Nearly 400 years ago, the Dutch East India Company landed on the island of Formosa and set up shop.
They hunted deer, grew rice, and fought the aborigines.
In 1662, the Ming loyalist Koxinga besieged the now-tourist spot of Fort Zeelandia,
ejected the Dutch, and established the anti-Qing Kingdom of Formosa.
I am not quite sure why I brought this up except to say that the Dutch have had
long ties to Formosa. These ties continue to today with Taiwan
and the Netherlands having consistently collaborated in the electronics industry.
Taiwan Semiconductor Manufacturing Company, TSMC, is today the world's leading independent foundry.
But they would have never even gotten started without the help received from Dutch
multinational Philips in those critical early years. This video is about that shared history.
Philips is a Dutch multinational corporation headquartered in Amsterdam. The company currently
named Philips now focuses on the health industry but it had once been the biggest electronics
firm in the world. The company has produced and introduced some of the most iconic electronic
devices in history. Items like the Compact Disc format. And it was a big early investor in Taiwan.
The exploitation of East Asian resources and labor by European companies
is a common thing with roots dating back to the mid-1800s. Stimulated by the spread of
European imperialism, these companies sought access to the riches of Asia.
After the end of World War II, Philips moved back to the Netherlands after
its founding Philips family fled the country to escape the Nazi invasion.
The war and its proceeding years had seen huge changes in the world paradigm.
Philips had a few lamp and radio factories in Indonesia, India, and Malaya,
but those factories were nationalized in the 1950s.
The nationalizations reduced Philips' Asia presence to a couple joint ventures in Japan.
Despite this, the company pondered re-entering East
Asia in the 1960s - following a trend of Western companies outsourcing their
manufacturing operations to East Asia to take advantage of the cheaper labor there.
Hong Kong had been a leader in this operation and was once the world's biggest electronics exporter.
Taiwan's economy at the time was largely agricultural and low-technology,
wood products and textiles and rubber goods. But government wanted
to change that and tried to find partners to make it so.
The Taiwanese Government reached out to Philips about investing in Taiwan
in the 1950s. Taiwan had recently established an office in Rotterdam,
looking for partners to help found an electronics industry on the island.
At the government's invitation,
CEO Frits Philips visited Taiwan himself to scout for investment opportunities.
Frits was an interesting guy. The only member of the Philips family to remain in the Netherlands,
he is credited for saving 382 Jews during the Nazi occupation and is recognized as
a Righteous Amongst the Nations for his actions. He also lived to a hundred, wow.
The decision to invest in Taiwan over other areas in East Asia like Japan was not obvious.
There were very real reasons against it. So why did they do so?
The first had to do with labor cost and stability. Wages were
rising around the world, but not in Taiwan. Yet at the same time,
the Taiwanese were highly educated due to the work done during the Japanese colonial era.
As for labor stability, the Nationalist government had made it clear that they were not willing to
brook any labor unrest. Taiwan island was in the midst of the White Terror during this period.
Things seemed to be peaceful, but Philips failed to see the turmoil and suffering beneath that.
From the capitalist perspective, all was well.
That's a sad thing, considering Frits’ background during the War. He should have known better.
Second, Philips did not succeed in Japan. They had a few joint ventures there, but the Japanese
partner was firmly in charge of those. The country had recovered from World War II,
but by then Philips had sensed that the market's opportunities was closed to them.
Third was the China factor. The Nationalist government believed
that they would take back the mainland, and prior to China acquiring the nuclear bomb, it seemed
possible. Philips thought that having a toehold in Taiwan first would give them an advantage if
either the KMT succeeded in its invasion or relations warmed with the Communist Party.
And lastly, the KMT government was extremely friendly to Philips.
The company's management was impressed by ministers like KT
Li, who promised that he would be able to cut any red tape that Philips would come across.
A free trade zone in Kaohsiung would be created for the company as actions backing their words.
And lastly, the government appealed to CEO Frits himself. Chiang Kai-shek awarded Frits Philips
the Order of the Brilliant Star of the Republic of China. Frits of course wasn't entirely swayed
by this, but he came to see a reason for investing in Taiwan that was not entirely economic-based. He
wanted to invest in a developing country and help Taiwan in its anti-communist struggle.
