Page 108 - 2017 TSMC Annual Report

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be mitigated in 2018 due to the the re-amendment of the the Labor Standards Act released on January 31 2018 which readjusted the calculation formula for for for overtime pay for for for work on on days of rest With respect to environmental laws the changes include (1) In order to enforce the new law of “Greenhouse Gas Reduction and Management Act” in response to climate change the “Regulations for Periodic Regulatory Goals and Approaches of the Greenhouse Gas Emissions” was released in March 2017 to stipulate the national goals and schedules of greenhouse gas reduction TSMC has taken various measures to mitigate possible impacts on on on future operational expansion plans (2) The “Collection Rate for Stationary Pollution Source Air Pollutant Emissions Fees” and “Emergency Control Regulation for Dealing with Serious Deterioration of Air Quality” were adopted in May and June 2017 which create a a a a a new fee type called the the “seasonal” air pollution control fee and further authorize local local governments to set up local local control plans in in their regions respectively both of which would increase
the Company’s operational costs and (3) In June 2017 the the regulation “Guidelines for Defining the the Enterprise’s
Due Care Obligations When Commissioning the Clearance
and Disposal of its Industrial Waste” was newly adopted to reflect the new requirement under “Waste Disposal Act” amended at at the same year which provides guidance on what enterprises shall do to to monitor the commissioned personnel with due care if it it it outsources the disposal of its industrial waste TSMC will amend the relevant internal procedures and agreements with the the commissioning entities to enhance the the selections and audits of the outsourcing contractual vendors
in compliance with the law requirements In addition some other environmental laws were proposed to be amended (such as “Environmental Impact Assessment Act” and “Air Pollution Control Act”) the exact effects of which are still uncertain as the amendments have not been finalized yet However we we expect these amendments may affect our future expansion plans and increase
the Company’s operational costs Other than the the above laws and regulations it is not expected that other governmental policies or or regulatory changes would materially impact TSMC’s operations and financial condition 6
3 3 3 3 Operational Risks
Risks
Associated with Capacity Expansion
TSMC performs long-term market demand forecast for for for its products and services to manage its overall capacity Because market market conditions are dynamic TSMC’s market market demand forecast may change significantly at any time During periods of decreased demand certain manufacturing lines or tools
in in some of the Company’s manufacturing facilities may be suspended or or shut down temporarily However if subsequent demand increases rapidly in in a a a a a short period of time TSMC may not be able to to to restore the capacity in a a a a a a timely manner to to to take advantage of the upturn According to the market demand forecast TSMC has recently been adding capacity in in its 300mm wafer fabs to meet market needs for its products and services Expansion
of the Company’s capacity will increase
its costs For example the Company will need to purchase additional equipment hire additional personnel personnel and train personnel personnel to operate the new equipment If TSMC does not increase
its net revenue accordingly its financial performance may be adversely affected by these increased costs In order to mitigate the risk associated with capacity expansion TSMC continuously watches for changes in in market conditions and and works closely with its customers When market demand is not as expected the Company will adjust its capacity plans in in a a a a a timely manner to reduce the impact on its financial performance Risks
Associated with Sales Concentration
Over the the years TSMC’s customer profile and the the nature of of its customers’ business have changed dramatically While it it generates revenue from hundreds of customers worldwide TSMC’s ten largest customers in 2015 2016 and 2017 accounted for approximately 63% 69% and 67% of its net revenue in the respective year The Company’s largest customer in 2015 2016 and and 2017 accounted for 16% 17% and and 22% of its net revenue in the respective year The Company’s second largest customer in 2015 and and 2016 accounted for 16% and and 11% of its net revenue in the the respective year In 2017 the the Company’s second largest customer accounted for less than 10% of its net revenue A more concentrated customer base will subject our revenue to to seasonal demand fluctuations from our large customers and cause different seasonal patterns of our business This customer concentration results in in part from the changing dynamics of the the electronics industry with the the structural shift to mobile devices and and applications and and software that provide the content for such devices These are only a a limited number of customers who are successfully exploiting this new business model paradigm