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TSMC: "A Very Huge Pair Of Shoes To Fill"


Rick Tsai is accustomed to living in the shadows. While the 54-year-old engineer has been chief executive of Taiwan Semiconductor Manufacturing Co. () since July, it's hard to escape the weighty presence of his 74-year-old predecessor, Morris Chang. The pipe-smoking, professorial Chang, after all, virtually invented the foundry business -- the outsourced manufacture of semiconductors. Chang's two-meter-high portrait dominates the lobby of TSMC's headquarters in Hsinchu, 80 kilometers southwest of Taipei, and Chang remains chairman. "It's a very huge pair of shoes to fill," Tsai says.

And Tsai is filling those shoes at an uncertain time for TSMC, the world's No. 1 foundry. New competitors in mainland China are offering lower prices for less advanced chips, even as traditional rivals such as Taiwan's United Microelectronics Corp. () and Singapore's Chartered Semiconductor () try to narrow the technology gap that separates them from TSMC. And the chip industry is just now emerging from a downturn earlier this year. Those factors have taken their toll on profits, which are likely to drop 4%, to $2.7 billion, even as sales edge up 2.8%, to $7.9 billion, Merrill Lynch & Co. () estimates.

That puts the pressure on Tsai. Although he was named president and chief operating officer in 2001, he says running the whole show is a lot tougher. "The burden on your shoulders gets a lot heavier immediately," says Tsai. Nonetheless, he says, the worst is over. The company's chipmaking plants are operating at close to 100% of capacity, up from 78% at the start of the year, and September sales hit a record thanks to demand for advanced chips in 3G cell phones, digital TVs, and game consoles.

"VOICE OF CALM"

Emerging from Chang's shadow will take some time. Chang is a gifted communicator who can give even lousy results a positive spin. "Morris [has been] the charmer," says Warren Lau, an analyst in Hong Kong with Macquarie Securities. "He had a special way of handling analysts and investors." But the two have worked together for many years -- Chang recruited Tsai from Hewlett-Packard Co. () in 1989 -- and customers praise the new CEO for his ability to keep the peace in a tough business. Scott A. McGregor, CEO of Broadcom Corp. (), a maker of communications chips based in Irvine, Calif., recalls meetings at which tensions ran so high that execs from both sides started pounding the tables, yelling, and pointing fingers. In such situations, "Rick is a voice of calm and a rational guy," McGregor says, "often the problem solver." And Tsai has been an advocate of working with customers for years on new chips and honing a vision of where they need to be 5 or 10 years out. "Tsai saw the importance of partnerships very early on," says Denis Berlan, COO of Altera Corp. (), a $1 billion maker of programmable logic chips.

The bigger task will be maintaining the same level of technological innovation. TSMC was one of the first chipmakers to shift to larger, 300 mm wafers -- which can cut costs by some 30%. Today it is among the leaders in shifting to circuit widths as narrow as 65 nanometers, or 65 billionths of a meter. For now, at least, Tsai can depend on help from Chang. "I am going to be chairman for quite a while," Chang says, promising to offer his input as "a monitor and a mentor."

Even so, Tsai says he speaks with the chairman just once a week, meaning that day-to-day operations are his responsibility. He describes his management style as "more casual" than Chang's and sometimes goes out and sings karaoke with colleagues. Another change: The new CEO won't be smoking any pipes. Tsai says he enjoys the occasional cigar when relaxing, "but not in the office." At least in that small respect, you can smell the change in the air at TSMC.

By Bruce Einhorn, with Matt Kovac, in Hsinchu; with Robert D. Hof in San Mateo, Calif., and Pete Engardio in New York


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