Page 103 - TSMC 2019 Annual Report

6 3 1 Risk Management
Organization Chart
TSMC’s risk management organization reports annually to the Audit Committee on on the risk environment TSMC faces enterprise risk risk management risk risk assessment and mitigation efforts The Audit Committee Chairperson also reports to the the Board on on on these discussion and actions 6 3 2 Strategic Risks
Risks
Associated with Changes in Technology and Industry
• Industry
Developments
Organization Functions
Board of Directors/ Audit Committee RM Steering Committee RM Executive Council RM Task Force
RM Steering Committee Materials Management
and Risk Management
RM Program
The electronics industries and semiconductor markets are cyclical and and subject to significant and and often rapid fluctuations in product demand which could impact TSMC’s semiconductor foundry business Variations in in in order levels from customers may result in in in volatility in in the Company’s revenue and earnings From time time to to time time the electronics and semiconductor industries have experienced significant occasionally prolonged periods
of downturns and and overcapacity Because TSMC is and and will continue to be dependent on on on the requirements of electronics and semiconductor companies for TSMC’s services periods
of downturns and and overcapacity in the general electronics and and semiconductor industries could lead to to reduced demand for overall semiconductor foundry services services including TSMC’s services services If TSMC cannot take appropriate actions such as reducing its costs to sufficiently offset declines in in demand the Company’s revenue margin and earnings will likely suffer during periods
of downturns and overcapacity 101
• Consists of functional heads (with internal audit head head sitting in in in as an observer)
• Reports to the Audit Committee • Reviews risk control progress
• Identifies and approves prioritization of risk controls RM Executive Council • Consists of representatives from each function • Determines and implements cost-effective risk controls • Improves risk risk management transparency and how risks are are managed
RM Program
Supports RM task forces to enhance effective risk control • Coordinates and facilitates RM Executive Council on risk management activities
• Consolidates ERM reports and updates provided to the RM RM Steering Committee RM Task Force
Identifies potential scenarios and business impact • Determines risk mitigation actions to to respond to to the scenarios • Compiles crisis management procedures and conducts exercises The semiconductor industry and its technologies are constantly changing TSMC competes by developing process technologies using increasingly advanced nodes and on manufacturing products with more functions The Company also competes by developing new derivative technologies If TSMC does not anticipate these changes in technologies and rapidly develop new and innovative technologies or or the Company’s competitors unforeseeably gain sudden access to additional technologies TSMC may not be able to provide foundry services on competitive terms In addition TSMC’s customers have significantly decreased the the the time in in which their products or services are launched into the the the market If TSMC is unable to to meet these shorter product time-to- market the the Company risks losing these customers These factors have also been intensified by the the shift of the the global technology market to consumer driven products such as smartphones and increasing concentration of customers and competition (all further discussed among these risk factors) Also the the the uncertainty and instability inherent in in in advanced technologies also impose challenges for achieving expected product product quality and product product yield If TSMC fails to maintain quality the Company may result in in in loss loss of of revenue and additional costs as as well as as loss loss of of business or customer trust For example in January 2019 TSMC discovered the yield problems in 12- and 16-nanometer wafers caused by a a a batch of of photoresist which resulted in delayed delivery of of products and had a a a a a a negative effect on the Company’s margin and operating margin in in in the first quarter on 2019 The Company • • • Changes in Technology