kid, like the adult move, that you really want to see total.

too Young to see. And just always like such classic, like good fall, like that was just my previous car out or jasa just everything that they called the here I came to be super cool.

Uh.

I don't think we told you at the begin, but, uh, you can join our slack, acquire data FM, slash, slack, come hanging out with nine thousand the talented, smart, good looking people like yourselves. You should become an acquired L. P. We go deeper. In fact, uh, we just did our most recent LPL really fund to do that and have magic greater join us, who obviously was uh on our most recent L P episode talking about the fed macroeconomics, uh difference between monetary policy and fiscal policy, which I just learned about inflation and interest rates, all that stuff super fun. So obviously you get all fifty plus prix .

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