He came back home and pushed through the investment of a Taiwanese light bulb factory.
The immediate success of this investment would lead to a television picture tube factory
and more. By 1971, Philips Taiwan would be the single largest foreign investor in the country,
and the second largest overall after the venerable Taitung Corporation.
After the tepid success of United Microelectronics Corporation, the government decided to give the
semiconductor industry another try with a company called TSMC. CEO Morris Chang
envisioned a company that would utilize the island's relative manufacturing
strengths to service companies who wanted to make their chips but could not afford to build a fab.
In order to get started, TSMC needed a semiconductor process technology that
did not lag the market by too much. The Taiwanese government approached
various Western companies, looking for a technology partner willing to contribute
their knowledge and skills. Companies like Intel and Texas Instruments were approached,
but both turned down the offer. Intel would later contract with TSMC a few years down the line.
Philips was the only company who took the offer, allowing TSMC to offer a 1.5 micron node that was
only two or so generations behind the rest of the market. Philips also offered the fledging company
the protection of its patent portfolio: 80% of its technologies came from the Dutch multinational.
This was critical for a company looking to get international customers from the get go.
In return, Philips got a stake in the company alongside private and public investors.
At TSMC's founding they received 28% of the company, the second largest shareholder after
the National Development Fund's 48% share. It would end up being one of the most successful seed
investments in the history of the semiconductor industry. TSMC’s first two years of operations,
the “startup” made 2 billion NTD in revenue and changed the semiconductor industry forever.
The relationship was so successful that over a decade later,
the two companies again partnered to launch a joint venture in Singapore
to compete with the growing Chartered Semiconductor. The company constructed a
$2 billion SGD fab that continues to serve the local Singapore semiconductor market.
I talked about this briefly in my video about Chartered.
Starting in around the 1980s, it became clear that Philips was struggling.
It was big, the 12th largest European company in 1992, but it was not carrying the weight well. The
company had lost its position as a leading electronics firm to competitors like Sony.
Profits had deteriorated within the core business, but a variety of accounting changes
adopted throughout the 1980s had hidden the damage from investors. Then suddenly in 1990 the company
unveiled a shocking 4 billion Dutch guilder net loss after years of billion guilder profits.
It was time to restructure and age gracefully. The
company slowly spun-off various parts of its empire into independent companies.
Two of these spinoffs continue to have close relations with TSMC to this day.
Its first spinoff happened way back in 1984, when the company launched a joint venture with ASM
International. This joint venture would eventually become ASML, a maker of lithography machines.
Over time, the company would come to be a world leader in that market,
defeating its Japanese rivals Nikon and Canon.
Today, it is the only supplier of Extreme Ultraviolet Lithography machines,
the $150 million machines for achieving the 7nm process node and below. It worked closely with
TSMC amongst others to help develop and deliver this super advanced technology.
Later, Philips spun off its semiconductors business entirely. In 2006, what was once Philips
Semiconductor was purchased by a consortium of private equity firm investors including KKR
and Silver Lake Partners and renamed NXP Semiconductors.
NXP is a maker of semiconductors for automative and digital networking industries.
When we talk about the automotive shortages plaguing today's factories,
those chips are the kind that NXP makes. The Dutch-American company continues to use TSMC
as an external foundry partner to augment their own manufacturing.
Despite these restructurings, Philips held its shares in TSMC for over 20 years. They got in
when the company was worth $200 million. They sold the last of those shares in 2008 with the company
then worth $50 billion. Today, TSMC is worth $500 billion, give or take market fluctuations.
Philips invested more into Taiwan than any other western electronics company.
And they did it despite knowing all the risks of investing in a politically and militarily
unstable island just a hundred miles away from a communist country.
Don't get me wrong. They made a lot of money in setting up shop in Taiwan,
but they could have made a lot of money elsewhere.
The company today known as Philips is no longer in the semiconductor space, but the
entity's siblings still are. The shared history between TSMC and Philips continue to this day,
pushing forward the technological leading edge.