How it began
The pure-play foundry began with Taiwan Semiconductor Manufacturing Company, incorporated on 21 February 1987 in Hsinchu. K.T. Li had recruited Morris Chang in 1985 to head the Industrial Technology Research Institute and told him the government wanted Taiwan to have a semiconductor company. The foundry was Chang's answer. He was 55 and had spent most of his career at Texas Instruments. TSMC was founded with production technology and licensed intellectual property from Philips, which took 27.6 percent of the equity, and financing from the government's National Development Fund, which took 48.3 percent.
Before it existed
Chip companies both designed and manufactured their products, the integrated model. Contract manufacturing was not new. Chang's first job at Texas Instruments in 1958 was running a line that made a transistor IBM had designed, which he later called very simply foundry work. He pitched a foundry inside Texas Instruments in 1976 and was turned down. What did not exist was a factory that made chips for others and had no products of its own.
How it works
A pure-play foundry manufactures designs owned by other companies and owns none of its own. The novelty was contractual, not technical: the company promised never to compete with its customers. A design firm could hand over its most valuable design without arming a rival, because the factory had no products to defend. Customers send design files, the foundry processes wafers to an agreed set of design rules, and tested chips go back to the customer.
Who pushed back
The idea did not look certain to work. Intel declined to invest. In late 1987, about nine months after incorporation, Intel's Andy Grove came to inspect the fab and Intel ran TSMC through its qualification process. TSMC passed, and Intel became its first American customer, ordering older 1.5-micron parts.
What lasted
The model split the industry into companies that design chips and companies that make them. Designers that could not afford a factory, the fabless firms, became customers of a foundry whose scale came from serving all of them. IEEE Spectrum wrote in 2011 that Chang pioneered a 28 billion dollar semiconductor foundry industry and started a revolution in the business of chips. TSMC became the largest company in Taiwan.
