# Chang rejected IBM's co-development offer to protect TSMC's process

Markdown copy of https://realalpha.app/s/chang-rejected-ibms-co-development-offer-to-protect-tsmcs/ on Real Alpha, the best minutes from long interviews with the people building AI. Cite and link the page, not this copy.

- Speaker: [Morris Chang](https://realalpha.app/people/morris-chang/) · Morris Chang is founder of TSMC. · Founded TSMC in 1987 and pioneered the pure-play foundry model behind its rise to a global chip giant.
- Host: [Ben Gilbert](https://realalpha.app/people/ben-gilbert/) · Co-founder & co-host, Acquired · Ex-Microsoft engineer turned investor at Madrona and Pioneer Square Labs.
- Host: [David Rosenthal](https://realalpha.app/people/david-rosenthal/) · Co-founder & co-host, Acquired · Former Madrona venture capitalist; leads Acquired's company histories.
- Show: Acquired
- Episode: [TSMC founder Morris Chang](https://realalpha.app/v/FZItbr4ZJnc/), Jan 27, 2025
- Moment: 1:55:09 to 2:02:08 of the episode (7 min), playing on https://realalpha.app/s/chang-rejected-ibms-co-development-offer-to-protect-tsmcs/; the episode from there: https://realalpha.app/v/FZItbr4ZJnc/?t=6909

## Quote

> “And since I anticipated that, it was **no problem at all** for us to refuse.”
> — [Morris Chang](https://realalpha.app/people/morris-chang/) at [1:59:29](https://realalpha.app/v/FZItbr4ZJnc/?t=7169) · Acquired

## Takeaways

1. Losing Qualcomm's business alerted Chang to trouble at IBM Semiconductor.
2. IBM proposed co-developing 130nm technology in 1999.
3. Chang feared dependence on IBM and loss of control over TSMC's process.

## About this segment

IBM asked TSMC to co-develop 130nm technology, but Morris Chang feared becoming a junior partner and losing process control. IBM turned to UMC instead, which later regretted the deal.

From “TSMC founder Morris Chang”, Jan 27, 2025. [Watch the full episode](https://realalpha.app/v/FZItbr4ZJnc/)

## Transcript

Transcribed by machine (Whisper) from the episode’s audio, so a word may be off here and there.

[1:55:22](https://realalpha.app/v/FZItbr4ZJnc/?t=6922) so let me tell I want to tell you the IBM Qualcomm story. Please. Now, Qualcomm, we consider Qualcomm to be a prime candidate to be our customer. We really wanted Qualcomm because we knew they were a technology house. What year was this? This was way back, you know, when we started in the 90s anyway. And they were part of that initial wave of fabless companies. Yes. They started, Irwin Jacobs started Qualcomm actually before I started TSMC.

[1:56:16](https://realalpha.app/v/FZItbr4ZJnc/?t=6976) TSMC started in 87. Qualcomm, I think, was a few years before that. So we, in the 90s, early 90s, all the way up to 97, maybe 96, 97, all the way up to the latter part of the 90s, we wanted Qualcomm to be a customer. And, you know, I saw their operations, VP, that's what they call, that's what our customers call their purchasing people, operations. VP, operations, senior VP. And I saw him often, and he was always pretty polite.

[1:57:16](https://realalpha.app/v/FZItbr4ZJnc/?t=7036) But he gave us very little business. And I also knew that his foundry, his main foundry was IBM. Now, sometime in the later 90s, I forgot whether it was 97 or 98, suddenly he started, first he started to tell me that he would use us now. Now, he didn't even tell me who our competitor was, who our competitor had been, but I kind of knew that it was IBM from other sources of intelligence. And our business with Qualcomm, the business that Qualcomm gave us pretty rapidly increased after that.

[1:58:19](https://realalpha.app/v/FZItbr4ZJnc/?t=7099) after the 97, 98 period. So I immediately knew that IBM Semiconductor was in trouble because, I mean, they had their own fabs and so on. But their main business was really supplying to, Qualcomm and a few other very small companies, very small, fabulous companies. So I immediately knew IBM was in trouble because they were losing Qualcomm. All right. So the next step that IBM took was not a surprise to me.

[1:59:17](https://realalpha.app/v/FZItbr4ZJnc/?t=7157) The next step they took was to ask us, TSMC, to co-develop the next generation of technology, which is 0.13 micron, 130 nanometers, in 1999. And since I anticipated that, it was no problem at all for us to refuse. And in fact, even if I didn't anticipate that, we would never, never have accepted that kind of co-development. I mean, IBM was still, you know, they still consider themselves to be the senior partner in any partnership.

[2:00:10](https://realalpha.app/v/FZItbr4ZJnc/?t=7210) They established a senior partner. So we were, the company that co-developed something with them would send its engineers to IBM, you know. And when we do that, we lose our ability to develop our own process. We'll have to depend on this co-development thing. And the co-development thing is going to have a lot of difficulties, you know. Heck, you know, our people, you know, we're being a different culture.

[2:00:47](https://realalpha.app/v/FZItbr4ZJnc/?t=7247) So we declined without having to think about it at all. We declined the IBM office. And IBM, in fact, was quite angry, you know. So, I mean, they thought, we're still. a small Taiwan backward place, you know, Taiwan company, and they are a big type of generator. So they immediately went to UMC. And UMC accepted them, only to regret seriously their acceptance a few years later. And UMC, at that point in time, was it fair to call it a peer of TSMC here in Taiwan in terms of volume and size?

[2:01:41](https://realalpha.app/v/FZItbr4ZJnc/?t=7301) Not by 1999. They were already smaller? Smaller. They were smaller already, yeah. That's what I meant when I said that sitting here at the boundary, I can see some things like this IBM thing.