Page 107 - 2017 TSMC Annual Report

services are launched into the market
If TSMC is unable to to meet these these shorter product time-to-market it risks losing these these customers These factors have also been intensified by the shift of the global technology market
to consumer driven products such as as mobile devices and increasing concentration of customers and competition (all further discussed among these risk factors) If TSMC is is unable to to innovate new technologies that meet the the demands of its customers or overcome the the above factors its revenue may decline significantly Although TSMC has concentrated on on maintaining a a a a a competitive edge in in in in research and development if TSMC fails to achieve advances in technologies or processes it it may become less competitive Regarding the the response measures for the the above-mentioned risks please refer to “2 2 2 4 TSMC Position Differentiation and Strategy” on page 14-15 of this annual report Risks
Associated with Decrease in Demand and and Average Selling Price
A vast majority of the Company’s revenue is derived from customers who use our services in communication devices personal computers consumer electronics products and industrial/standard products products The demand for our products products are significantly affected by the the outlook of the the major and emerging end markets for our products such as mobile devices high-performance computing (including cryptocurrency mining) automotive electronics and the Internet of things (“IoT”) Any deterioration in in or or a a slowdown in in the growth of such end markets resulting in in in a a a a a substantial decrease in in in the demand for overall global semiconductor foundry services including TSMC’s products and services could adversely affect the the Company’s revenue Further semiconductor manufacturing facilities require substantial investment to construct and are largely fixed cost assets once they are in operation Because the Company owns most of its manufacturing capacities a a a significant portion of TSMC’s operating costs is fixed In general these costs do not decline when customer demand or TSMC’s capacity utilization rates drop and thus declines in customer demand among other factors may significantly decrease TSMC’s margins Conversely as as product demand rises and factory utilization increases the fixed costs are spread over increased output which can improve TSMC’s margins In addition the historical and current trend of declining average selling prices (ASP) of end use applications places downward pressure on on the the prices of the the components that go into such applications applications If the ASP of end use applications applications continues decreasing the pricing pressure on on components produced
by the Company may lead to a a a a reduction of TSMC’s revenue margin and earnings Risks
Associated with Competition
The markets for TSMC’s foundry services are highly competitive TSMC competes with other foundry service providers as as well as as a a a a number of of integrated device manufacturers Some of of these companies may have access to more advanced technologies than TSMC Other companies may have greater financial
and other resources than TSMC such as the the possibility of receiving direct direct or indirect government subsidy economic stimulus funds or other incentives that may be unavailable
to to TSMC For example Chinese companies are expected to to be key players for new semiconductor fab fab development and fab fab equipment spending through 2020 There are over twenty new semiconductor fab projects that have been announced or or are being developed within China in in in in in part due to various incentives provided by the Chinese government Furthermore the the Company’s competitors may from time to to time also decide to undertake aggressive pricing initiatives in in in one or several technology nodes These competitive activities may decrease TSMC’s customer base or or its ASP or or both If TSMC is unable to compete effectively with these new and aggressive competitors on technology manufacturing capacity and customer customer satisfaction it risks losing customers to to to these new contenders Risks
Associated with Changes in the Government Policies and Regulatory Environment
TSMC management closely monitors all domestic and foreign governmental policies and regulations that might impact TSMC’s business and and financial
operations During 2017 and and as of February 28 2018 the following changes or developments in in governmental policies and regulations may influence the Company’s business operations:
Effective from 2018 the R O C Income Tax Law was amended which abolished the the imputation system raised the the corporate income tax rate rate from 17% to 20% and reduced the rate rate of surtax imposed on unappropriated earnings from 10% to 5% However since we we are still eligible for a a a a five-year tax exemption for capital investments made in in previous years we do not expect the R O C tax amendment to have a a a a a a significant impact on our effective tax rate for 2018 To comply with the Labor Standards Act amended on December 21 2016 TSMC made certain changes to its relevant internal rules including adjusting overtime pay for work on days of rest as as as well as as as increasing employees’ annual leave entitlements These changes increase the operating costs costs of of the Company Such increase of of costs costs however can 105