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TSMC (TSM) Risk Analysis
Risk Overview Q4, 2023
Source: the company's latest filing for the period ended Dec 31, 2023, filed Apr 18, 2024
Risk Change Over Time
- Manufacturing - Risk 1Our operational results could also be materially and adversely affected by disruptive events or industrial accidents, in the locations in which we, our customers or our suppliers operate.
Disruptions caused by natural and man-made disasters, including earthquakes, flooding, typhoons, droughts, tsunamis, sandstorms, wildfires, volcanic eruptions, fire, gas/chemical leakage, pandemic, supply chain disruption, geopolitical tensions, cyberattacks, sabotage, failure of critical facilities and equipment, shortages in the supply of utilities, such as water, electricity and natural gas, etc., could interrupt our operations. Most of our production facilities, as well as those of many of our suppliers, customers and upstream providers of complementary semiconductor manufacturing services, are located in areas susceptible to natural disasters and may face potential shortages of electricity or water, which could cause interruptions to our operations. On April 3, 2024, an earthquake struck Taiwan. The resulting damage was mostly to inventories and equipment. Based on a preliminary assessment, we estimated that related earthquake losses will be approximately NT$3 billion, net of insurance claim, and will be recognized in the second quarter of 2024. Thus, if one or more natural disasters result in a prolonged disruption to our operations or those of our customers or suppliers, or if any of our fabs or vendor facilities were to be damaged or cease operations as a result of an unforeseen disruptive event, it could reduce our manufacturing capacity and cause the loss of important customers, and thereby have an adverse, material impact on our operational and financial performance.
- Costs - Risk 2Our operations may be interrupted, and our expansion may be limited, by power or other utility outages or shortages, and our financial results may be adversely affected by increased prices of power or other utilities.
We have occasionally suffered power outages, dips or surges caused by difficulties encountered by our electricity supplier or other power consumers on the same power grid. Some of these incidents have resulted in interruptions to our operations. Such outages, shortages or interruptions in electricity supply could further be exacerbated by changes in the energy policy of the governments. If we are unable to secure reliable and uninterrupted supply of electricity to power our manufacturing fabs, our ability to fill customers' orders would be jeopardized. Moreover, we have encountered and may continue to encounter increases in the prices of utilities. For example, effective from April 1, 2024, we are subject to a higher electricity tariff rate in Taiwan, which is estimated to increase by 25%, as compared to the tariff rate applicable to us in 2023. The increased prices for electricity could increase our manufacturing costs and therefore adversely impact our 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 our operations and our suppliers' production. For example, the measures taken by governments in response to droughts, including water rationing and conservation, may cause interruption to our operations or our expansion plans. If such events were to occur over prolonged periods of time, our operations and financial performance may be materially adversely affected. Moreover, our future capacity expansions in Taiwan and elsewhere could be curtailed by utility shortages.
Risk Highlights Q4, 2023
Risk Word Cloud
Risk Factors Full Breakdown - Total Risks 26
- Share Price & Shareholder Rights - Risk 1The market value of our shares may fluctuate due to the volatility of, and government intervention in, the R.O.C. securities market.
The Taiwan Stock Exchange has experienced from time to time substantial fluctuations in the prices and volumes of sales of listed securities. There are currently limits on the range of daily price movements on the Taiwan Stock Exchange. In response to past declines and volatility in the securities markets in Taiwan, and in line with similar activities by other countries in Asia, the government of the R.O.C. formed the Stabilization Fund, which had purchased and may from time to time purchase shares of Taiwan companies to support these markets. In addition, other funds associated with the R.O.C. government had in the past purchased, and may from time to time purchase, shares of Taiwan companies on the Taiwan Stock Exchange or other markets. These funds had disposed and may from time to time dispose shares of Taiwan companies so purchased at a later time. In the future, market activity by government entities, or the perception that such activity is taking place, may take place or cease, may cause fluctuations in the market prices of our ADSs and common shares.
- Share Price & Shareholder Rights - Risk 2The value of your investment may be reduced by possible future sales of common shares or ADSs by us or our shareholders or fluctuations in foreign exchange.
One or more of our existing shareholders may, from time to time, dispose of significant numbers of our common shares or ADSs. For example, the National Development Fund of the R.O.C., which owned 6.38% of TSMC's outstanding shares as of February 29, 2024, had from time to time in the past sold our shares in the form of ADSs in several transactions. We cannot predict the effect, if any, that future sales of ADSs or common shares, or the availability of ADSs or common shares for future sales, will have on the market price of ADSs or common shares prevailing from time to time. Sales of substantial amounts of ADSs or common shares in the public market, or the perception that such sales may occur, could depress the prevailing market price of our ADSs or common shares. In addition, fluctuations in the exchange rate between the U.S. dollar and the NT dollar may affect the U.S. dollar value of our common shares and the market price of the ADSs and the U.S. dollar value of any cash dividends paid in NT dollars on our common shares represented by ADSs.
- Share Price & Shareholder Rights - Risk 3Your voting rights as a holder of ADSs will be limited.
Holders of American Depositary Receipts ("ADRs") evidencing ADSs may exercise voting rights with respect to the common shares represented by these ADSs only in accordance with the provisions of our ADS deposit agreement. The deposit agreement provides that, upon receipt of notice of any meeting of holders of our common shares, the depositary bank will, as soon as practicable thereafter, mail to the holders (i) the notice of the meeting sent by us, (ii) voting instruction forms and (iii) a statement as to the manner in which instructions may be given by the holders. ADS holders will not generally be able to exercise the voting rights attaching to the deposited securities on an individual basis. According to the provisions of our ADS deposit agreement, the voting rights attaching to the deposited securities must be exercised as to all matters subject to a vote of shareholders collectively in the same manner, except in the case of an election of directors. Election of directors is by means of cumulative voting. See "Item 10. Additional Information – Voting of Deposited Securities" for a more detailed discussion of the manner in which a holder of ADSs can exercise its voting rights.
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