Mention of a foundry conjures up images of the dull, red glow of dying rust belts rather than the bright white heat of technology. But the foundry of Taiwan Semiconductor Manufacturing Company (TSMC) is the world’s largest dedicated semiconductor making plant, turning out the not-so-raw material for the new economy in all its aspects, from the net to wireless to PCs. Its diversity of products and consumers provides a hedge against the current vicissitudes of some high-tech industries.
In fact, after the company was founded in 1987, one early move that helped it stay in the black was the decision to put all its chips into manufacturing for other companies, according to their designs and specifications. While in the early stages major investment came from Philips and from the Taiwanese government, the company soon diversified its stockholder base in the same way it expanded its customer field. In 1994, it listed on the Taiwan Stock Exchange (TSE), and followed that three years later with the launch of an ADR on the NYSE. Now it is the largest play on the TSE, and overseas investors hold over half its stock.
For most Taiwanese companies, IR is still new, and IR manager Julie Chan jokes that the IR department could almost get a separate income stream from IR consulting, judging from the number of calls she and her team receive from compatriot companies wanting to know what investor relations is all about, and how to do it.
In a sense, Taiwanese IR is demand-driven – from overseas. Harvey Chang, CFO and senior VP for IR, came on board in 1997 at the time of the ADR when the company realized that overseas investors wanted answers and information in much greater depth than the locals cared for. ‘IR was rudimentary in Taiwan at that time,’ he says. ‘Even now local investors are happy with the quarterly reports – since that is more than most other companies provide. In any case, they seldom come to us.’
Global stage
In many overseas or emerging markets, dominant companies like TSMC would have to spend a lot of time explaining local and regional politics to investors, in effect doing IR for the country as well as the company. Perhaps it’s a sign of Taiwan’s emergence from the emerging market sector, but Chang finds that almost all questions are specific to the company and the industry. ‘Unless something dramatic happens, the questions are all business-oriented.’ Of course, drama tends to come in the form of Beijing staging military exercises off the coast, or lobbing test missiles in the vicinity, but the company’s business is mostly conducted overseas. Besides, both equipment and product are priced in US dollars, providing a useful hedge against whatever fiscal frissons China’s bad neighbor policy may occasionally generate for Taiwan. In fact the TSE has a built-in dampener, since any movement of more than 7 percent triggers a shutdown.
Like most of the company’s senior executives, Harvey Chang speaks English, as well as the usual mix of Chinese dialects, and studied in the US – in his case at Wharton. Before moving to the company he was chairman of the Taiwan Fund, a vehicle for many overseas investors in one of the world’s most dynamic economies. ‘In those days, most companies relied upon brokers and PR departments to spread the word,’ he reminisces.
TSMC’s IR has certainly come a long way since then. In May the company won the Grand Prix for best overall IR at the inaugural Investor Relations Magazine Asia Awards in Hong Kong. Meanwhile, Harvey Chang, along with CEO Morris Chang, won accolades as the region’s best investor relations officers – proof that good IR starts at the top. TSMC also won awards for best use of the internet and best IR by a Taiwanese company.
Between them, the Chang pair appear at more than two dozen investor conferences a year, as well as conducting the usual quarterly analyst meetings and an annual roadshow through the US and Europe. Asked how he can spare the time from the financial helm of a company in such a dynamic and changing industry, Harvey Chang replies laconically, ‘We just have to make time to work harder on IR since it’s so important to defend our market cap. Besides which,’ he adds, ‘I do enjoy it.’
Winning combination
Since TSMC’s 2000 merger with Taiwan-Acer Semiconductor Manufacturing Company (TASMC) and Worldwide Semiconductor Manufacturing Company (WSMC), Chang has been backstopped in his IR work by a department of four: Julie Chan, Debbie Peng, Eric Chiang and Derek Tien. Tien himself helped start the IR trend in Taiwan while a sell-side analyst with Merrill Lynch. Julie Chan had an accounting and financial administration background before joining TSMC. She spent 18 months with the company before applying for the pioneering full-time investor relations position. It attracted her, she says, because it seemed to offer a combination of finance, communication and marketing.
‘Apart from TSMC, no-one really had a dedicated effort on IR in Taiwan,’ Chan explains. ‘Before then, it was our top management – the CEO, the CFO and some of the other executives – who worked with PR to support the function. So when they set it up, I said, Why not give it a try? even though I had no clue what IR was.’ To fill the gaps, the company sent Chan to the US to take a course with the National Investor Relations Institute (Niri), so there could be a full-time IRO supporting the ADR.
She says she hasn’t looked back since: ‘I really enjoy it; it’s very challenging. Every investor asks questions in the same time frame, but each is from a different angle. You get to meet lots of people.’ However, she is careful to downplay her department’s role, ‘Both CFO and CEO Harvey Chang and Morris Chang are the best IR officers, so when you talk about the IR program, you need to highlight them. We’re just the people at the back of the stage.’
Chan reports to the director of finance, but she points out, ‘Our CFO and CEO give significant attention to the quality of the IR operation, so we have a dotted reporting line direct to CFO Harvey Chang.’
