6.1 Financial Highlights

Condensed Balance Sheet from 2018 to 2022 (Unconsolidated)
Unit: NT$ thousands

6.1.1 Condensed Balance Sheet
Condensed Balance Sheet from 2018 to 2022 (Consolidated)
Unit: NT$ thousands

Item
Current Assets
Long-term Investments
Property, Plant and Equipment
Right-of-use Assets
Intangible Assets
Other Assets (Note 1)

Year

Year

2018

2019

2020

2021

2022

Current Assets

469,966,106

355,118,125

580,949,248

783,205,937

1,118,550,389

Long-term Investments

550,524,494

559,380,999

565,432,338

603,640,944

728,961,910

Property, Plant and Equipment

1,025,286,941

1,310,900,634

1,511,784,556

1,889,970,529

2,432,675,050

0

15,030,020

25,184,827

30,123,052

39,051,427

Item

2018

2019

2020

2021

2022

951,679,721

822,613,914

1,092,185,308

1,607,072,907

2,052,896,744

Right-of-use Assets
Intangible Assets

12,429,930

16,271,444

21,733,597

22,910,400

21,456,104

Other Assets (Note 1)

17,253,537

18,774,850

28,420,547

48,644,283

81,724,184

2,075,461,008

2,275,476,072

2,733,505,113

3,378,495,145

4,422,419,064

29,304,796

30,172,039

27,728,208

29,384,701

68,927,920

1,072,050,279

1,352,377,405

1,555,589,120

1,975,118,704

2,693,836,970

0

17,232,402

27,728,382

32,734,537

41,914,136

Total Assets

17,002,137

20,653,028

25,768,179

26,821,697

25,999,155

Current Liabilities

20,091,105

21,756,244

31,712,208

54,370,909

81,203,953

Before Distribution

328,060,518

605,540,547

680,529,735

704,833,370

899,245,600

2,090,128,038

2,264,805,032

2,760,711,405

3,725,503,455

4,964,778,878

After Distribution

535,503,562

670,366,498

745,355,686

776,141,916

970,554,146 (Note 2)

Noncurrent Liabilities

70,582,825

48,525,401

203,318,122

505,375,222

577,520,269

Before Distribution

340,542,586

590,735,701

617,151,048

739,503,358

944,226,817

After Distribution

547,985,630

655,561,652

681,976,999

810,811,904

1,015,535,363 (Note 2)

Before Distribution

398,643,343

654,065,948

883,847,857

1,210,208,592

1,476,765,869

Noncurrent Liabilities

72,089,056

51,973,905

292,938,358

815,266,892

1,060,063,194

After Distribution

606,086,387

718,891,899

948,673,808

1,281,517,138

1,548,074,415 (Note 2)

Total Assets
Current Liabilities

Total Liabilities

Total Liabilities

EquityBefore Distribution

412,631,642

642,709,606

910,089,406

1,554,770,250

2,004,290,011

Capital Stock259,303,805

259,303,805

259,303,805

259,303,805

259,303,805

After Distribution

620,074,686

707,535,557

974,915,357

1,626,078,796

2,075,598,557 (Note 2)

Capital Surplus

56,315,932

56,339,709

56,347,243

64,761,602

69,330,328

Capital Stock259,303,805

259,303,805

259,303,805

259,303,805

259,303,805

Before Distribution

1,376,647,841

1,333,334,979

1,588,686,081

1,906,829,661

2,637,524,688

Capital Surplus

56,315,932

56,339,709

56,347,243

64,761,602

69,330,328

After Distribution

1,169,204,797

1,268,509,028

1,523,860,130

1,835,521,115

2,566,216,142 (Note 2)(15,449,913)(27,568,369)(54,679,873)(62,608,515)(20,505,626)

Equity Attributable to Shareholders of the Parent

Retained Earnings

Retained Earnings

Others

Before Distribution

1,376,647,841

1,333,334,979

1,588,686,081

1,906,829,661

2,637,524,688

After Distribution

1,169,204,797

1,268,509,028

1,523,860,130

1,835,521,115

2,566,216,142 (Note 2)

Before Distribution

1,676,817,665

1,621,410,124

1,849,657,256

2,168,286,553

2,945,653,195(15,449,913)(27,568,369)(54,679,873)(62,608,515)(20,505,626)

After Distribution

1,469,374,621

1,556,584,173

1,784,831,305

2,096,978,007

2,874,344,649 (Note 2)

Before Distribution

1,676,817,665

1,621,410,124

1,849,657,256

2,168,286,553

2,945,653,195

After Distribution

1,469,374,621

1,556,584,173

1,784,831,305

2,096,978,007

2,874,344,649 (Note 2)

678,731685,302

964,7432,446,652

14,835,672

Before Distribution

1,677,496,396

1,622,095,426

1,850,621,999

2,170,733,205

2,960,488,867

After Distribution

1,470,053,352

1,557,269,475

1,785,796,048

2,099,424,659

2,889,180,321 (Note 2)

OthersEquity Attributable to Shareholders of the Parent

Noncontrolling Interests

Total Equity

Note 1: Other assets consist of deferred income tax assets, refundable deposits, and other noncurrent assets.
Note 2: The amount was approved by Board of Directors on February 14, 2023.

Total Equity

Note 1: Other assets consist of deferred income tax assets, refundable deposits, and other noncurrent assets.
Note 2: The amount was approved by Board of Directors on February 14, 2023.

120

121

6.1.2 Condensed Statement of Comprehensive Income

6.1.3 Financial Analysis

Condensed Statement of Comprehensive Income from 2018 to 2022 (Consolidated)

Financial Analysis from 2018 to 2022 (Consolidated)

Unit: NT$ thousands (Except EPS: NT$)

Year

2018

2019

2020

2021

2022

Net Revenue

1,031,473,557

1,069,985,448

1,339,254,811

1,587,415,037

2,263,891,292

Gross Profit

497,874,253

492,701,896

711,130,120

819,537,266

1,348,354,806

Income from Operations

383,623,524

372,701,090

566,783,698

649,980,897

1,121,278,851

Non-operating Income and Expenses

13,886,739

17,144,246

17,993,482

13,145,417

22,911,867

Income before Income Tax397,510,263

389,845,336

584,777,180

663,126,314

1,144,190,718

Net Income

351,184,406

345,343,809

518,158,082

597,073,134

1,016,900,515

9,836,976(11,823,562)(30,321,802)(7,619,456)

42,430,165

361,021,382

333,520,247

487,836,280

589,453,678

1,059,330,680

Item

Other Comprehensive Income (Loss) for the Year, Net
of Income Tax
Total Comprehensive Income for the Year351,130,884

Noncontrolling Interests

53,522345,263,668
80,141

517,885,387
272,695

596,540,013
533,121

Noncontrolling Interests
Basic/Diluted Earnings Per Share (Note)

333,440,460

487,563,478

588,918,059

1,059,124,890

56,367

79,787

272,802535,619

205,790

13.54

13.32

19.97

23.01

163.20123.79137.80151.18149.25139.25176.97217.32217.42

Operating Performance
Analysis

Note: Based on weighted average shares and diluted weighted average shares outstanding in each year.

Condensed Statement of Comprehensive Income from 2018 to 2022 (Unconsolidated)
Cash Flow

Year

2018

2019

2020

2021

2022

Net Revenue

1,023,925,713

1,059,646,793

1,314,793,013

1,574,745,881

2,252,320,561

Gross Profit

492,955,501

480,143,141

682,004,023

788,629,037

1,300,392,888

Income from Operations

384,027,838

365,923,992

543,465,507

629,632,836

1,090,746,689

Non-operating Income and Expenses

12,170,315

22,821,227

39,153,435

30,869,355

49,927,127

Income before Income Tax

396,198,153

388,745,219

582,618,942

660,502,191

1,140,673,816

Net Income

351,130,884

345,263,668

517,885,387

596,540,013

1,016,530,249

9,834,131(11,823,208)(30,321,909)(7,621,954)

42,594,641

360,965,015

333,440,460

487,563,478

588,918,059

1,059,124,890

13.54

13.32

19.97

23.01

39.20

Item

Other Comprehensive Income (Loss) for the Year, Net
of Income Tax
Total Comprehensive Income for the Year
Basic/Diluted Earnings Per Share (Note)

Note: Based on weighted average shares and diluted weighted average shares outstanding in each year.

Leverage

Quick Ratio (%)

248.76124.92

154.35190.61

193.65

Times Interest Earned (Times)

131.28120.92281.95123.4880.18

Average Collection Turnover (Times)

8.19

7.95

9.35

9.20

10.52

Days Sales Outstanding

44.57

45.91

39.04

39.67

34.70

Average Inventory Turnover (Times)

6.02

6.20

5.70

4.65

4.42

Average Inventory Turnover Days

60.63

58.87

64.04

78.49

82.58

Average Payment Turnover (Times)

16.56

15.48

15.45

17.10

17.40

Property, Plant and Equipment Turnover (Times)

0.97

0.88

0.92

0.90

0.97

Total Assets Turnover (Times)

0.51

0.49

0.53

0.49

0.52

Return on Total Assets (%)

17.34

15.99

20.69

18.56

23.64

Return on Equity attributable to Shareholders of the Parent (%)

21.95

20.94

29.84

29.69

39.76

Operating Income to Paid-in Capital Ratio (%)

147.94143.73218.58250.66432.42Pre-tax Income to Paid-in Capital Ratio (%)

153.30150.34225.52255.73441.25Net Margin (%)

34.05

32.28

38.69

37.61

44.92

Basic Earnings Per Share (NT$)

13.54

13.32

19.97

23.01

39.20

Diluted Earnings Per Share (NT$)

13.54

13.32

19.97

23.01

39.20

Cash Flow Ratio (%)

168.54104.13133.30150.39170.57

Cash Flow Adequacy Ratio (%)

113.11106.60100.7497.84

101.82

Cash Flow Reinvestment Ratio (%)

9.06

8.45

11.24

13.56

17.25

Operating Leverage

2.28

2.41

1.97

2.05

1.77

Financial Leverage

1.01

1.01

1.00

1.01

1.01

9

27

41

50

53

Advanced Technologies (7-nanometer and below) Percentage of Wafer Sales (%)
Sales Growth (%)

5.53

3.73

25.17

18.53

42.61

Net Income Growth (%)

