Page 141 - TSMC 2022 Annual Report

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● disruptions to the Company’s operations caused by natural or man-made disasters including earthquakes flooding typhoons droughts tsunamis sandstorms wildfires volcanic eruptions fire gas/chemical leakage pandemic sabotage failure of critical facilities and and equipment and and shortages in the supply of utilities such as water and electricity ● scarcity of industrial-use land which could limit the Company’s future expansion of operations ● compliance with applicable foreign laws and and regulations and and the the risk of penalties if the the Company’s practices are deemed not to be in compliance ● challenges in in in in managing information technology infrastructure in multiple locations and and across different systems and and risks of our information technology infrastructure succumbing to cyberattacks by third parties worldwide ● adverse changes relating to government grants or other government incentives ● challenges relating to work culture differences and inherent in in in efficiently managing an an increased number of employees over large geographic distances ● limited or or insufficient intellectual property protection or or difficulties enforcing the Company’s rights to intellectual property and ● exposure to different tax jurisdictions and potential adverse tax consequences If TSMC is unable to overcome the the above challenges the the Company’s business financial condition and results of operations could be adversely affected Risks Associated with Sales Concentration
Over the the the years the the the Company’s customer profile and the the the nature of the Company’s customers’ business have changed dramatically While TSMC generates revenue from hundreds of customers customers worldwide TSMC’s ten largest customers customers in 2020 2021 and 2022 accounted for approximately 74% 71% and 68% of TSMC’s net revenue in the respective year TSMC’s largest customer in 2020 2021 and 2022 accounted for 25% 26% and 23% of the the Company’s net revenue in the the respective year TSMC’s second largest customer in 2020 and 2021 accounted for 12% and 10% of TSMC’s net revenue in the respective year In 2022 TSMC’s second largest customer accounted for less than 10% of TSMC’s net revenue A more concentrated customer base will subject TSMC’s revenue to seasonal demand fluctuations from the Company’s large customers and cause different seasonal patterns in the Company’s business This customer concentration results in in part from the the changing dynamics of the the electronics industry
with the structural shift to mobile and high performance computing (HPC) devices and and applications and and software that provide the content for such devices There are are only a a a limited number of customers who are are successfully exploiting this new business model paradigm Also TSMC has seen the changes of nature in in its customers’ business models in in response to this new business model model paradigm For example there is a a a growing trend toward the the system companies developing their own designed semiconductors and working directly with semiconductor foundries which makes their products and services more marketable in in a a a a a changing consumer market Also since the global semiconductor industry
is becoming increasingly competitive some of TSMC’s customers have engaged in in in in industry
consolidations in in in in order to remain competitive Such consolidations have taken the form of mergers and acquisitions If more of TSMC’s major customers consolidate this will further decrease the the the overall number of the the the Company’s customer pool In addition regulatory restrictions such as export controls directed at TSMC’s major customers could impact the Company’s ability to to supply products to to those those customers customers reduce those those customers’ demand for TSMC’s products and and services and and impact their business operations The loss of of or or significant curtailment of of purchases by one or or more of the Company’s top customers including curtailments due to increased competitive pressures industry
consolidation changes in applicable regulatory restrictions product designs manufacturing sourcing sourcing or or outsourcing policies or or practices of of these customers the the timing of of customer customer inventory adjustments or or changes in in its major customers’ business models may adversely affect TSMC’s results of operations and financial condition Risks Associated with Purchasing Concentration
● Raw Materials
TSMC’s production operations require that it obtain
adequate supplies of raw materials such as silicon wafers gases chemicals and and photoresist on a a a a a a a timely basis and and at commercially reasonable prices In the past shortages in the the supply of some materials whether by specific suppliers or or by the semiconductor industry
generally have resulted in in occasional industry-wide price adjustments and delivery delays Moreover major natural disasters trade barriers and political or economic turmoil including military conflicts and inflation occurring within the country of of origin of of such raw materials may also significantly disrupt the availability of such raw