Taiwan Semiconductor Manufacturing Company: The Semiconductor Services Company

Founded in 1987, Taiwan Semiconductor Manufacturing Company (TSMC) was the world’s first pure foundry, focused solely on the manufacturing of semiconductors. Operating in the cyclical semiconductor market, the company managed to grow rapidly and to become the world’s 8th largest semiconductor manufacturer with more than 50 percent market share in the foundry business. In the company’s early days, TSMC management focused on manufacturing excellence and technology leadership. As competition in the sector intensified in the late 1990s, the company began to focus on customer service to further differentiate itself from companies like UMC, its next door neighbor and closest competitor, and the rapidly growing Chinese foundries. The company invested heavily in the development of innovative, value-added services and proprietary information systems that would facilitate better communication and improve customer service, putting in place eCommerce applications such as eFoundry and Enterprise Supply Chain Management suites. TSMC management believed that customers, typically U.S. based integrated circuit (IC) design houses facing high financial stakes, rapid technological innovations, short product life cycles, and intensive competition, would choose a foundry business partner based on quality, trustworthiness, and reputation, as opposed to price only. Could superior customer service make an impact in a capital intensive, process- and quality- oriented industry such as the semiconductor industry, or would TSMC have to compete on price? This case explores this issues, as well as other factors affecting TSMC’s strategic path as it moves forward in the mid-2000s.