TSMC’s IR work is made somewhat easier by the fact that they don’t really need to talk to the two major holders – founders Philips, with 27.5 percent, and the government, with 10.4 percent. Philips has a seat on the board but takes a laid-back view of its investment, offering little interference. Other foreign investors hold 30.8 percent, of which 7 percent is in ADR form, with the rest held via the TSE. Apart from management and employees, local institutions, mostly long-term holders, account for 10.4 percent of the stock, and local retail holders have some 15 percent. There are 400,000 of the latter, who have a different approach from the institutions, with many relying on mass media, like the press and TV, for information, rather than analysts’ reports or visits.
ADR effect
The company is happy with its current breakdown of investors. ‘The government holding is declining, and they aren’t active on the board,’ says Harvey Chang, addressing one concern that overseas investors may have. He also would like to increase the proportion of ADR holdings but he runs up against TSE constraints, since any increase in ADRs involves a decrease the locally-held stock. Analysts agree that the ADR transformed TSMC’s global visibility, making cheaper capital available and bringing significantly better access to both financial and consumer markets worldwide.
Shareholders who call the company come across Chan, Chiang and Tien, who pride themselves on keeping each other in the loop. Geography, both in the form of time zones and local idiosyncrasies, make their job difficult. Not only are they twelve hours away from Wall Street time, they have to explain to foreign investors local TSE habits such as stock dividends instead of splits and compulsory monthly sales reports. ‘We are constrained by the TSE, but we try to work to the SEC’s Regulation FD as well.’ To keep abreast of SEC rules and other global market issues, TSMC retains Thomson Financial/Carson for IR counsel.
Straddling the universe of IR expectation and regulation takes hard work, even though Chan explains away the time zone problem as being dealt with by ‘voicemail messages and conference call schedules. Sometimes investors will sacrifice their evenings,’ she comments, ‘and then sometimes we will sacrifice ours.’ Luckily most of the major investment professionals, both sell-side and buy-side, have offices and analysts in the region, usually located in Hong Kong or even in Taipei. An impressive 24 analysts keep TSMC under scrutiny.
Staying home
Some overseas investors – presumably those who do not like late nights – wonder why TSMC doesn’t have a US-based IR person, but Harvey Chang suggests the quality of the IR program would suffer more than the added convenience would merit. ‘It would create a lot of handicaps and complications since the semiconductor industry is very dynamic. Even our people here have to spend a lot of time keeping up with developments. It would be difficult for a stateside person to remain well informed.’
Julie Chan admits that they cannot track their investors thoroughly on a regular basis. It is difficult to do so locally under TSE rules, and ADRs account for only a small amount of the overall float. ‘So although we get lists on a quarterly basis, we do not make a big effort to analyze them.’ Local culture, she says, further inhibits direct approaches to wavering investors. ‘We wouldn’t try to influence our holders, even if we heard one was selling, although we might be curious if we heard of big across-the-board selling.’
IR department resources are heavily concentrated on institutions, with individual investors encouraged to go to the company’s award-winning web site (tsmc.com.tw). It is, after all, a fair assumption that a savvy investor in microchip manufacturing will have internet access. Still, many TSMC followers are not inveterate techies. Most of their questions are about business fundamentals rather than technology. ‘They want to know accounting details, our market position, prospects for long-term or short-term growth,’ explains Chan. ‘Bit if they are thirsty for very technological details, we will work with our R&D people to answer questions.’
Although the company operates at the sharp edge of the silicon chip business, global exposure – particularly through the ADR – calls for advanced financial acumen, so Harvey Chang is pleased that the IR current runs both ways. ‘About 75 percent of our IR messages are going out to investors, but about 25 percent are coming in. The end result is a company that stands out from most of its peers for its attachment to open corporate governance, transparency and fairness to investors. These are the guiding principles of our investor relations strategy, which is why we try to provide as much information as possible.’ One investor paid TSMC the ultimate compliment for a company in the region: ‘They are very fair to their minority investors,’ he says. Only those who know the region can appreciate how much of a compliment that is.
What the analysts say
Lucas Ward, JP Morgan
Ward was covering TSMC even before it listed in 1994 and is a strong fan of the company’s IR program: ‘It’s a microcosm of the company – a continuous process of self-improvement. They adapt their know-how and infrastructure to a changing environment. This is a company that adheres to core business principles, which they actually have on their walls and on their web site. It’s most important to run the business not just for employees and customers, but for the shareholders. This has been an explicit aim from the beginning, and at every step of the way, when they need to make major decisions, they take into account minority shareholder interests, which shows up in their IR program.’
‘Although headed by Harvey Chang, most of the legwork is done by relatively junior people, but they are high quality,’ Ward continues. ‘Why are they so good? Because the company cares about investors, and that’s not true of a lot of companies. They don’t have that much in the way of resources, but the people in investor relations are really empowered to learn about the business and help people. They are very knowledgeable, more so than most in the company, and they are empowered to be proactive in adding value.’
Daniel Heyler, Merrill Lynch, Taiwan
‘I think the consistency of TSMC’s reporting in detail, and the format of the data they present, is probably unique – certainly relative to other Taiwan companies. So is access to senior management for such a large company. Transparency is very good, and part of that, of course, is a function of having a US ADR.’
Bhavin Shah, CSFB, Hong Kong
‘They have a well set up IR program with a very good team and a good allocation of resources. So they have regular disclosure and very good responses to questions. In Taiwan, not many companies have those things in place. Their senior management accessibility and conference calls are on a par with others that have a US listing – so it’s better than others in Taiwan that don’t.’