2.34

-1.67

50.00

15.19

70.40

Analysis of deviation of 2022 vs. 2021 over 20%:
1. Times interest earned decreased by 35% mainly due to increase in interest expenses.
2. Return on Total Assets increased by 27% mainly due to increase in net income.
3. Return on Equity attributable to Shareholders of the Parent increased by 34% mainly due to increase in net income.
4. Operating Income to Paid-in Capital Ratio increased by 73% mainly due to increase in operating income.
5. Pre-tax Income to Paid-in Capital Ratio increased by 73% mainly due to increase in pre-tax income.
6. Basic Earnings Per Share and Diluted Earnings Per Share increased by 70% mainly due to increase in net income.
7. Cash Flow Reinvestment Ratio increased by 27% as a result of increase in cash generated by operating activities.
* Glossary
1. Capital Structure Analysis(1) Debt Ratio = Total Liabilities / Total Assets(2) L ong-term Fund to Property, Plant and Equipment Ratio = (Shareholders’ Equity + Noncurrent
Liabilities) / Net Property, Plant and Equipment
2. Liquidity Analysis(1) Current Ratio = Current Assets / Current Liabilities(2) Quick Ratio = (Current Assets - Inventories - Prepaid Expenses) / Current Liabilities(3) Times Interest Earned = Earnings before Interest and Taxes / Interest Expenses
3. Operating Performance Analysis(1) A verage Collection Turnover = Net Sales / Average Trade Receivables (including Accounts
Receivable and Notes Receivable originated from operation)(2) Days Sales Outstanding = 365 / Average Collection Turnover(3) Average Inventory Turnover = Cost of Sales / Average Inventory(4) Average Inventory Turnover Days = 365 / Average Inventory Turnover(5) A verage Payment Turnover = Cost of Sales / Average Trade Payables (including Accounts Payable
and Notes Payable originated from operation)(6) Property, Plant and Equipment Turnover = Net Sales / Average Net Property, Plant and Equipment(7) Total Assets Turnover = Net Sales / Average Total Assets

122

40.37

279.46

39.20

Unit: NT$ thousands (Except EPS: NT$)

2022

41.73

Long-term Fund to Property, Plant and Equipment (%)

370,266

360,965,015

2021

32.97

Current Ratio (%)

Profitability Analysis

Shareholders of the Parent

2020

28.38

Liquidity Analysis

1,016,530,249

Total Comprehensive Income Attributable to:

2019

19.74

Debts Ratio (%)

Net Income Attributable to:Shareholders of the Parent

2018
Capital Structure Analysis

4. Profitability Analysis(1) R eturn on Total Assets = (Net Income + Interest Expenses * (1 - Effective Tax Rate)) / Average
Total Assets(2) R eturn on Equity Attributable to Shareholders of the Parent = Net Income Attributable to
Shareholders of the Parent / Average Equity Attributable to Shareholders of the Parent(3) Operating Income to Paid-in Capital Ratio = Operating Income / Paid-in Capital(4) Pre-tax Income to Paid-in Capital Ratio = Income before Tax / Paid-in Capital(5) Net Margin = Net Income / Net Sales(6) E arnings Per Share = (Net Income Attributable to Shareholders of the Parent - Preferred Stock
Dividend) / Weighted Average Number of Shares Outstanding
5. Cash Flow
(1) Cash Flow Ratio = Net Cash Provided by Operating Activities / Current Liabilities(2) C ash Flow Adequacy Ratio = Five-year Sum of Cash from Operations / Five-year Sum of Capital
Expenditures, Inventory Additions, and Cash Dividend(3) C ash Flow Reinvestment Ratio = (Cash Provided by Operating Activities - Cash Dividends) / (Gross
Property, Plant and Equipment + Long-term Investments + Other Noncurrent Assets + Working
Capital)
6. Leverage(1) Operating Leverage = (Net Sales - Variable Cost) / Income from Operations(2) Financial Leverage = Income from Operations / (Income from Operations - Interest Expenses)

123Financial Analysis from 2018 to 2022 (Unconsolidated)

Capital Structure Analysis

Liquidity Analysis

Operating Performance
Analysis

Profitability Analysis

Cash Flow

Leverage

6.1.4 Auditors’ Opinions from 2018 to 2022
2018

2019

2020

2021

2022

Year

CPA

Audit Opinion

Debt Ratio (%)

19.21

28.74

32.33

35.82

33.39

2018

Mei Yen Chiang, Yu-Feng Huang

An Unmodified Opinion

Long-term Fund to Property, Plant and Equipment Ratio (%)

170.43

127.39135.80141.47144.832019

Mei Yen Chiang, Yu-Feng Huang

An Unmodified Opinion

Current Ratio (%)

143.26

58.64

85.37

111.12124.392020

Mei Yen Chiang, Yu-Feng Huang

An Unmodified Opinion

Quick Ratio (%)

113.07

45.81

65.93

84.33

100.95

2021

Mei Yen Chiang, Shang Chih Lin

An Unmodified Opinion

Times Interest Earned (Times)

137.46122.80330.85261.58277.57

2022

Mei Yen Chiang, Shang Chih Lin

An Unmodified Opinion

Average Collection Turnover (Times)

8.45

8.32

9.80

9.80

11.28

Days Sales Outstanding

43.21

43.88

37.24

37.23

32.35

Average Inventory Turnover (Times)

6.31

6.65

6.13

4.98

4.84

Average Inventory Turnover Days

57.89

54.91

59.58

73.23

75.43

Average Payment Turnover (Times)

16.22

15.10

14.89

17.06

17.68

Property, Plant and Equipment Turnover (Times)

1.00

0.91

0.93

0.93

1.04

Total Assets Turnover (Times)

0.51

0.49

0.52

0.52

0.58

Return on Total Assets (%)

17.62

16.00

20.74

19.59

26.14

Return on Equity (%)

21.95

20.94

29.84

29.69

39.76

Operating Income to Paid-in Capital Ratio (%)

148.10141.12209.59242.82420.64Pre-tax Income to Paid-in Capital Ratio (%)

152.79149.92224.69254.72439.90Net Margin (%)

34.29

32.58

39.39

37.88

45.13

Basic Earnings Per Share (NT$)

13.54

13.32

19.97

23.01

39.20

Diluted Earnings Per Share (NT$)

13.54

13.32

19.97

23.01

39.20

Cash Flow Ratio (%)

173.17

98.00

114.56

153.79173.41

Cash Flow Adequacy Ratio (%)

113.52106.59

99.88

97.62

104.90Cash Flow Reinvestment Ratio (%)

9.23

8.23

10.93

14.20

18.23

Operating Leverage

2.28

2.46

2.04

2.11

1.81

Financial Leverage

1.01

1.01

1.00

1.00

1.00

Analysis of deviation of 2022 vs. 2021 over 20%:
1. Quick ratio increased by 20% mainly due to increase in cash and cash equivalents.
2. Return on Total Assets increased by 33% mainly due to increase in net income.
3. Return on Equity increased by 34% mainly due to increase in net income.
4. Operating Income to Paid-in Capital Ratio increased by 73% mainly due to increase in operating income.
5. Pre-tax Income to Paid-in Capital Ratio increased by 73% mainly due to increase in pre-tax income.
6. Basic Earnings Per Share and Diluted Earnings Per Share increased by 70% mainly due to increase in net income.
7. Cash Flow Reinvestment Ratio increased by 28% as a result of increase in cash generated by operating activities.
* Glossary
1. Capital Structure Analysis(1) Debt Ratio = Total Liabilities / Total Assets(2) L ong-term Fund to Property, Plant and Equipment Ratio = (Shareholders’ Equity + Noncurrent
Liabilities) / Net Property, Plant and Equipment
2. Liquidity Analysis(1) Current Ratio = Current Assets / Current Liabilities(2) Quick Ratio = (Current Assets - Inventories - Prepaid Expenses) / Current Liabilities(3) Times Interest Earned = Earnings before Interest and Taxes / Interest Expenses
3. Operating Performance Analysis(1) A verage Collection Turnover = Net Sales / Average Trade Receivables(including Accounts
Receivable and Notes Receivable originated from operation)(2) Days Sales Outstanding = 365 / Average Collection Turnover(3) Average Inventory Turnover = Cost of Sales / Average Inventory(4) Average Inventory Turnover Days = 365 / Average Inventory Turnover(5) A verage Payment Turnover = Cost of Sales / Average Trade Payables(including Accounts Payable
and Notes Payable originated from operation)(6) Property, Plant and Equipment Turnover = Net Sales / Average Net Property, Plant and Equipment(7) Total Assets Turnover = Net Sales / Average Total Assets

124

4. Profitability Analysis(1) R eturn on Total Assets = (Net Income + Interest Expenses * (1 - Effective Tax Rate)) / Average
Total Assets(2) Return on Equity = Net Income / Average Shareholders’ Equity(3) Operating Income to Paid-in Capital Ratio = Operating Income / Paid-in Capital(4) Pre-tax Income to Paid-in Capital Ratio = Income before Tax / Paid-in Capital(5) Net Margin = Net Income / Net Sales(6) E arnings Per Share = (Net Income - Preferred Stock Dividend) / Weighted Average Number of
Shares Outstanding
5. Cash Flow
(1) Cash Flow Ratio = Net Cash Provided by Operating Activities / Current Liabilities(2) C ash Flow Adequacy Ratio = Five-year Sum of Cash from Operations / Five-year Sum of Capital
Expenditures, Inventory Additions, and Cash Dividend(3) C ash Flow Reinvestment Ratio = (Cash Provided by Operating Activities - Cash Dividends) / (Gross
Property, Plant and Equipment + Long-term Investments + Other Noncurrent Assets + Working
Capital)Deloitte & Touche
20F, No. 100, Songren Rd., Xinyi Dist., Taipei, Taiwan, R.O.C.
Tel: 886-2-2725-9988

6.1.5 Audit Committee’s Review Report
The Board of Directors has prepared the Company’s 2022 Business Report, Financial Statements, and proposal for allocation ofquarterly earnings. The CPA firm of Deloitte & Touche was retained to audit TSMC’s Financial Statements and has issued an audit
report relating to the Financial Statements. The Business Report, Financial Statements, and quarterly earnings allocation proposal
have been reviewed and determined to be correct and accurate by the Audit Committee members of Taiwan Semiconductor
Manufacturing Company Limited. According to relevant requirements of the Securities and Exchange Act and the Company Law, we
hereby submit this report.

Taiwan Semiconductor Manufacturing Company Limited
Chairman of the Audit Committee: Sir Peter L. Bonfield

February 14, 2023
6.1.6 Financial Difficulties
The Company should disclose the financial impact to the Company if the Company and its affiliated companies have incurred any
financial or cash flow difficulties in 2022 and as of the date of this Annual Report: None.
6.1.7 C onsolidated Financial Statements and Independent Auditors’ Report along with Parent Company Only Financial
Statements and Independent Auditors’ Report
Please refer to Annual Report section (II), Financial Statements.

