the $1.4 trillion decision: formosa's missed opportunity with TSMC
Taipei, Monday, 6 January 2025.
Morris Chang’s autobiography reveals a pivotal moment in TSMC’s early history. The Formosa Plastics Group, an original 5% shareholder in TSMC, sold its shares early. Had it retained them, the stake would now be valued at $1.4 trillion, surpassing the entire Formosa Group’s market value. This decision underscores the high stakes and challenges of early investments in technology. Chang’s narrative highlights the skepticism surrounding semiconductor ventures at the time. During a dinner meeting, Formosa’s founder, Wang Yung-ching, questioned the profitability of the semiconductor industry. Despite initial doubts, Formosa’s eventual investment was a result of persuasion by economic officials. Today, TSMC stands as a leader in the semiconductor industry, illustrating the potential rewards of foresighted investment. The revelation offers a compelling lesson on the unpredictable nature of tech investments and the critical role of strategic decisions in shaping billion-dollar enterprises.
Early skepticism and investment
In 1986, when TSMC was seeking initial investors, the semiconductor industry faced widespread skepticism [1]. Morris Chang, along with key figures from the Industrial Technology Research Institute, met with Wang Yung-ching at Formosa’s headquarters [1]. Despite a cordial dinner where Wang focused on discussing the steak rather than semiconductors, Formosa initially declined to invest [1]. It took intervention from then-Economic Minister Lee Da-hai and former Premier Yu Kuo-hwa to convince Wang to make the investment [1].
Original shareholding structure
The initial investment structure of TSMC included several major stakeholders. The Development Fund of the Executive Yuan held 48.3%, Philips secured 27.6%, and Formosa Plastics Group acquired 5% with a $7.25 million investment [1]. This 5% stake represented a portion of TSMC’s total capital of $145 million [1]. Other original shareholders included Hua Hsia with 5%, Central Investment Corporation with 4.1%, and several smaller stakeholders [1].
The premature exit
Wang’s skepticism about the contract manufacturing business model led to a quick exit. By the third year, he instructed his son Wang Wen-yuan to sell Formosa’s entire stake at an average price of NT$17.6 per share [1]. This decision was influenced by Wang’s belief that contract manufacturing lacked technological value and profit potential [1]. Today, had Formosa retained its 5% stake, it would be worth NT$1.4 trillion, exceeding the combined market value of all Formosa Group companies, which stands at NT$1.14 trillion [1].