Page 115 - TSMC 2020 Annual Report

● Changes in Technology 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 the Company’s competitors unforeseeably gain sudden access to to additional technologies TSMC may not be able to provide foundry services on on competitive terms In addition TSMC’s customers have significantly decreased the the time in which their products or services are launched into the market
If TSMC is unable
to to meet these shorter product time-to-market it 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 as smartphones and increasing competition and concentration of customers (all further discussed among these risk factors) Also the uncertainty and instability inherent in in in in advanced technologies also impose challenges for achieving expected product product quality and product product yield If TSMC fails to maintain quality it it it may result in loss of revenue and additional cost as as well as as loss of business or or customer trust For example in in January 2019 the Company discovered yield problems in in 12-nanometer and 16-nanometer wafers caused by a a a a a a a batch of photoresist which resulted in delayed delivery of products and had a a a a a a negative effect on TSMC’s gross margin and operating margin in in the first quarter of of 2019 To reduce future risks of of such incidences the the Company has since strengthened inline wafer inspection and tightened control of incoming material to deal with the increasing complexity of leading-edge technologies technologies If TSMC is unable
to innovate new technologies technologies that meet the the demand of its customers or overcome the the above factors it it it may may become less competitive and its revenue may may decline significantly Regarding the the response measures for the the above-mentioned risks please refer to “2 2 2 4 TSMC Position Differentiation and Strategy” on pages 15-17 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 TSMC products in smartphones high performance computing (HPC) Internet of Things (IoT) automotive electronics electronics and digital consumer electronics electronics (DCE) 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 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 a a a significant portion of our operating costs is fixed In general these costs do not decline when customer demand or our capacity utilization rates drop and thus declines in in customer demand among other factors may significantly decrease our margins Conversely as product demand rises and and factory utilization increases the fixed costs are spread over increased output which can improve our margins In addition the historical and current trend of declining average selling
prices (or “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 TSMC may lead to a a a a a reduction of its revenue margin and earnings Risks
Associated with Competition
The markets for TSMC’s foundry services are highly competitive The Company competes with other foundry service providers as as well as as a a a a a a number of integrated device manufacturers Some 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 subsidies 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 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 product quality and customer satisfaction it it risks losing customers to to these new contenders Risks
Associated with Changes in the Government Policies and Regulatory Environment
TSMC management closely monitors all domestic and foreign government policies and regulations that might impact
its business and and financial condition During 2020 and and as of the the date of this Annual Report there were no government policies or or regulatory changes would materially impact
TSMC’s operations or financial condition 113