6. Leverage(1) Operating Leverage = (Net Sales - Variable Cost) / Income from Operations(2) Financial Leverage = Income from Operations / (Income from Operations - Interest Expenses)

1256.2 Financial Status and Operating Results

Unconsolidated
Unit: NT$ thousands

6.2.1 Financial Status

Item

2022

2021

Difference%

Consolidated

Current Assets

1,118,550,389

783,205,937

335,344,452

43%

Unit: NT$ thousands

Long-term Investments (Note 1)

728,961,910

603,640,944

125,320,966

21%

Property, Plant and Equipment

Item
Current Assets

2022

2021

Difference%

2,432,675,050

1,889,970,529

542,704,521

29%

2,052,896,744

1,607,072,907

445,823,837

28%

Right-of-use Assets

39,051,427

30,123,052

8,928,375

30%

21,456,104

22,910,400(1,454,296)-6%

Long-term Investments (Note 1)

68,927,920

29,384,701

39,543,219

135%

Intangible Assets

Property, Plant and Equipment

2,693,836,970

1,975,118,704

718,718,266

36%

Other Assets (Note 2)

81,724,184

48,644,283

33,079,901

68%

41,914,136

32,734,537

9,179,599

28%

Total Assets

4,422,419,064

3,378,495,145

1,043,923,919

31%

Right-of-use Assets
Intangible Assets

25,999,155

26,821,697(822,542)-3%

Current Liabilities

899,245,600

704,833,370

194,412,230

28%

Other Assets (Note 2)

81,203,953

54,370,909

26,833,04449%

Noncurrent Liabilities

577,520,269

505,375,222

72,145,047

14%

Total Assets

4,964,778,878

3,725,503,455

1,239,275,423

33%

Total Liabilities

1,476,765,869

1,210,208,592

266,557,277

22%

Current Liabilities

944,226,817

739,503,358

204,723,459

28%

Capital Stock259,303,805

259,303,80500%Noncurrent Liabilities

1,060,063,194

815,266,892

244,796,302

30%

Capital Surplus

69,330,328

64,761,602

4,568,726

7%

Total Liabilities

2,004,290,011

1,554,770,250

449,519,761

29%

Retained Earnings

2,637,524,688

1,906,829,661

730,695,027

38%

Capital Stock259,303,805

259,303,805

00%Others(20,505,626)(62,608,515)

42,102,889

67%

Capital Surplus

69,330,328

64,761,602

4,568,726

7%

Total Equity

2,945,653,195

2,168,286,553

777,366,642

36%

Retained Earnings

2,637,524,688

1,906,829,661

730,695,027

38%

Others Equity(20,505,626)(62,608,515)

42,102,889

67%

Equity Attributable to Shareholders of the Parent

2,945,653,195

2,168,286,553

777,366,642

36%

Total Equity

2,960,488,867

2,170,733,205

789,755,662

36%

Note 1: Long-term investments consist of noncurrent financial assets at fair value through other comprehensive income and investments accounted for using equity method.
Note 2: Other assets consist of deferred income tax assets, refundable deposits, and other noncurrent assets.

Analysis of Deviation over 20%
Increase in Current Assets: The increase was mainly due to increase in cash and cash equivalents.
Increase in Long-term Investments: The increase was mainly due to increase in investments accounted for using equity method.
Increase in Property, Plant and Equipment: The increase was mainly due to increase in equipment under installation andconstruction in progress.
Increase in Right-of-use Assets: The increase was mainly due to increase in leases of land.
Increase in Other Assets: The increase in other assets was mainly due to increase in deferred income tax assets.
Increase in Total Assets: The increase in total assets was mainly due to increase in current assets and property, plant and equipment.
Increase in Current Liabilities: The increase was mainly due to increase in accrued expenses and other current liabilities.
Increase in Total Liabilities: The increase was mainly due to issuance of corporate bonds and increase in accrued expenses and othercurrent liabilities.
Increase in Retained Earnings: The increase was mainly due to net income of 2022, partially offset by distribution of earnings.
Increase in Others Equity: The increase was mainly due to increase in currency exchange gain arising from translation of foreign
operations in 2022.
Increase in Total Equity: The increase was mainly due to increase in retained earnings.
● Major Impact on Financial Position
The above deviations had no major impact on TSMC’s financial position.
● Future Plan on Financial Position: Not applicable.
● 

Note 1: L ong-term investments consist of noncurrent financial assets at fair value through other comprehensive income, noncurrent financial assets at amortized cost, and investments accounted for using equity
method.
Note 2: Other assets consist of deferred income tax assets, refundable deposits, and other noncurrent assets.

Analysis of Deviation over 20%
Increase in Current Assets: The increase was mainly due to increase in cash and cash equivalents.
Increase in Long-term Investments: The increase was mainly due to increase in noncurrent financial assets at amortized costs.
Increase in Property, Plant and Equipment: The increase was mainly due to increase in equipment under installation andconstruction in progress.
Increase in Right-of-use Assets: The increase was mainly due to increase in leases of land.
Increase in Other Assets: The increase in other assets was mainly due to increase in deferred income tax assets.
Increase in Total Assets: The increase in total assets was mainly due to increase in current assets and property, plant and equipment.
Increase in Current Liabilities: The increase was mainly due to increase in accrued expenses and other current liabilities.
Increase in Noncurrent Liabilities: The increase was mainly due to issuance of corporate bonds in 2022.
Increase in Total Liabilities: The increase was mainly due to issuance of corporate bonds and increase in accrued expenses and othercurrent liabilities.
Increase in Retained Earnings: The increase was mainly due to net income of 2022, partially offset by distribution of earnings.
Increase in Others Equity: The increase was mainly due to increase in currency exchange gain arising from translation of foreign
operations in 2022.
Increase in Equity Attributable to Shareholders of the Parent: The increase was mainly due to increase in retained earnings.
Increase in Total Equity: The increase was mainly due to increase in equity attributable to shareholders of the parent.
● Major Impact on Financial Position
The above deviations had no major impact on TSMC’s financial position.
● Future Plan on Financial Position: Not applicable.
● 

126

127

Unconsolidated

6.2.2 Financial Performance

Unit: NT$ thousands

Consolidated

Item

Unit: NT$ thousands

Item

2022

2021

Difference%

Net Revenue

2,263,891,292

1,587,415,037

676,476,255

43%

Cost of Revenue

915,536,486

767,877,771

147,658,715

19%

Gross Profit

1,348,354,806

819,537,266

528,817,540

65%

Operating Expenses

226,707,552

169,222,934

57,484,618

34%(368,403)(333,435)(34,968)-10%

1,121,278,851

649,980,897

471,297,954

73%

22,911,867

13,145,417

9,766,450

74%

Income before Income Tax

1,144,190,718

663,126,314

481,064,404

73%

Income Tax Expenses

127,290,203

66,053,180

61,237,023

93%

Net Income

1,016,900,515

597,073,134

419,827,381

70%

42,430,165(7,619,456)

50,049,621

NM

Total Comprehensive Income for the Year

1,059,330,680

589,453,678

469,877,002

80%

Total Net Income Attributable to Shareholders of the Parent

1,016,530,249

596,540,013

419,990,236

70%

Total Comprehensive Income Attributable to Shareholdersof the Parent

1,059,124,890

588,918,059

470,206,831

80%

Other Operating Income and Expenses, Net
Income from Operations
Non-operating Income and Expenses

Other Comprehensive Gain (Loss), Net of Income Tax

Analysis of Deviation over 20%
Increase in Net Revenue: The increase was mainly attributed to rise in average selling price, higher wafer shipments and thefavorable impact of change in foreign exchange rate.
Increase in Gross Profit: The increase was mainly due to the rise in average selling price, the favorable impact of change in foreignexchange rate and continuing cost improvement, partially offset by lower capacity utilization.
Increase in Operating Expenses: The increase was mainly due to higher research and development expenditures.
Increase in Income from Operations: The increase was mainly due to higher gross profit.
Increase in Non-operating Income and Expenses: The increase was mainly due to higher interest income in 2022.
Increase in Income before Income Tax: The increase was mainly due to higher income from operations.
Increase in Income Tax Expenses and Net Income: The increase was mainly due to higher income before income tax.
Increase in Other Comprehensive Gain (Loss), Net of Income Tax: The increase was mainly due to increase in currency exchange gain
arising from translation of foreign operations in 2022.
Increase in Total Comprehensive Income for the Year, Total Net Income Attributable to Shareholders of the Parent and Total
Comprehensive Income Attributable to Shareholders of the Parent: The increase was mainly due to higher net income in 2022.
● Sales Volume Forecast and Related Information
For additional details, please refer to “1. Letter to Shareholders”.
● Major Impact on Financial Performance
The above deviations had no major impact on TSMC’s financial performance.
● Future Plan on Financial Performance: Not applicable.
● 

128

2022

2021

Difference%

Net Revenue

2,252,320,561

1,574,745,881

677,574,680

43%

Cost of Revenue

951,927,673

786,116,844

165,810,829

21%

Gross Profit

1,300,392,888

788,629,037

511,763,851

65%

Operating Expenses

209,637,924

158,667,757

50,970,167

32%(8,275)(328,444)

320,16997%

1,090,746,689

629,632,836

461,113,853

73%

49,927,127

30,869,355

19,057,772

62%

Income before Income Tax

1,140,673,816

660,502,191

480,171,625

73%

Income Tax Expenses

124,143,567

63,962,178

60,181,389

94%

Net Income

1,016,530,249

596,540,013

419,990,236

70%

42,594,641(7,621,954)

50,216,595

NM

1,059,124,890

588,918,059

470,206,831

80%

Other Operating Income and Expenses, Net
Income from Operations
Non-operating Income and Expenses

Other Comprehensive Gain (Loss), Net of Income Tax
Total Comprehensive Income for the Year

Analysis of Deviation over 20%
Increase in Net Revenue: The increase was mainly attributed to rise in average selling price, higher wafer shipments and thefavorable impact of change in foreign exchange rate.
Increase in Cost of Revenue: The increase was mainly due to higher sales.
Increase in Gross Profit: The increase was mainly due to the rise in average selling price, the favorable impact of change in foreignexchange rate and continuing cost improvement, partially offset by lower capacity utilization.
Increase in Operating Expenses: The increase was mainly due to higher research and development expenditures.
Increase in other Operating Income and Expenses, Net: The increase was mainly due to a net gain on disposal of property, plant andequipment in 2022.
Increase in Income from Operations: The increase was mainly due to higher gross profit.
Increase in Non-operating Income and Expenses: The increase was mainly due to higher share of profits of subsidiaries andassociates in 2022.
Increase in Income before Income Tax: The increase was mainly due to higher income from operations.
Increase in Income Tax Expenses and Net Income: The increase was mainly due to higher income before income tax.
Increase in Other Comprehensive Gain (Loss), Net of Income Tax: The increase was mainly due to increase in currency exchange gain
arising from translation of foreign operations in 2022.
Increase in Total Comprehensive Income for the Year: The increase was mainly due to higher net income in 2022.
● Sales
Volume Forecast and Related Information
For additional details, please refer to “1. Letter to Shareholders”.
● MajorImpact on Financial Performance
The above deviations had no major impact on TSMC’s financial performance.
● FuturePlan on Financial Performance: Not applicable.
● 

129

企業風險管理架構
業務策略：技術領先、卓越製造、客戶信任
6.2.3 Cash Flow

6.2.5 Long-term Equity Investment Policy and Results

Consolidated

TSMC’s long-term equity investments, accounted for using the equity method, were all made for strategic purposes. In 2022, the
風險治理
審計委員
會
gains from these investments amounted to NT$7,798,359
thousandon a consolidated basis, up from the previous year mainly due
to increases in product demand. In the future, TSMC’s long-term equity investments, accounted for using the equity method, will
理團隊
(註)continue to focus on strategic purposes through管prudent
assessments.

