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Taiwan's Morris Chang (Int'l Edition)

Asian Cover -- Managers

TAIWAN'S MORRIS CHANG (int'l edition)

Perhaps it was his family's escape from Japanese bombing in China during World War II that gave Morris Chang his fighting spirit. "My positive attitude is probably related to my childhood," says Chang, 66, who settled in Taiwan in 1985 after nearly four decades in the U.S. He also made the right move when he took his father's advice to switch from literature courses at Harvard University to engineering at Massachusetts Institute of Technology. If he hadn't, the global semiconductor industry might have turned out differently.

Chang's determination helped create Taiwan's thriving high-tech industry, one of Asia's most important sources of strength. The chipmaker he started in 1986, Taiwan Semiconductor Manufacturing Co., is now an industry pacesetter. TSMC earned $528 million last year on revenues of $1.3 billion--a 41% return on sales that puts it among the world's most profitable companies. TSMC was the world's first pure foundry, fabricating silicon wafers for outside clients. It inspired hundreds of chip-design houses to go into business without building costly factories. Today, TSMC leads an established industry of foundries, which includes United Microelectronics Corp. in Taiwan and Chartered Semiconductor Manufacturing Inc. in Singapore.

Chang's long career in the U.S.--he worked at Texas Instruments Inc. and General Instrument Corp.--taught him to value the emphasis Western business places on employee welfare, innovation, and strong links to customers. He thinks Asia's beleaguered companies must adopt those values. "Asian management has to change dramatically," he says. U.S. companies are a good model. So is TSMC.Return to top



Morris Chang, 66, is chairman of Taiwan Semiconductor Manufacturing Co., which he founded when he was director of Taiwan's top research lab, the Industrial Technology & Research Institute. Chang created and spun off TSMC from ITRI in 1986, setting up an important new business model in the semiconductor industry, the chip foundry. A pure foundry is a company that makes computer chips under contract for other companies, such as fabless chip-design houses. It has no proprietary chip designs of its own. Chang says he's most proud of the fact that his concept helped create not just the foundry industry but also enabled the growth of the fabless chip-design industry because designers no longer need their own expensive factories to be in the chip business.

Chang recently published memoirs of the first half of his life, including his family's extensive travels in China to escape the war with Japan. He went to the U.S. upon graduating from high school in Shanghai after the war, earning a B.S. and M.S. in mechanical engineering from the Massachusetts Institute of Technology in 1952 and 1953, respectively. He worked at Texas Instruments in the earliest days of the semiconductor industry. He stayed there for a 25 year career, eventually, as semiconductor group vice-president, running TI's worldwide semiconductor operations, at that time the largest in the world. In 1964, he earned his PhD in electrical engineering, while on TI's payroll, a company first. He moved to Taiwan in 1985. Chang recently spoke about these topics with Business Week's Jonathan Moore. Here are excerpts of their conversation:Q: Why did you write your autobiography?

A: I had the dream of becoming a writer when I was in high school. I loved Chinese literature back then. Then the communists took over China, and I had to go somewhere else to go to college. The best place was the U.S. I went there at 18 to go to Harvard. My first year was a very exciting year. It was my first year in a new country -- and what a country! And my first at a new college -- and what a college!

My father decided for me that I would study engineering. So I went to MIT. Harvard is a general education school, so for that year, I concentrated on English and soaking up Western culture.

I became a Hemingway fan, and an admirer of Churchill's literary talents and so on. So I really have an admiration for literature. I am a closet writer, if you will. So I'm finally fulfilling my 50-year-old dream to become a Chinese writer.Q: What was it like growing up in China during the war?

A: I grew up in a great era. First of all, it was a great era for China. China as you know, was under foreign powers, under oppression for more 100 years. After World War II, China became one of the four powers of the world. It was the U.S. that gave China the respect and standing as one of the big four powers, U.S., U.K., Russia, and China, the four allies. It was an exhilarating period. Most of China's people were in poverty, but the atmosphere was one of excitement, because we could see that our standing in the world had vastly improved, that the foreign powers' concessions in China would all be removed after the war. We could see, in the latter part of the war, that we would win and the building of modern China would finally begin.

We were living, really, in dumps. Our dormitories were very, very primitive. We had very little meat, mostly vegetables and rice. The dormitories were full of bugs. The physical comforts were not there at all, but the mental life was extremely uplifting. So it was a great era, and the same feeling was shared by almost everybody that grew up in that era. Q: You sound nostalgic for that period.

A: Well, I have no time to be nostalgic. But I do enjoy talking about that time period. It was spiritually very uplifting.

What's on my mind is not historical events, but before my autobiography came out, people in Taiwan didn't know me at all. Everytime I talked, I talked about the future, the future of TSMC, the future of the semiconductor industry. I was always looking ahead. Their qeustion was, Where did you come from? What was my history when I was young? That's actually another reason I wrote the book. Now they understand.Q: Was that galling for you, after you had become well-known in the American IC business?

A: It was somewhat galling. But it wasn't so much my work experience in the U.S., but most people didn't know I had so many interesting experiences. I had to cross the battlefront with my family, when we went from Shanghai to Chungking. There was no gunfire, but we were lucky. We were under bombs in Hong Kong, Canton, Chungking. I was one of the high school students in Chungking that were shouting slogans against the Japanese.Q: You joined the semiconductor industry in its earliest days. What was it like back then.

