Taiwan's ITRI spun out TSMC as a pure-play foundry no one had tried

Morris Chang, a former Texas Instruments executive, was recruited by the Taiwanese government in 1984 to run ITRI, its industrial technology research institute. Rather than just license the institute's chip process, he founded TSMC in 1987 as a 'dedicated silicon foundry' — a factory open to any company to build chips.

The model was a deliberate break with the industry norm. Instead of competing with customers, TSMC manufactured chips for fabless chip designers, letting them keep their capital tied up in design and their own fabs. Start-up funding was $48m from Taiwan's Executive Yuan Development Fund (48.3%), N.V. Philips (27.5%) and other Taiwanese firms, with two further rounds bringing the total to $282m.

TSMC started production in 1987 in a leased ITRI six-inch fab using ITRI's 2 and 3.5 micron processes, then built a custom 3.0 micron process for Philips. The foundry model proved itself fast: TSMC went public in 1994, by which time sales had grown from NT$2.2bn in 1990 to NT$19.3bn in 1994, and the company had multiple advanced fabs up and running.

Founded with $48m (48.3% from Taiwan's Executive Yuan fund, 27.5% from Philips), it went public in 1994 and became the world's dominant chipmaker.

A pure-play foundry avoided competing with its own chip-designer customers.

Fabless companies wanted to avoid the huge cost of owning a fab.

Government and Philips funding de-risked the very first expensive fab.

ITRI provided the technology and the talent to start production quickly.

A state-backed research lab's most valuable export is sometimes a company that turns its technology into a service, not the technology itself.

TSMC became the world's largest dedicated semiconductor foundry and a strategic asset for Taiwan, with the 'silicon shield' concept tying global chip supply to the island. Its early state backing — most prominently the Executive Yuan Development Fund stake — was gradually diluted as the company grew, but the pure-play foundry decision remained the foundation on which its global dominance was built.