董事會

Unit: NT$ thousands

Net Cash Provided
by Operating
Activities in 2022

Net Cash Used in
Investing Activities
in 2022Net Cash Used in
Financing Activities
in 2022

Effect of Exchange
Rate Changes on
Cash and Cash
Equivalents in 2022

Cash Balance
12/31/2022

1,064,990,192

1,610,599,188(1,190,928,235)(200,244,032)

58,396,970

1,342,814,083

Remedy for Liquidity Shortfall
Investment Plan

Financing Plan

None

None

具風險意識的文化

Cash Balance
12/31/2021

6.3 Risk Management

Analysis of Cash Flow
NT$1,610.6 billion net cash generated by operating activities: mainly include net income, along with depreciation and amortization
expenses.
NT$1,190.9 billion net cash used in investing activities: primarily for capital expenditures.
NT$200.2 billion net cash used in financing activities: mainly for net decrease in short-term loans and payment of cash dividend,
partially offset by issuance of corporate bonds.
● Remedial Actions for Liquidity Shortfall
As a result of positive operating cash flows and cash on-hand, remedial actions are not required.
● Cash Flow Projection for Next Year: Not applicable.
● 

Net Cash Used in
Investing Activities in
2022

Net Cash Used in
Financing Activities in
2022

Cash Balance
12/31/2022

396,294,241

1,559,417,480(944,001,551)(382,834,273)

628,875,897

Financing Plan

None

None

Analysis of Cash Flow
NT$1559.4 billion net cash generated by operating activities: mainly include net income, along with depreciation and amortization
expenses.
NT$944.0 billion net cash used in investing activities: primarily for capital expenditures.
NT$382.8 billion net cash used in financing activities: mainly for net decrease in short-term loans and cash dividend payment,
partially offset by issuance of corporate bonds.
● Remedial Actions for Liquidity Shortfall
As a result of positive operating cash flows and cash on-hand, remedial actions are not required.
● Cash Flow Projection for Next Year: Not applicable.

應

監

控

審

查

整合式風險管理IT系統

Adhering closely to the ISO 31000: 2018 Risk Management System and the Committee of Sponsoring Organizations of the* 包含風險管理指導委員會、風險管理執行委員會、風險管理工作小組、中央危機指揮中心與危機處理小組
Treadway
Commission (COSO)’s Enterprise Risk Management – Integrated Framework, TSMC’s Enterprise Risk Management (ERM)
framework was established to provide a systematic approach to risk management. It outlines the risk governance structure, process,tools, competency, communication, and culture to assist the management in making informed decisions, to implement businessstrategies and achieve corporate objectives.

Remedy for Liquidity Shortfall
Investment Plan

回

TSMC adopts a balanced risk-reward approach to risk management to optimize business returns while considering the holistic
impact on corporate sustainability. TSMC’s “Risk Management Policy” (https://esg.tsmc.com/download/file/riskManagementPolicy_e.
關and鍵風險 指off標by/ Chairman,
風 險 登 記affirms
冊 the commitment for proactive and風險管理工具pdf), approved by the Board of Directors
signedrobust risk
management system in assisting TSMC in making well-considered and risk-based decisions, that fulfills its corporate vision and todeliver sustainable value for TSMC and its stakeholders. 風 險 管 理 職 能 與 溝 通

Unconsolidated
Net Cash Provided byOperating Activities in2022

風險管理流程辨 識
評 估
Risk Management Policy and Framework

Unit: NT$ thousands

Cash Balance
12/31/2021

風險管理政策與程序

6.3.1 Risk Management Overview

Enterprise Risk Management
Framework
TSMC
Enterprise Risk Management Framework● 

CORPORATE STRATEGY | Technology Leadership, Manufacturing Excellence, Customer Partnership● 

Actual or Planned Source of Capital

Production Facilities, R&D and Production Equipment

Cash flow generated from operations and issuance ofcorporate bonds

OthersCash flow generated from operations

Total

Total Amount for2022 and 2021

Actual Use of Capital
2022

2021

1,903,407,434

1,072,310,836

831,096,598

18,460,404

10,361,294

8,099,110

1,921,867,838

1,082,672,130

839,195,708

Risk-aware Culture

Plan

Risk
Governance

Audit Committee
Risk-aware Culture

6.2.4 Recent Years Major Capital Expenditures and Impact on Financial and Business
Unit: NT$ thousands

Board

Management (Note)
Risk Management Policy & Procedures
Identification

Assessment

Response

Monitor

Review

Key Risk Indicator / Risk Register

RiskManagement
Process

Risk Tools

Risk Management Competency & Communication
Integrated RM IT System
Note:comprising ofofRisk
Management
SteeringSteering
Committee,Committee,
Risk Management
Council, Risk
Management
Taskforces,
CentralCrisis CommandCentre and Crisis Management Team* Comprising
Risk
Management
RiskExecutive
Management
Executive
Council,
Risk
Management
Taskforces,

Based on capital expenditures listed above, TSMC’s annual production capacity increased by approximately 1.2 million 12-inch
equivalent wafers in 2022.

130

Central Crisis Command Centre & Crisis Management Team131

Adopting the five-step risk management process consisting of the identification, assessment, response, monitor and review ofrisks, risks assessments are performed by key functional units, to form the enterprise-level risk map and mitigation plans, that arepresented to the Audit Committee. This process is supported by ongoing education and awareness efforts in fostering a risk-aware
culture and building risk competencies.

Risk Management Organization Chart

● 

Board

Audit and Risk Committee

Risk Management Steering
Committee(Functional heads, VP level)

Risk Management Executive
Council(Members titled as Risk Management
Champion (RMC), director-level)

Risk Management
Division

Risk Management Scope● 

Strategic Risks
●

●

●

●

●

Industry developments
Changes in technology (including IT security)
Decrease in demand and average selling priceCompetition
Changes in the government policies and regulatory environment

Financial Risks
Economic risks (including interest rate fluctuation, foreign exchange volatility, inflation, and amendments to tax
regulations or implementation of new tax laws)
External financing
High-risk/highly leveraged investments; lending, endorsements, and guarantees for other parties; and financial
derivative transactions
Impairment charges

●

●

●

●

●

●

●

●

●

●

●

●

●

●

●

Other Risks●

Natural and man-made disasters
Capacity expansion
Construction of new fabs
Sales concentration
Purchasing concentration
Intellectual property rights
Litigious and non-litigious matters
Mergers and acquisitions
Recruiting quality personnel
Future R&D plans and expected R&D spending
Change in corporate reputation and impact on the Company’s crisis management
Change in management
Non-compliance with export control, environmental and climate change related laws,
regulations and accords, and failure to timely obtain requisite approvals necessary for
conducting business●

Sales of significant numbers of shares by TSMC’s directors, and/or shareholders who own 10% or more of TSMC’s
total outstanding shares
Trade policies●●

TSMC recognizes that its systems and processes provide reasonable but not absolute assurance and hence continually improve toensure that its ability to manage and respond to risks and opportunities remain relevant and effective.
Risk Management Organization
Risk management in TSMC involves the reporting and oversight structure involving both Board of Directors and management of
TSMC that seeks to embed sound risk management practices in business decisions and operations across TSMC. The Board of
Directors is responsible for the governance of risk and has authorized the Audit Committee to review TSMC’s ERM framework.
At the management level, the risk management organization is composed of the Risk Management Steering Committee, the Risk
Management Executive Council, the Risk Management Taskforces and the Risk Management Division.
The Risk Management Division works with each function in applying the ERM framework to assess and mitigate risks throughout
TSMC by risk monitoring, conducting workshops, and implementing risk related policies and guidelines. Annually, the risk
management organization reports to the Audit Committee on TSMC’s key risks and mitigation efforts, and the Audit Committee’s
Chairperson reports to the Board of Directors on the risk profile and risk mitigation measures being taken.

132

Risk Management Taskforces

Operational Risks

Risk Management Executive Council
1. Identifies potential/emerging risks that may impact TSMC inachieving our objectives and/or the continued effectivenessand efficiency of our business operations.
2. Conducts risk assessments, defines risk mitigation plans,
including incident management plans as well as provides
sponsorship and allocate sufficient resources to enable
timely and effective mitigations.
3. Leads and drives cross-functional taskforce, meetings, or
activities to ensure that risks are adequately & effectively
mitigated, including collaboration with Risk Management
Division and various parties.
4. Defines key risk indicators (KRIs) to proactively monitor risk
dynamics to respond in a timely and effective manner.
5. Builds a risk-aware culture and raise risk competency in fab/division, including but not limited to training/exercises andcontinuous improvements.
6. Defines and facilitates action plans based on root cause
analysis to prevent reoccurrences of major incidents,
high-risk events and major findings raised from internal/
external reviews.
7. Reports to Risk Management Steering Committee on
the progress, effectiveness review, lesson learned andimplements the decisions made by Risk Management
Steering Committee.
● 

Board of Directors

Management

Risk Appetite and Risk Management Scope
TSMC has defined its risk appetite statements, which outline the nature and extent of the risks which TSMC is willing to take inpursuit of its business goals. These risk appetite statements are:● Risk taken should be carefully evaluated, commensurate with rewards and be in line with the Company’s strategic, investment,
financial and corporate objectives.
● Risk considerations are embedded into business operations and managed within the risk tolerance (risk indicators) of the divisions,functions and Company.
● TSMC will not invest or participate in any business activities that exceeds our risk tolerance. The Company does not condone safety
related breaches or lapses, non-compliance with laws and regulations, as well as acts such as fraud, bribery and corruption.