A: When I was 24, the IC industry was only three years old at the time. Things were very exciting. New developments were being invented al the time. The transistor was invented in 1948, and Bell Labs licensed it to transistor companies in 1952. I joined the industry in 1955, and there were already a dozen companies in the industry. There were new developments every year, at a much faster pace than now. The integrated circuit was invented almost under my own nose. Jack Kilby, at TI, is legally and formally considered a co-inventor of the IC, with Bob Noyce of Fairchild. They simultaneously invented it. Jack Kilby and I became friends. He was a few years older than I, but we were both from the East Coast. We got together quite often to talk about what each was doing. He told me he had worked out an integrated circuit. It was 1958. I didn't attach as much importance to it at the time as I should have. It was a great time for the semiconductor industry, too. Q: Any plans for a sequel? The next 33 years?

A: No. I wrote in the preface that, when I think back on my life, I don't think about the period after 33 as much as the time before I was 33. All the interesting things happened to me before I was 33.Q: Still, TSMC is a tremendous accomplishment.

A: I'm very proud of TSMC, as a new business model. In fact, I'm even prouder of the fact that I really stimulated the fabless [design] industry than I am in leading the Taiwan IC industry, which is more of a regional phenomenon. The stimulation of the fabless industry is a a worldwide phenomenon. Q: How did you come up with the idea to start a chip foundry?

A: A friend, an acquaintance from the semiconductor business approached me when I was president of General Instrument [in 1984]. He wanted GI to invest US$50 million in his company. I liked him, and I seriously considered it. I asked him to draw up a business plan. I didn't hear from him for several weeks, and I called him up to find out what happened. He said he didn't need me anymore. He could start an IC company with just US$5 million. He said he wouldn't build a fab himself, but would get the chips made by other companies. At that time, a lot of Japanese fabs were part-time fountries. But they weren't doing a good job at all, and since they produced their own designs, a customer couldn't be sure they wouldn't steal his designs. It led me to think, if this acquaintance of mine starts a company without a wafer fab, there must be a need for good foundries.

The second reason, was, I felt that Taiwan possessed key competitive advantages for running wafer fabs. It had to do mainly with people, training, work ethic, and the availability of skilled engineers. I came to Taiwan in 1985, and started TSMC in 1986.Q: How did your experiences during the war shape your career as an engineer?

A: I'm always very positive, I have a winner's instinct, I don't want to lose. That positive attitude is probably related to my childhood surroundings. Back then, it was very positive world, a great era, we were really going to do great things. Back then we were all thinking more about the the country, the society, less about oneself. British history during the Second World War is one of great devastation and turmoil. Living standards went way down, but people were more united, more spirited than during peace. The Chinese experience was similar to that. Q: What did your parents do?

A: My father worked in a bank, he was a vice-president. Not a large bank, so he was kind of an upper-middle-class businessman. I'm glad he pushed me into engineering. He was a very practical person, very educated. He did very well in college, and he didn't want me to have some kind of an impractical idea of becoming a writer and ruining my life. Q: Good idea.

A: Well. I wasn't going to be a reporter, I was going to write novels and essays!Q: What's special about the IC industry?

A: Changes happen very quickly. Both technical changes and business changes. First of all, as you know, we've already gone through so many generations of technology.

Business changes also happen very quickly. The pecking order, your competitive position is never secure. It may be very competitive in one generation of technology, but you could lose your leadership in the next generation. That has happened many times. TI was at one time the king of the hill, but it lost its position. Intel started out very small, as nothing, now after 20 years, it's the largest. The Japanese started big, they took over leadership volume from US in 1980s, but now they've declined, too.Q: What's been the impact of TSMC on the industry?

A: I think TSMC's biggest achievement is the new business model. I often liken it to McDonald's. What's so special about hamburgers? But McDonald's made it a very good business.

We really created two industries. And the more important one is the fabless industry, because it affects more people. TSMC really lowered the entry barriers to the IC industry. A good example is my friend who started his company. Now, there are more than 400 fabless companies because it doesn't take much capital. We changed the paradigm. Q: In the context of the regional crisis, what should companies be doing to get healthier and work their way through the bad times?

A: Asian management has to change dramatically. We have to adopt a different management model that's a lot closer to the Western model. The traditional Asian model is networking, relationships, personal. It's coddling by government, nepotism, cronyism. It's not open at all. So those are the things that need to change. Asian companies don't like to hire professional managers, let alone allow lowe-level employees to participate in stocks. I think that has to change.

We need a more open environment. People need to be able to express their ideas more openly, and need to be able to bypass a couple of levels, like Western high-tech companies. The style that I adopt at TSMC is very close to hig- tech American companies, Intel, Microsoft, and so on. Q: Could you describe your company culture?

A: We have a list of 10 principles, integrity, employees welfare, compensation, open environment, innovation, treating customers as partners, those kinds of things. I think the most important management style is a very strict adherence to business ethics and integrity. Also, treating customers as partners, having an open environment in the company, and putting a premium on innovation. Return to top

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