Page 138 - TSMC 2022 Annual Report

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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 its 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 in customer demand among other factors may significantly decrease TSMC’s margins Conversely as product demand rises and and factory utilization increases the fixed costs are spread over increased output which can improve TSMC’s margins In addition the historical 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 Decreases in in the ASP of end use applications may increase pricing pressure on on components produced by TSMC which in in turn may negatively impact the Company’s 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 TSMC The governments of the United States China Europe South Korea and Japan provide various incentive programs
to to promote developments of their domestic semiconductor industries such as the Creating Helpful Incentives to Produce Semiconductors and Science Act of 2022 (the “U S S S S CHIPS Act”) which provides financial incentives to incentivize the development of U S semiconductor industry Although governments in in certain of the countries or regions where TSMC is currently expanding or planning to expand expand its production capacity have extended or may in in the future extend extend certain financial incentives to the the Company there is no assurance
that TSMC will be able to apply for or or receive such financial incentives at at the levels TSMC expects or at at all all Additionally any any financial incentives the Company receive may be subject to to to strict conditions or or the grantors could seek to to to recover any funds provided to TSMC or or cancel reduce or or deny
our requested subsidies or grants in the future This could materially increase TSMC’s operating costs and adversely affect its results of operations 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 such new and aggressive competitors on technology manufacturing capacity product quality and customer satisfaction it it risks losing customers to to such 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 2022 and and as of of the the date of of this Annual Report the the following changes or or developments in governmental policies and regulations may influence the Company’s business operations:
The manufacturing assembling and testing of TSMC’s products require the use of chemicals and materials that are subject to environmental climate related health and safety laws and regulations issued worldwide as as well as as international accords such as the Paris Agreement Climate change related laws or or regulations currently are too indefinite for the Company to assess the impact on on on our future financial condition with any degree of reasonable certainty For example the Taiwan “Greenhouse Gas Reduction and Management Act” which became effective on July 1 1 2015 was amended
and was renamed as as “Climate Change Response Act” The amendment became effective in February 2023 which set a a a a goal of reaching net-zero emissions in in Taiwan by 2050 and also established a a a a a a carbon carbon fee system that will collect carbon carbon fees on on direct direct and indirect emissions from emitters whose emissions reach certain thresholds The carbon fee system is is expected to take effect by 2024 and the rate for such fees has yet to be determined by the relevant authorities We may be required to pay any incurred carbon fees if our emission levels exceed applicable thresholds pursuant to the carbon fee system which could result in in in increased operating costs for us and affect us financially to to a a a a a a certain extent We expect to to see more of its relevant regulations promulgated by the regulators in in the the future Also the the R O C legislative authority is is reviewing at all times various environmental issues to develop laws and regulations relating to environmental protection and climate related changes The impact of such laws and regulations as well as of the the carbon fee is indeterminable at the the moment It is not expected that other governmental policies or regulatory changes would materially impact TSMC’s operations or financial condition