(Representatives from each Fab/Division)

Risk management is a shared responsibility of bothmanagement and employees. All employees are required to becompetent and accountable for managing risks related to theirarea of responsibility with an emphasis on clear risk ownership.
The roles and responsibilities of the risk management
organization are defined as below:

Risk Management Taskforces
1. Identifies and assesses potential risks/threats that may
impact TSMC achieving its business objectives, as well as
deploying the risk mitigations.
2. Plans and executes risk prevention and mitigations inaccordance with risk scenarios.
3. Organizes and/or participates in cross-functional meetings,
in addressing risks that cross multi-disciplines or divisions/fabs.
4. Participates in the implementation and execution of risk
management initiatives and activities.
5. Reviews the investigation of major incidents, high-risk eventsand major findings raised from internal/external checks fordivision. Monitor the effectiveness of action plans.
● 

Risk Management Steering Committee
1. Advises the Board in determining overall risk appetite,
tolerance, strategy and resources allocation (taking into
account of the current and prospective macroeconomic,
technological, regulatory, environmental and social
developments and trends).
2. R eviews and oversees the applicability and performances ofrisk management framework, policy and procedures.
3. Provides advice and assurance to the Board by adopting aholistic view of the key risks that TSMC is exposed to andapproves the prioritization of risk mitigations.
4. Sets the tone at the top, provides sponsorship to risk
management initiatives and activities bringing about thedesired risk culture, awareness and capabilities of effectively
and sufficiently managing the key risks and new type ofrisks, including clarifying the risk ownership.
5. Ensures that risk management is incorporated into strategic
business development and operational planning, day-to-day
management and decision making.
6. Advises the Board on proposed transactions to address thestrategic risks and capitalize on opportunities.
● 

Risk Management Division
1. Assists the board in establishing, overseeing a proactive
and effective management system of risk management andbusiness continuity management, including risk appetite andtolerance, risk strategy and risk management framework,
policy, and procedures.
2. Strengthens risk culture, awareness, and risk management
capabilities through continuous training, education andawareness programs.
● 

133

3. Identifies and analyzes the sources and categories of risks ofthe company, and regularly review their applicability.
4. Facilitates risk management committees, risk owners in
the implementation of risk management activities andinitiatives to identify and manage risks, including the review
of risk mitigation plans, business continuity, crisis andincident management plans, review the effectiveness of risk
management activities through documentary risk report
reviews, management discussions, meetings, to provide
reasonable assurance.
5. Coordinates cross-department/functional interaction
and communication of risk management operations anddecisions, including implementing the risk management
decisions of Risk Management Steering Committee.
6. Consults with management, consultants and peers on bestpractices and standards for continuous improvement andbenchmarking.
7. Prepares reports to stakeholders that may be required fromtime to time by regulators, government agencies, insurers/
brokers and customers, including an annual report on theimplementation of company’s risk management system.
Crisis Management and Business Continuity
Management
TSMC is committed to maintaining operational resilience withclose reference to business continuity management standards
that enables the Company to respond effectively to businessdisruption. The Company is cognizant of the major risks ofnatural and man-made disasters, including earthquakes,
flooding, typhoons, droughts, tsunamis, sandstorms,
wildfires, volcanic eruptions, fire, gas/chemical leakage,pandemic, cyber-attacks, sabotage, failure of critical facilities
and equipment, shortages in the supply of utilities, such as
water, electricity and natural gas, etc. could disrupt TSMC’s
operations.
To mitigate the operational impacts of crisis events, the Risk
Management Division implements pre-crisis risk assessment,
response procedures and recovery plans. Exercises and drills
are also conducted to validate our emergency responses, crisis
management, business continuity plans to enhance operational
preparedness. In major incidents or crisis events, the Crisis
Management Guideline guides in the management andresponses. The Central Crisis Command Centre (C4), headed by
CEO and comprised of senior executives across key functions,provides guidance and decision-making to ensure a constantreadiness-to-respond capability, including rapid responses andcommunication to key stakeholders.

134

6.3.2 Strategic Risks
Risks Associated with Changes in Technology andIndustry● Industry
Developments
The electronics industries and semiconductor market
are cyclical and subject to significant and often rapid
fluctuations in product demand, which could impact TSMC’s
semiconductor foundry business. Variations in order levels from
TSMC’s customers may result in volatility in the Company’s
revenue and earnings.
From time to time, the electronics and semiconductor
industries have experienced significant and occasionallyprolonged periods of downturns and overcapacity. Because
TSMC is, and will continue to be, dependent on the demandof electronics and semiconductor companies for its services,periods of downturns and overcapacity in the generalelectronics and semiconductor industries could lead to reduced
demand for overall semiconductor foundry services, including
TSMC’s services. If TSMC cannot take appropriate actions, suchas reducing its costs to sufficiently offset declines in demand,
the Company’s revenue, margins and earnings will likely suffer
during periods of downturns and overcapacity.
Changes in Technology
The semiconductor industry and its technologies are constantly
changing. TSMC competes by developing process technologies
using increasingly advanced nodes and manufacturing
products with more functions. The Company also competes
by developing new derivative technologies. If TSMC does
not anticipate these changes in technologies and rapidly
develop new and innovative technologies, or the Company’scompetitors unforeseeably gain sudden access to additional
technologies, TSMC may not be able to provide foundry
services on competitive terms. In addition, TSMC’s customers
have significantly decreased the time in which their products
or services are launched into the market. If TSMC is unable
to meet these shorter product time-to-market, it risks losing
these customers. These factors have also been intensified by
the shift of the global technology market to consumer driven
products, such as smartphones, and increasing competitionand concentration of customers (all further discussed among
these risk factors).

the above factors, it may become less competitive and its
revenue may decline significantly.
Regarding the response measures for the above-mentioned
risks, please refer to “2.2.4 TSMC Position, Differentiation andStrategy” on page 18-20 of this Annual Report.
IT Security
Even though TSMC has established a comprehensive internet
and computing security network, the Company cannot
guarantee that its computing systems which control ormaintain vital corporate functions, such as its manufacturing
operations and enterprise accounting, would be completely
immune to crippling cyberattacks. In the event of a serious
cyberattack, TSMC’s systems may lose important corporate
data or its production lines may be shut down pending theresolution of such attack. Major cyberattacks could also leadto loss or divulgence of trade secrets and other sensitive
information, such as proprietary information of its customers
and other stakeholders and personal information of its
employees. While TSMC seeks to continuously review andassess its cybersecurity policies and procedures to ensure theiradequacy and effectiveness, the Company cannot guaranteethat it will not be susceptible to new and emerging risks andattacks in the evolving landscape of cybersecurity threats.

● 

● 

Also, the uncertainty and instability inherent in advanced
technologies impose challenges for achieving expected productquality and product yield. If TSMC fails to maintain quality, it
may result in loss of revenue and additional cost, as well as lossof business or customer trust. If TSMC is unable to overcome

Malicious hackers may also try to introduce computer viruses,
corrupted software or ransomware into TSMC’s network
systems to disrupt its operations, blackmail the Company
to regain control of its computing systems, or spy on it forsensitive information. These attacks may result in TSMC
having to pay damages for its delayed or disrupted orders
or incur significant expenses in implementing remedial andimprovement measures to further enhance its cybersecurity
network, and may also expose the Company to significant
legal liabilities arising from or related to legal proceedings or
regulatory investigations associated with such breaches.
In the past, TSMC has experienced and may in the future
be subject to attack by malicious software. TSMC has
implemented and continually updated rigorous cybersecurity
measures to prevent and minimize harm caused by suchattacks. Such measures include advanced virus scanning tools
to protect fab equipment, strengthening firewall and network
controls to prevent computer viruses from spreading among
tools and fabs, installing advanced malware defense solutions
for critical computers, introducing new solution architecture
to secure internet access, adopting advanced solutions
against distributed denial-of-service attacks from the internet,

introducing new technology for data protection, enhancing
and certifying office computer security compliance, improving
email phishing defense and implementing employee awarenesstesting. TSMC also established an integrated and automatic
security operation platform, enabled the automation of
cybersecurity event detection and response, enhanced internal
security assessment automation, conducted external red team
testing and practiced responses to ransomware attacks. For
supply chain risks reduction, through collaboration, TSMC
helped major suppliers improve their security maturity andshare industry security events and best practices on demandand by schedule. Moreover, TSMC has collaborated with
Semiconductor Equipment and Materials Institute (“SEMI”) to
set up a Semiconductor Cybersecurity Committee to promotesecurity standards (SEMI E187) as well as security assessment
methodology for improving the resilience of semiconductor
supply chain. While these ongoing enhancements further
improve Company’s cybersecurity defense solutions, there canbe no assurance that the Company is immune to cyberattacks.
In addition, TSMC employs certain third-party service providers
for it and its affiliates worldwide with whom it needs to sharehighly sensitive and confidential information to enable themto provide the relevant services. While TSMC requires suchthird-party service providers to strictly fulfill the confidentiality
and/or internet security requirements in its service agreementswith them, there is no assurance that each of them will comply
with such obligations. Moreover, such third-party service
providers may also be susceptible to cyberattacks. If TSMC or
its service providers are not able to timely resolve the respective
technical difficulties caused by such cyberattacks, or ensure
the integrity and availability of its data (and data belonging to
its customers and other third parties) or maintain control of
its or its service providers’ computing systems, the Company’scommitments to its customers and other stakeholders may
be materially impaired and its results of operations, financial
condition, prospects and reputation may also be materially andadversely affected.
Risks Associated with Decrease in Demand and Average
Selling Price
A vast majority of the Company’s revenue is derived from
customers who use TSMC’s products in smartphones, highperformance computing, IoT, automotive, and digital consumer
electronics. Any deterioration in or a slowdown in the growthof such end markets resulting in a substantial decrease in the
demand for overall global semiconductor foundry services,
including TSMC’s products and services, could adversely affect
the Company’s revenue. Further, semiconductor manufacturing

135facilities require substantial investment to construct and arelargely fixed cost assets once they are in operation. Because
the Company owns most of its manufacturing capacities, asignificant portion of its operating costs is fixed. In general,these costs do not decline when customer demand or TSMC’s
capacity utilization rates drop, and thus declines in customer
demand, among other factors, may significantly decrease
TSMC’s margins. Conversely, as product demand rises andfactory utilization increases, the fixed costs are spread overincreased output, which can improve TSMC’s margins. In
addition, the historical trend of declining average selling prices(“ASP”) of end use applications places downward pressure on
the prices of the components that go into such applications.
Decreases in the ASP of end use applications may increase
pricing pressure on components produced by TSMC, which, inturn, may negatively impact the Company’s revenue, marginand earnings.
Risks Associated with Competition
The markets for TSMC’s foundry services are highly competitive.
The Company competes with other foundry service providers,
as well as a number of integrated device manufacturers.
Some of these companies may have access to more advanced
technologies than TSMC. Other companies may have greater
financial and other resources than TSMC, such as the possibilityof receiving direct or indirect government subsidies, economic
stimulus funds, or other incentives that may be unavailable to
TSMC. The governments of the United States, China, Europe,
South Korea, and Japan provide various incentive programs
to promote developments of their domestic semiconductor
industries, such as the Creating Helpful Incentives to Produce
Semiconductors and Science Act of 2022 (the “U.S. CHIPSAct”), which provides financial incentives to incentivize thedevelopment of U.S. semiconductor industry. Althoughgovernments in certain of the countries or regions where TSMC
is currently expanding or planning to expand its production
capacity have extended or may in the future extend certain
financial incentives to the Company, there is no assurance
that TSMC will be able to apply for or receive such financial
incentives at the levels TSMC expects or at all. Additionally,
any financial incentives the Company receive may be subject
to strict conditions, or the grantors could seek to recoverany funds provided to TSMC, or cancel, reduce or deny
our requested subsidies or grants in the future. This could
materially increase TSMC’s operating costs and adversely affectits results of operations.
Furthermore, the Company’s competitors may, from time totime, also decide to undertake aggressive pricing initiatives in
one or several technology nodes. These competitive activities

