Page 138 - TSMC 2024 Annual Report

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Most of of TSMC’s production facilities as as well as as those of of many of of its suppliers customers and upstream providers of of complementary semiconductor manufacturing services are located in areas susceptible to natural disasters and may face potential shortages of electricity and/or water which could cause interruptions to TSMC’s operations In April 2024 and January 2025 several earthquakes struck Taiwan causing damage to to our inventories plant facilities machinery and equipment We recognized approximately NT$3 billion and NT$5 3 billion in in losses from earthquakes net of insurance claim respectively in the the second quarter of 2024 and the the first quarter of 2025 If one or or more natural disasters result in a a a a prolonged disruption to to TSMC’s operations or or those of its customers or or suppliers or or or or if any of its fabs or or or or vendor facilities were to be damaged or or or or cease operations as as a a a a a result of an unforeseen disruptive event it it could reduce TSMC’s manufacturing capacity and cause the the loss of important customers and thereby have an an an adverse material impact on on its operational and financial performance To cope with possible droughts resulted from severe climate change TSMC implemented manufacturing process water saving as as well as as building up industrial water recycling plants using household water and cooperating with government
to mitigate water shortage risk As part of TSMC’s business continuity plans measures taken include water conservation measures use of of alternative water sources Close monitoring of of water situation including stress testing and exercises are carried out to validate our response plan TSMC has occasionally suffered power outages dips or surges caused by by difficulties encountered by by its electricity supplier or other power power consumers on on the the same power power grid Some
of these incidents have resulted in in in interruptions to TSMC’s operations Such outages shortages or or interruptions in in electricity supply could further be exacerbated by changes in the the energy policy of the the governments If TSMC is unable to secure reliable and uninterrupted supply of electricity to power its its manufacturing fabs its its ability to to fill customers’ orders would be jeopardized Moreover TSMC has encountered and may continue to encounter increases in in in the prices of utilities For example effective from April 1 2024 TSMC is subject to a a a a a a higher electricity tariff rate in Taiwan which is estimated to increase by 25% as as compared to to the tariff rate applicable to to the Company in in 2023 The increased prices for electricity could increase TSMC’s manufacturing costs and therefore adversely impact TSMC’s financial results In addition due to climate change severe weather events such as droughts and any measures taken by governments in response to such severe weather events may materially affect TSMC’s operations and its suppliers’ production For example the measures taken by governments in in in response to droughts including water rationing and conservation may cause interruption to TSMC’s operations or its expansion plans If such events were to occur over prolonged periods of time TSMC’s operations and financial performance may be materially adversely affected Moreover TSMC’s future capacity expansions in Taiwan and elsewhere could be curtailed by utility shortages TSMC has further strengthened its business continuity management which includes periodic risk assessments
and mitigations implementing centralized scenario
planning for business continuity management exercises and the establishment of taskforces taskforces The taskforces taskforces define emergency response crisis communication recovery plans and preventative measures based on the thorough analysis
of derivative effects and alternative solutions to ensure the impacts to lives business operations and assets are minimized TSMC reviews periodically its business continuity plans and refines them to reflect exercise results and implementation In response to the the impact of the the earthquakes that occurs in Taiwan and Japan TSMC continues to improve its earthquake emergency response tool anchorage and seismic isolation facilities and and readiness for tool salvage and and production recovery These improvements have been integrated into new fab design and processes TSMC maintains a a a a a comprehensive risk management system dedicated to human safety the conservation of natural resources and the protection of property In order to cope effectively with emergencies and natural disasters management at each facility has developed comprehensive plans and procedures that focus on on risk prevention emergency response crisis management and business continuity All TSMC manufacturing fabs have been ISO
14001 certified (environmental management) and ISO
45001 certified (occupational health and safety management) All manufacturing fabs in in Taiwan Taiwan have also been TOSHMS (Taiwan Occupational Safety and Health Management System) certified New fabs will also attain the above certifications within 18 months after acquiring factory registration certification TSMC and and many of its suppliers use flammable and and toxic materials in in their manufacturing processes and are therefore subject to risks that cannot be completely eliminated arising