When Morris Chang Speaks, America Should Listen

Last month, Morris Chang, the founder and two-time CEO of TSMC (now retired and in his 90s), gave a rare interview, hosted by the Brookings Institution and CSIS, two of the most prestigious DC think tanks.

During this interview, in no uncertain terms, Morris called the United States’ current effort to bolster its domestic semiconductor industry “a very expensive exercise in futility”. The interview’s YouTube video currently has less than 5,000 views. It clearly did not go viral, but it should have, because if we, as a country, are serious about what semiconductors mean in America's future, we should listen more to Morris Chang.

(For more of our previous writings on Morris Chang and the semiconductor industry, see “Morris Chang’s Last Speech” (premium content) and the Semiconductor tag.)

So what did Morris say that our politicians and policymakers should have listened to?

Math (Still) Does Not Work

During this interview, Morris recounted the trial and tribulation of building TSMC’s first manufacturing facility in the US in 1997. The plant was in Oregon. During this plant’s 25 years of operation, TSMC tried everything it could to improve its performance and reduce its cost. Although performance did improve and the plant remains profitable until today, its cost also remains stubbornly high – 50% higher than a similar facility in Taiwan.

Simply put, the math did not work! In Morris’s eyes, due to America’s lack of manufacturing talent and higher cost, no US-based semiconductor manufacturing facility can compete with a Taiwan-based facility, due to the cold logic of unit economics.

The math never worked for TSMC in Oregon. Have things changed?

Last Friday, President Biden made headlines by asking Congress to “pass the damn bill” during a speech in Ohio. The bill he was referring to is the so-called Bipartisan Innovation Act (BIA), which, if passed, contains a $52 billion semiconductor subsidy that would, in part, fund a new Intel plant in Ohio.

Intentionally or not, Biden told the crowd that the average salary at this new plant would be $135,000 a year!

Guess how much is TSMC’s median salary, as of last year? $61,000! (181,000 New Taiwan Dollars to be more exact.)

On the measurement of annual salary alone, the Intel Ohio plant would cost more than twice as much as a TSMC plant in Taiwan. This is removing the less obvious experience gap between the two workforces and the more obvious difference in healthcare cost. (Taiwan is well-known for having high-quality affordable healthcare; America is not.)

25 years after TSMC built its Oregon plant, the math still does not work. Actually, it has gotten worse! Meanwhile, the $52 billion subsidy will only last for five years, not nearly enough time to make Intel's Ohio plant less costly and more globally competitive. It’s no wonder Morris thinks this is an “exercise in futility”.

What Should America Invest In?

Despite the pessimistic perspective, Morris was not completely down on America’s place in the semiconductor industry as a whole. He believes that America is superior in semiconductor design, just not manufacturing.

From Apple’s M1 chip and Google’s Tensor Processing Unit (TPU), to Tesla’s Full Self-Driving chip and every GPU Nvidia has ever designed, American tech companies have an unquestionable competitive advantage in chip design.

Taiwan does not. TSMC has no design capabilities. Other Taiwanese chip design firms are far behind. Neither does Mainland China. While both Huawei and Alibaba are known for designing powerful chips, they and other Chinese tech firms have been hobbled by US sanctions with no domestic solution in sight.

Instead of further investing in what we are good at – chip design – the BIA is pouring taxpayer money into something we have not done well for decades – chip manufacturing.

By not listening to the sobering voice of Morris Chang, America seems to be playing to our weakness, not our strength.

Exactly one year ago, I wrote a post dissecting an hour-long speech Morris delivered (in Chinese) in front of a room full of Taiwanese government and business leaders. (You can read our English transcription in “Morris Chang’s Last Speech” (premium content))

One of the key lessons I drew from that speech is: innovate to motivate.

When he started TSMC in the mid-1980s, Taiwan was poor, backward, and eager to advance. For Taiwan, semiconductor manufacturing was innovative and motivated many generations of Taiwanese people to this day! For America, manufacturing was already not a “cool place to work” in the 80s – talented young people were gravitating toward Wall Street and a nascent but promising thing called the Internet – a trend that has also continued to this day.

Despite having the word “Innovation” in the bill’s name, the BIA is funding the recreation of the “semiconductor manufacturing” wheels. It is a missed opportunity to truly innovate and inspire, in my view, for a bill that has such a rare high-level of bipartisan support.

Instead of saying “We choose to go to the Moon'', like JFK in 1962, the BIA is saying “We choose to do something Taiwan already does really well because we are scared of China”, even though going to the Moon and Mars, or tackling climate change, or developing quantum computing, or exploring biotech would have needed more semiconductors anyways. The custom-built semiconductors powering these innovations could all be designed by American companies.

So will this Bipartisan Innovation Act be a complete waste of money and time? Not completely, but we should temper our expectations.

Temper Our Expectations

It is a foregone conclusion that chips made in America will cost significantly more than in Taiwan, whether they are from Intel’s new Ohio plant or TSMC’s new plant in Arizona. But they will still have customers. Any plant that BIA will subsidize would onshore some semiconductor production capacity to supply highly-regulated or highly-sensitive industries, like defense, telecoms, and cloud computing for government use. These industries will be required to “Buy American”, no matter how pricey these American-made chips are.

To be clear, I support the BIA in spirit and believe that developing this redundant capacity and self-reliance is a worthy goal. We should just keep in mind that it is both more expensive and won’t make a dent in America’s global competitiveness.

The passage of the BIA is also not assured. The bill is inching towards the legislative phase, where the two chambers of the US Congress form what is called a “conference committee” to merge the two different versions previously passed by the House and the Senate. Congressional staffers have indicated that finishing this phase by the end of summer will be a Herculean effort.

The 5-year $52 billion semiconductor subsidy is designed to kick in at the start of the US Federal government’s fiscal year 2022, which means October. If the “conference committee” takes too long, Congress will likely pass the easiest parts – like this semiconductor subsidy – but delay some of the other more innovative elements – like funding wireless supply chain innovation, authorizing programs for space exploration, and increasing computer science education in elementary schools.

What we will end up with will be a watered-down version of the BIA that is already lacking in both innovation and inspiration. It will be a bill that definitely would not have attracted the next Morris Chang to come to America to study, work, and build semiconductors.