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may decrease TSMC’s customer base or its ASP, or both. If
TSMC is unable to compete effectively with such new andaggressive competitors on technology, manufacturing capacity,
product quality and customer satisfaction, it risks losing
customers to such new contenders.
Risks Associated with Changes in the Government
Policies and Regulatory Environment
TSMC management closely monitors all domestic and foreign
governmental policies and regulations that might impact
TSMC’s business and financial operations. During 2022 andas of the date of this Annual Report, the following changes ordevelopments in governmental policies and regulations may
influence the Company’s business operations:
The manufacturing, assembling and testing of TSMC’s
products require the use of chemicals and materials that are
subject to environmental, climate related, health and safety
laws and regulations issued worldwide as well as international
accords such as the Paris Agreement. Climate change related
laws or regulations currently are too indefinite for theCompany to assess the impact on our future financial condition
with any degree of reasonable certainty. For example, theTaiwan “Greenhouse Gas Reduction and Management Act”,
which became effective on July 1, 2015, was amended
and was renamed as “Climate Change Response Act”. The
amendment became effective in February 2023, which set a
goal of reaching net-zero emissions in Taiwan by 2050 andalso established a carbon fee system that will collect carbon
fees on direct and indirect emissions from emitters whose
emissions reach certain thresholds. The carbon fee system is
expected to take effect by 2024 and the rate for such fees
has yet to be determined by the relevant authorities. We may
be required to pay any incurred carbon fees if our emission
levels exceed applicable thresholds pursuant to the carbon fee
system, which could result in increased operating costs for us
and affect us financially to a certain extent. We expect to see
more of its relevant regulations promulgated by the regulatorsin the future. Also, the R.O.C. legislative authority is reviewing,at all times, various environmental issues to develop laws andregulations relating to environmental protection and climate
related changes. The impact of such laws and regulations, aswell as of the carbon fee, is indeterminable at the moment.
It is not expected that other governmental policies orregulatory changes would materially impact TSMC’s operations
or financial condition.

6.3.3 Operational Risks
Natural and Man-Made Disaster
TSMC is committed to maintaining operational resilience inaccordance with business continuity management standards
that equips it with the capability to respond effectively tobusiness disruption. Disruptions caused by natural andman-made disasters, including earthquakes, flooding,typhoons, droughts, tsunamis, sandstorms, wildfires, volcanic
eruptions, fire, gas/chemical leakage, pandemic, cyber-attacks,
sabotage, failure of critical facilities and equipment, shortages
in the supply of utilities, such as water, electricity and naturalgas, etc. could interrupt TSMC’s operations.
Most of TSMC’s production facilities, as well as those ofmany of its suppliers, customers and upstream providers ofcomplementary semiconductor manufacturing services, arelocated in areas susceptible to natural disasters and may facepotential shortages of electricity or water, which could causeinterruptions to TSMC’s operations.
Thus, if one or more natural disasters result in a prolonged
disruption to TSMC’s operations or those of its customers or
suppliers, or if any of its fabs or vendor facilities were to bedamaged or cease operations as a result of an unforeseen
disruptive event, it could reduce TSMC’s manufacturing
capacity and cause the loss of important customers andthereby have an adverse, material impact on its operationaland financial performance.
To cope with possible droughts resulted from severe climatechange, TSMC implemented manufacturing process watersaving, as well as building up industrial water recycling
plants, using household water cooperating with government
to mitigate water shortage risk. TSMC also implemented
its business continuity plans, including water conservation
measures, the use of more alternative water sources, watersupplied by tank cars, stress tests and various exercises. As aresult, there was no material impact to TSMC’s business oroperational performance.
TSMC has occasionally suffered power outages, dips or surges
caused by difficulties encountered by its electricity supplieror other power consumers on the same power grid. Someof these have resulted in interruptions to TSMC’s operations.
Such shortages or interruptions in electricity supply could
further be exacerbated by changes in the energy policy of
the governments. If TSMC is unable to secure reliable anduninterrupted supply of electricity to power its manufacturingfabs, its ability to fill customers’ orders would be jeopardized.

If such events were to occur over prolonged periods oftime, TSMC’s operations and financial performance may bematerially adversely affected. Moreover, TSMC’s future capacity
expansions in Taiwan and elsewhere could be curtailed byutility shortages.
The COVID-19 pandemic has had impacts on worldwide
economic activity. Prolonged impacts of COVID-19 or future
similar events could adversely affect TSMC’s business andresults of operations in several ways, including but not limitedto: (1) interruption of the operations of TSMC’s supply chainsfor equipment, parts and materials in terms of manufacturing,logistics, and manpower arrangements for tool installation;(2) fluctuation in TSMC customers’ demands for certain
products, leading to uncertainties for TSMC’s capacity planningand also for meeting customer demand, which may harm
TSMC’s business with its customers and subject TSMC to therisk of legal disputes; and (3) potential production delays for
TSMC’s products due to forced fab or office closures or partial
operation.
TSMC has formed an “Epidemic Prevention Committee” toidentify, implement and monitor actions stemming from the
dynamic exigencies of the pandemic, including but not limited
to, health management of its employees, splitting operation
and work from home arrangements, identification and controlof high risk individuals, rapid investigation of confirmed
cases, management of production inventory, supply chain
management, and capacity management for demand changes.
As of the date of this annual report, TSMC’s current businessand results of operations have not been materially affected by
the COVID-19 pandemic, and with the easing of the COVID-19
pandemic, TSMC does not expect its business and results ofoperations will be directly affected. Nevertheless, the Company
could still face the post-pandemic downward changes in
consumers’ demand for electronic products, which in turn leadto reduced demand for and place downward pressure on theprice of TSMC’s products and services.
TSMC has further strengthened its business continuity
management, which includes periodic risk assessments andmitigations, and the establishment of taskforces before
emergency events. The 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 of people injury,
business interruption, finance are minimized. TSMC reviews
periodically its business continuity plans and refines them toreflect exercise results and implementation. In response to137the impact of the earthquakes that occurs in Taiwan, TSMC
continues to improve its earthquake emergency response, toolanchorage and seismic isolation facilities, and readiness fortool salvage and production recovery. These improvements
have been integrated into new fab design. TSMC’s business
continuity procedures were further enhanced through thecompliance with ISO 22301 business continuity management
system (BCMS).
TSMC maintains a comprehensive risk management system
dedicated to human safety, the conservation of natural
resources and the protection of property. In order tocope effectively with emergencies and natural disasters,
management at each facility has developed comprehensive
plans and procedures that focus 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 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 many of its suppliers use flammable and toxic
materials in their manufacturing processes and are therefore
subject to risks that cannot be completely eliminated arisingfrom explosion, fire, or environmental influences. Although
TSMC maintains multiple layers of risk prevention andprotection, as well as fire and casualty insurance, TSMC’s
risk management and insurance coverage may not always
be sufficient to cover all of its potential losses. If any of
TSMC’s fabs or vendor facilities were to be damaged or cease
operations as a result of an explosion, fire or environmental
causes, it could reduce the TSMC’s manufacturing capacity
leading to the loss of important sales and customers and havea negative impact on TSMC’s financial performance. In addition
to periodic fire-protection inspections and firefighting drills,
TSMC has also carried out a corporate-wide fire risk mitigation
project focused on managerial and hardware improvements.
TSMC continues to monitor key disruptive threats to its
business operations and adapt the plans to ensure operational
resilience.
Risks Associated with Capacity Expansion
TSMC performs long-term market demand forecasts for its
products and services to manage its overall capacity. Basedon its market demand forecasts, the Company has continued

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to add capacity to meet market needs for its products andservices, including in Taiwan, in Arizona, U.S., in Nanjing,
China and in Kumamoto, Japan.
Implementing these capacity expansion plans will increase
its costs, and the increases may be substantial. For example,
the Company would need to build new facilities, purchaseadditional equipment and hire and train personnel to operate
the new equipment. If TSMC does not increase its net revenue
accordingly, its financial performance may be adversely
affected by these increased costs.
In addition, market conditions are dynamic and TSMC’s market
demand forecasts may change significantly at any time. During
periods of decreased demand, certain manufacturing lines
or tools in some of the Company’s manufacturing facilities
may be suspended or shut down temporarily. However, if
demand subsequently increases rapidly over a short periodof time, TSMC may not be able to restore the capacity ina timely manner to take advantage of the upturn. In suchcircumstances, its financial performance and competitivenessmay be adversely affected.
In order to mitigate the risk associated with capacity expansion,
TSMC continuously watches for changes in market conditions
and works closely with its customers. When market demand
is not as expected, the Company tries to adjust its capacity
plans in a timely manner to reduce the impact on its financial
performance.
Risks Associated with Construction of New Fabs
The Company has multiple expansion projects that are currently
underway, including the design and construction of new fabs
worldwide. Global expansion has required and will continue torequire considerable managerial, financial and other resources.
The Company expects to face particular challenges in global
expansion and operations, including but not limited to:● higher
costs associated with construction of new fabs,
establishing supply chains for various materials in different
overseas locations, the impact on the Company’s ability tosustain its current level of productivity and manufacturing
efficiency provided by its ecosystem of interconnected
semiconductor fabs, employees and suppliers in the R.O.C.,
and recruiting and retaining talent in various overseas
locations;● labor
shortages, interruptions in the supply chains for various
materials, and construction issues, which could substantiallydelay the completion of the Company’s expansion projects,
and could further result in substantial additional costs or
failure to meet its capacity expansion plans;

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 equipment and shortages in the
supply of utilities, such as water and electricity;● scarcity of industrial-use land, which could limit theCompany’s future expansion of operations;● compliance with applicable foreign laws and regulations, andthe risk of penalties if the Company’s practices are deemed
not to be in compliance;● challenges in managing information technology infrastructure
in multiple locations and across different systems and risksof our information technology infrastructure succumbing tocyberattacks by third parties worldwide;● adverse changes relating to government grants or othergovernment incentives;● challenges relating to work culture differences and inherent inefficiently managing an increased number of employees overlarge geographic distances;● limited or insufficient intellectual property protection ordifficulties enforcing the Company’s rights to intellectual
property; and● exposure to different tax jurisdictions and potential adverse
tax consequences.

with the structural shift to mobile and high performancecomputing (HPC) devices and applications and software thatprovide the content for such devices.

If TSMC is unable to overcome the above challenges, theCompany’s business, financial condition and results ofoperations could be adversely affected.

The loss of, or significant curtailment of purchases by, one ormore of the Company’s top customers, including curtailments
due to increased competitive pressures, industry consolidation,changes in applicable regulatory restrictions, product designs,
manufacturing sourcing or outsourcing policies or practicesof these customers, the timing of customer inventory
adjustments, or changes in its major customers’ businessmodels, may adversely affect TSMC’s results of operations andfinancial condition.

