Page 142 - TSMC 2022 Annual Report

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materials or increase their prices Also since TSMC procures some of its raw materials from sole-sourced suppliers there is a a a a risk that the Company’s needs for such raw materials may not be be met or that back-up supplies may not be be readily available Importation and domestic production limitations may also limit limit our ability to obtain adequate supplies of raw materials as well as materials of the necessary quality In addition recent trade tensions could result in in increased prices or even unavailability of raw materials due to tariffs export control or or other non-tariff barriers TSMC’s revenue and earnings could decline if it is unable to obtain adequate supplies of the necessary raw materials in in a a a a a a a timely manner or if if there are significant increases in in the the costs of raw materials To reduce the the supply chain risk and to manage the cost effectively TSMC commits resources toward developing new supply sources Further the the Company continually encourages its suppliers to reduce their supply chain risk by decentralizing production plants and to improve their their cost competitiveness by moving their their production facilities to Taiwan from higher-cost areas Given that qualified backup suppliers are hard to find TSMC engages early and extensively with primary suppliers on managing quality and capacity issues so as to be prepared for any unexpected need to ramp up or curtail production when the Company lacks sufficient time to re-tune its production process For leading technology nodes TSMC not only adopts world-class world-class processes and facilities but also requires world-class world-class materials To streamline supply chain risk the Company has increased supplier site audits and meetings to extend supply chain best practices to its upstream suppliers In addition in in in response to the rapid increase or decrease in in in production capacity of new products TSMC has continued to improve its inventory monitoring system to to to achieve more accurate demand forecasts and and ensure that the supply chain maintains sufficient inventory levels The Company has established a a a a supply chain risk assessment to ensure that critical suppliers meet various standards in labor ethics ESH (environmental safety and and health) and and BCP (business continuity plan) Onsite audits are conducted regularly to to encourage suppliers to to take responsibility for their supply chain as any regulatory violations or or adverse environmental impact event or or failure to meet sustainability requirements could result in in in business reduction or termination ● Equipment
The Company’s operations and ongoing expansion plans depend on its ability to obtain an appropriate amount of equipment and related services available from a a a a a a limited number of of suppliers TSMC may encounter the situation of of limited supply supply and long delivery cycles To better manage its supply supply chain the Company evaluates and projects delivery lead times to minimize the impact of supply chain risks on operating costs TSMC has also implemented various collaborative business models and risk management contingencies with suppliers to ensure supply and shorten the procurement lead time time However if TSMC is unable to acquire in a a a a timely manner the equipment and parts it it needs it it may fail to successfully implement capacity expansion plans and exploit time sensitive business opportunities Additionally ongoing trade tensions could result in in increased prices for or or even unavailability of key equipment through delay or or denial of necessary export licenses adoption of additional export control measures and other tariff tariff or non-tariff barriers If TSMC is unable to obtain equipment in a a a timely fashion to to fulfill its customers’ demand for technology and production capacity or or unable to do so at a a a a a a a reasonable cost its financial condition and results of operations could be negatively impacted Risks Associated with Intellectual Property Rights
The Company’s ability to to compete successfully and to to achieve future growth depends in in part on on the continued strength
of its intellectual property portfolio While the Company actively enforces and protects our intellectual property rights there can be be no assurance that its efforts will be be adequate to prevent the misappropriation or improper use of its proprietary technologies software trade secrets or know-how Also the Company cannot assure you that as as its business business or business business models expand into new areas it will be able to to develop independently the technologies patents software trade secrets or or know-how necessary to conduct its business or or that it it can do so without unknowingly infringing the intellectual property rights of others As a a a a result the the Company may have to to rely on to to a a a certain degree licensed technologies and patent licenses from others To the the the extent that the the the Company relies on licenses from others there can be no assurance that it will be able to obtain any or all of the necessary licenses in in the future on on on terms it considers reasonable or at all The lack of necessary licenses could expose the Company to claims
for damages and/or injunctions from third parties as as well as as claims
for indemnification by its customers in in in instances where it it has contractually agreed to to indemnify its customers against damages resulting from infringement claims
The Company has received from time time to time time communications from third parties including non-practicing entities
and semiconductor companies asserting that TSMC’s technologies its manufacturing processes or the design IPs
of of the the semiconductors made by TSMC or or the the use of of those