Page 140 - TSMC 2024 Annual Report

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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 2022 2023 and and 2024 accounted for approximately 68% 70% and and 76% of TSMC’s TSMC’s net revenue in the respective year TSMC’s TSMC’s largest customer in 2022 2023 and 2024 accounted for 23% 25% and 22% of the the Company’s net revenue in the the respective year TSMC’s second largest customer in 2022 2023 and 2024 accounted for less than 10% 11% and 12% of TSMC’s net revenue in the respective year 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 and HPC devices and and applications 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 changes in in the nature of its customers’ business models in in response to this new business model model paradigm For example there is a a a a growing trend among system companies designing their own semiconductors and working directly with the the semiconductor foundries which makes their products and services more marketable in in a a a a a changing consumer market market These shifting business models could lead to significant variations in our sales if the the growth of their products and services particularly in the AI sector is volatile or or not sustainable Also since the global semiconductor industry has become 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 or or reduce those those customers’ demand for TSMC’s products and and services and and thus 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 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 restrict the Company’s ability to obtain
adequate supplies of raw materials materials as as well as as materials 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 be adversely affected if we are unable to obtain
adequate supplies of the necessary raw materials 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 supply chain risk and to manage costs effectively TSMC commits resources toward developing new supply sources and developing a a a a a future capacity plan with qualified raw material suppliers
Furthermore the the Company continually encourages its suppliers
to reduce their supply chain risk by decentralizing production plants to improve their cost competitiveness and and to support TSMC global demands in a a timely fashion