● 

Risks Associated with Sales Concentration
Over the years, the Company’s customer profile and thenature of the Company’s customers’ business have changed
dramatically. While TSMC generates revenue from hundredsof customers worldwide, TSMC’s ten largest 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 Company’s net revenue in therespective year. TSMC’s second largest customer in 2020 and
2021 accounted for 12% and 10% of TSMC’s net revenue inthe 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 inpart from the changing dynamics of the electronics industry

There are only a limited number of customers who are
successfully exploiting this new business model paradigm. Also,
TSMC has seen the changes of nature in its customers’ businessmodels in response to this new business model paradigm.
For example, there is a growing trend toward the systemcompanies developing their own designed semiconductors andworking directly with semiconductor foundries which makes
their products and services more marketable in a changing
consumer market.
Also, since the global semiconductor industry is becoming
increasingly competitive, some of TSMC’s customers haveengaged in industry consolidations in order to remaincompetitive. Such consolidations have taken the form ofmergers and acquisitions. If more of TSMC’s major customers
consolidate, this will further decrease the overall number of theCompany’s customer pool. In addition, regulatory restrictions,such as export controls directed at TSMC’s major customers,
could impact the Company’s ability to supply products to
those customers, reduce those customers’ demand for TSMC’s
products and services and impact their business operations.

Risks Associated with Purchasing Concentration● Raw Materials
TSMC’s production operations require that it obtainadequate supplies of raw materials, such as silicon wafers,
gases, chemicals, and photoresist, on a timely basis and atcommercially reasonable prices. In the past, shortages inthe supply of some materials, whether by specific suppliers
or by the semiconductor industry generally, have resulted inoccasional industry-wide price adjustments and delivery delays.
Moreover, major natural disasters, trade barriers and politicalor economic turmoil, including military conflicts and inflation
occurring within the country of origin of such raw materials
may also significantly disrupt the availability of such raw

139materials or increase their prices. Also, since TSMC procuressome of its raw materials from sole-sourced suppliers, there is arisk that the Company’s needs for such raw materials may not
be met or that back-up supplies may not be readily available.
Importation and domestic production limitations may also limit
our ability to obtain adequate supplies of raw materials as wellas materials of the necessary quality. In addition, recent tradetensions could result in increased prices or even unavailabilityof raw materials due to tariffs, export control 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 a timely manner or if there are significant increases
in the costs of raw materials. To reduce the supply chain risk
and to manage the cost effectively, TSMC commits resources
toward developing new supply sources. Further, the Company
continually encourages its suppliers to reduce their supply
chain risk by decentralizing production plants and to improvetheir cost competitiveness by moving 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 forany 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 processes and facilities but also requires world-classmaterials. 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 response to the rapid increase or decrease in production
capacity of new products, TSMC has continued to improve
its inventory monitoring system to achieve more accurate
demand forecasts and ensure that the supply chain maintains
sufficient inventory levels. The Company has established a
supply chain risk assessment to ensure that critical suppliers
meet various standards in labor, ethics, ESH (environmental,
safety and health) and BCP (business continuity plan). Onsite
audits are conducted regularly to encourage suppliers to takeresponsibility for their supply chain, as any regulatory violations
or adverse environmental impact event, or failure to meetsustainability requirements could result in business reduction or
termination.

Risks Associated with Intellectual Property Rights
The Company’s ability to compete successfully and to achieve
future growth depends in part on the continued strengthof its intellectual property portfolio. While the Company
actively enforces and protects our intellectual property rights,
there can be no assurance that its efforts will be adequate toprevent the misappropriation or improper use of its proprietary
technologies, software, trade secrets or know-how. Also, theCompany cannot assure you that, as its business or businessmodels expand into new areas, it will be able to develop
independently the technologies, patents, software, trade
secrets or know-how necessary to conduct its business or thatit can do so without unknowingly infringing the intellectual
property rights of others. As a result, the Company may haveto rely on, to a certain degree, licensed technologies andpatent licenses from others. To the extent that 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
the future on terms it considers reasonable or at all. The lackof necessary licenses could expose the Company to claims
for damages and/or injunctions from third parties, as well as
claims for indemnification by its customers in instances where
it has contractually agreed to indemnify its customers against
damages resulting from infringement claims.

Equipment
The Company’s operations and ongoing expansion plans
depend on its ability to obtain an appropriate amount ofequipment and related services available from a limited numberof suppliers. TSMC may encounter the situation of limited

The Company has received, from time to time, communications
from third parties, including non-practicing entities
and semiconductor companies, asserting that TSMC’s
technologies, its manufacturing processes, or the design IPsof the semiconductors made by TSMC or the use of those

● 

140

supply and long delivery cycles. To better manage its 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 leadtime. However, if TSMC is unable to acquire in a timely manner
the equipment and parts it needs, it may fail to successfully
implement capacity expansion plans and exploit time sensitive
business opportunities. Additionally, ongoing trade tensions
could result in increased prices for, or even unavailability of,
key equipment, through delay or denial of necessary export
licenses, adoption of additional export control measures andother tariff or non-tariff barriers. If TSMC is unable to obtainequipment in a timely fashion to fulfill its customers’ demand
for technology and production capacity, or unable to do so
at a reasonable cost, its financial condition and results ofoperations could be negatively impacted.

semiconductors by its customers may infringe their patents
or other intellectual property rights. Because of the natureof the industry, its market position, and the expansion of its
manufacturing operations outside of Taiwan, the Company
may receive an increased number of such communicationsin the future. The assertions made and lawsuits initiated bylitigious, well-funded, non-practicing entities are particularly
aggressive in their monetary demand and in seeking
court-issued injunctions. Such lawsuits and assertions may
increase TSMC’s cost of doing business and may potentiallybe extremely disruptive if these asserting entities succeed inblocking the trade of products made and services offeredby TSMC. Also, with the expansion of its manufacturing
operations into certain non-R.O.C jurisdictions, it has faced
increased challenges in managing risks of intellectual property
misappropriation. Despite our efforts to adopt robust measures
to mitigate the risk of intellectual property misappropriationin such new jurisdictions, we cannot guarantee that theprotection measures we adopted will be sufficient to prevent
us from potential infringements by others, or at all.
If the Company fails to obtain or maintain certain technologies
or intellectual property licenses or fails to prevent our
intellectual property from being misappropriated and, if
litigation relating to alleged intellectual property mattersoccurs, it could: (1) prevent the Company from manufacturing
particular products or selling particular services or applying
particular technologies; and (2) reduce our ability to compete
effectively against entities benefiting from our misappropriatedintellectual property, which could reduce its opportunities togenerate revenue.
The Company has taken related measures to minimize potential
loss of shareholder value arising from intellectual property
claims and litigation filed against it. These measures include:
strategically obtaining licenses from certain semiconductor
and other technology companies as needed; timely securing
intellectual property rights originating within and outsideof TSMC for defensive and/or offensive protection of TSMC
technology and business; and aggressively defending against
baseless litigation.
Risks Associated with Litigious and Non-litigious Matters
As is the case with many companies in the semiconductor
industry, the Company has received from time to timecommunications from third parties asserting that its
technologies, its manufacturing processes, or the designof the semiconductors made by TSMC or the use of thosesemiconductors by its customers may infringe upon theirpatents or other intellectual property rights. These assertions
have at times resulted in litigation by or against the Company
and settlement payments by the Company. Irrespective of thevalidity of these claims, the Company could incur significant
costs in the defense thereof or could suffer adverse effects
on its operations. The Company is also subject to antitrust
compliance requirements and scrutiny by governmental
regulators in multiple jurisdictions. Any adverse results of suchproceeding or other similar proceedings that may arise in
those jurisdictions could harm TSMC’s business and distract its
management, and thereby have a material adverse effect on its
results of operations or prospects, and subject the Company topotential significant legal liability.
Currently, TSMC’s material legal proceeding is as follows:
In September 2022, Daedalus Prime LLC (“Daedalus”) filed
complaints in the U.S. International Trade Commission(“ITC”) and the U.S. District Court for the Eastern District ofTexas alleging that TSMC, TSMC North America, and othercompanies infringe four U.S. patents. The ITC instituted
an investigation in October 2022. The outcome cannot be
determined and we cannot make a reliable estimate of thecontingent liability at this time.
Other than the matter described above, as of the date of thisAnnual Report, TSMC is not currently a party to any othermaterial legal proceedings.
Risks Associated with Mergers and Acquisitions
In 2022 and as of the date of this Annual Report, TSMC had
not conducted any merger or acquisition.
Risks Associated with Recruiting Quality Personnel
TSMC relies on the continued service and contribution ofits management team, skilled technical and professional
personnel. The Company’s business could suffer fromthe inability to fulfill personnel needs with high quality
professionals in a timely fashion caused by the loss of
personnel, talent shortages, illegal talent poaching,immigration controls, or related changes in market demandfor its products and services. Since there is fierce competition
for talent recruitment, the Company cannot ensure timely
fulfillment of its personnel demand.
In order to reduce the risk of talent recruitment challenges,
TSMC encourages job rotation and employs an on-the-job
training and certification system. In this way, employees canlearn and enhance their work efficiency and effectiveness in theactual workplace. Moreover, TSMC creates multiple recruitment

141

channels and continues to hire various top-notch, talented
professionals from Taiwan and overseas. At the same time, theCompany continues to expand industry-academic cooperation
to meet outstanding talented individuals at an early phase inorder to recruit them in the future.
Future R&D Plans and Expected R&D Spending
For additional details, see “5.2.7 Future R&D Plans” on page102 of this Annual Report.
Changes in Corporate Reputation and Impact on the
Company’s Crisis Management
TSMC has established an excellent reputation based on its corevalues of integrity, commitment, innovation and customer
trust. The Company’s positive image also reflects outstanding
operations, rigorous corporate governance and dedication
to sustainable responsibility by serving as a good corporate
citizen. TSMC continues to pursue innovation in economic,
environmental and social dimensions.
In 2022, TSMC was honored with numerous awards forachievements in various areas including operations, corporate
governance, patents, profit growth, investor relations,environmental protection, corporate sustainability, and otherfields. The Company was selected as a part of the Dow Jones
Sustainability World Index for the 22nd consecutive year andreceived the following awards: the inaugural Honorable
Legion of Corporate Sustainability Top 100 launched by
CommonWealth Magazine the Excellence in Corporate Social
Responsibility Award; the Taiwan Institute for Sustainable
Energy 2022 Taiwan Corporate Sustainability Awards’ First
Place in Taiwan Top Ten Sustainability Exemplary Awards– the Corporate Sustainability Report Award – the Climate
Leadership Award, the Circular Economy Leadership Award,
the Supply Chain Management Award, the Sustainable
Water Management Award, the Growth Through Innovation
Leadership Award, and the Information Security LeadershipAward. TSMC ranked in the top 5% in the Taiwan Stock
Exchange corporate governance evaluation. The Company
was named a member of: Fortune Magazine ’s 2022 World’s
Most Admired Companies and the Fortune Global 500; theCorporate Knights Global 100 Most Sustainable Corporationsfor 2022; and of the 2022 Carbon Clean 200TM list by
Corporate Knights and As You Sow. In addition, TSMC was
selected as part of the Morgan Stanley Capital International All
Country World Index (MSCI ACWI) ESG Leaders Index.

To promote sustainability, TSMC’s ESG Steering Committee,
led by Chairman Dr. Mark Liu, presented the third TSMC ESG
Award in 2022, honoring internal organizations and divisions
for tangible achievements in the Company’s five ESG strategic
directions: Drive Green Manufacturing, Build a Responsible
Supply Chain, Create a Diverse and Inclusive Workplace,
Develop Talent, and Care For The Disadvantaged. At thesame time, this award presentation encouraged all employees
to propose new ideas for sustainability to be assessed forfeasibility and potential incorporation in the Company’s
implementation plans. Compared with 1,257 sustainability
proposals in the second year, the third annual ESG Award
received 1,880 innovative ideas, adding new energy to theCompany’s culture of sustainability.
Mindful of its global reputation, TSMC employs numerous
preventative measures to address potential risks fromearthquakes, fires, IT service disruption, yield loss, information
security, supply chain disruption, pandemics, environmental
events, and utility supply disruption. TSMC practices crisis
management and implements recovery measures to deal
with possible crisis events and maintains a crisis command
center for control guideline and prepares emergency response
procedures” to ensure timely and prompt responses during
a crisis. TSMC also performs regular exercises for crisis
scenarios to ensure that crisis management procedures arecomprehensive. and validated. In 2022, TSMC received a ratingof “Low ESG Risk” from the Sustainalytics ESG Risk Ratings.
TSMC’s environment, safety and health committee holds
monthly meetings to coordinate with relevant departmentsin each fab to conduct emergency response drills andcontinuously improve their notification and operational
procedures to ensure clear channels of communication
to stakeholders if a crisis arises, with the public relations
division serving as the designated gateway for external
communications.
In the event of an emergency, all departments immediately
deploy emergency response measures to eliminate or minimize
the impact on personnel safety, the surrounding environment,
and company property and manufacturing operations.
Responders also alert the public relations division at the earliest
stages to ensure timely, clear and consistent communication
regarding the situation.
Risks Associated with Change in Management
In 2022 and as of the date of this Annual Report, there wereno such risks for TSMC.

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Risks Regarding Non-Compliance with Export Control,
Environmental and Climate Change Related Laws,
Regulations and Accords, and Failure to Timely Obtain
Requisite Approvals Necessary for Conducting Business
Because TSMC engages in manufacturing activities in multiple
jurisdictions and conducts business with its customers
located worldwide, such activities are subject to a myriad ofgovernmental regulations. For example, the manufacturing,assembling and testing of TSMC’s products require the useof equipment that is subject to export control laws andregulations, as well as metals, chemicals, and materials that are
subject to environmental, climate-related, health and safety,
and humanitarian forced labor prohibition and conflict-freesourcing laws, regulations and guidelines issued worldwide.
The Company’s failure to comply with any such laws or
regulations, as amended from time to time, or its failure tocomply with any information and document sharing requests
from the relevant authorities in a timely manner could result in:● significant penalties and legal liabilities, such as the denialof import or export permits or third party private lawsuits,
criminal or administrative proceedings;● the temporary or permanent suspension of production of theaffected products;● the temporary or permanent inability to procure or use
certain production critical chemicals or materials;● unfavorable alterations in TSMC’s manufacturing, fabrication
and assembly and test processes;● challenges from its customers that place TSMC at a significant
competitive disadvantage, such as loss of actual or potential
sales contracts in case the Company is unable to satisfy theapplicable legal standard or customer requirement;● restrictions on TSMC’s operations or sales;● loss of tax benefits, including termination of current tax
incentives, disqualification of tax credit application andrepayment of the tax benefits that the Company is notentitled to; and● damages to TSMC’s goodwill and reputation.
Complying with applicable laws and regulations, such asenvironmental and climate related laws and regulations, could
also require TSMC, among other things, to do the following:(1) purchase, use or install remedial equipment; (2) implement
remedial programs such as climate change mitigation
programs; (3) modify its product designs and manufacturing
processes, or incur other significant expenses such as paying
any incurred carbon fees if the Company’s emission levels
exceed applicable thresholds, and obtaining renewable energy
sources, renewable energy certificates or carbon credits,

substitute raw materials or chemicals that may cost more or beless available for the Company’s operations.
TSMC’s inability to timely obtain approvals necessary forthe conduct of its business could impair its operational andfinancial results. For example, if the Company is unable totimely obtain environmental related approvals needed toundertake the development and construction of a new fab
or expansion project, then such inability may delay, limit, or
increase the cost of its expansion plans that could also in turnadversely affect its business and operational results. In lightof increased public interest in environmental issues, TSMC’s
operations and expansion plans may be adversely affected ordelayed responding to public concern and social environmentalpressures even if the Company complies with all applicablelaws and regulations.
TSMC believes that climate change should be regarded as asignificant corporate risk that must be managed to improve
competitiveness. For TSMC’s climate change related risks
and control measures, see the Climate Change and Energy
Management section under “7.2.1 Environmental Protection”
on page 156-157 of this Annual Report.
6.3.4 Financial Risks
Economic Risks
Any future systemic political, economic or financial crisis ormarket volatility, including but not limited to interest rate
and foreign exchange rate fluctuations, inflation or deflationand changes in economic, fiscal and monetary policies inmajor economies, could cause revenue or profits for thesemiconductor industry as a whole to decline dramatically,
and if the economic conditions or financial conditions of theCompany’s customers were to deteriorate, the demand for its
products and services may decrease and additional accounting
related allowances may be required, which could reduce ouroperating income and net income. For example, starting inMarch 2023, the capital and credit markets have experienced
volatility and disruption as a result of the failures of Silicon
Valley Bank and Signature Bank as well as UBS’ announced
acquisition of Credit Suisse. Concerns about the soundnessof the banking system may cause small- and medium-sizedbanks to tighten their lending to preserve liquidity, which inturn could weigh on economic growth. If such levels of market
volatility and disruption continue or escalate into systematic
financial crisis or global economic downturn, it could resultin a number of adverse follow-on effects on TSMC, including
decreased customer demand, delays in the payment of accountreceivables to us, and insolvency of suppliers or customers.

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Interest Rate Fluctuation
TSMC is exposed to interest rate risks primarily in relation to its
investment portfolio and outstanding debt. Changes in interest
rates affect the interest earned on the Company’s cash andcash equivalents and fixed income securities, the fair value of
those securities, as well as the interest paid on its debt.

● 

The objective of TSMC’s investment policy is to achieve a
return that will allow the Company to preserve principal andsupport liquidity requirements. The policy generally requires theCompany to invest in investment grade securities and limits theamount of credit exposure to any one issuer. TSMC’s cash andcash equivalents, as well as fixed income investments in both
fixed- and floating-rate securities, carry a degree of interest
rate risk. The majority of TSMC’s fixed income investments
are fixed-rate securities, which are classified as financial assets
at fair value through other comprehensive income, and may
have their fair value adversely affected due to a rise in interest
rates. At the same time, if interest rates fall, cash and cash
equivalents as well as floating-rate securities may generate lessinterest income than expected.
TSMC has entered and may in the future enter into interest
rate derivatives to partially hedge interest rate risk on its fixedincome investments and anticipated debt issuance. However,these hedges can offset only a limited portion of the financial
impact from movements in interest rates.
The majority of TSMC’s long-term debt is fixed-rate andmeasured at amortized cost and, as such, changes in interest
rates would not affect future cash flows or the carrying
amount.
Certain of TSMC’s fixed income investments are primarily basedon the London Interbank Offered Rate (LIBOR), which will be
replaced by alternative benchmark rates after June 30, 2023.
The transition from LIBOR to alternative benchmark rates might
result in a reduction in TSMC’s interest income.
Foreign Exchange Volatility
Substantially all of TSMC’s sales are denominated in U.S. dollars
and over half of its capital expenditures are denominated incurrencies other than the NT dollar, primarily in U.S. dollars,
Euros and Japanese yen. As a result, any significant fluctuations
to its disadvantage in the exchange rate of the NT dollar
against such currencies, in particular a weakening of the U.S.
dollar against the NT dollar, would have an adverse impact on
the Company’s revenue and operating profit as expressed in NT
dollars. For example, every one percent depreciation of the U.S.

● 

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dollar against the NT dollar would result in an approximately
0.4 percentage point decrease in the Company’s operating
margin based on its 2022 results.
Conversely, if the U.S. dollar appreciates significantly versus
other major currencies, the demand for the products andservices of TSMC’s customers and for its goods and services
will likely decrease, which will negatively affect the Company’s
revenue.
TSMC uses foreign currency derivative contracts, such as
currency forwards or currency swaps, to protect against
currency exchange rate risks associated with non-NT-dollardenominated assets and liabilities and certain forecasted
transactions. These hedges reduce, but do not entirely
eliminate, the effect of foreign currency exchange rate
movements on its assets and liabilities.
Fluctuations in the exchange rate between the U.S. dollar
and the NT dollar may affect the U.S. dollar value of theCompany’s common shares and the market price of theCompany’s American Depositary Shares (ADSs) as well as any
cash dividends paid in NT dollar on TSMC’s common shares
represented by ADSs.
Inflation
TSMC is subject to the effects of inflation through increases
in the cost of raw materials used to produce our products,
wage expenses and employee benefits, and costs in relation
to construction of fabs. Although TSMC does not believe that
inflation has had a material impact on its financial position
or results of operations to date, a high inflation in the future
may have an adverse effect on the Company’s ability tomaintain current levels of profit margin if the selling prices of
its products and services do not increase with these increased
costs.

● 

Amendments to Tax Regulations or Implementation of
New Tax Laws
Any amendments to existing tax regulations or the
implementation of any new tax laws in the jurisdictions inwhich TSMC operates its business may have an adverse effecton its net income.
While the Company is subject to tax laws and regulations invarious jurisdictions in which it operates or conducts business,
TSMC’s principal operations are in the R.O.C. and it is exposed
primarily to taxes levied by the R.O.C. government. The R.O.C.
Controlled Foreign Company (“CFC”) rules enacted in 2016

have been implemented since January 1, 2023, pursuant towhich, certain profits retained at a CFC located in a low-tax
jurisdiction would be taxable at its parent company in Taiwan.
On the other hand, effective from January 1, 2023, the
R.O.C. Statute for Industrial Innovation was amended suchthat eligible companies that develop innovative technologies
domestically and possess leading position in global supply
chain may claim investment tax credit of 25% on qualified R&D
expenditure and 5% on procurement of machinery/equipment
for advanced processes over a fiscal year. The Company
anticipates that it will be eligible for these new incentives
pursuant to the R.O.C. Statute for Industrial Innovation.
Additionally, changes in the tax laws of foreign jurisdictions
could arise as a result of the base erosion and profit shifting(BEPS) project that was undertaken by the Organization for
Economic Cooperation and Development (OECD). Thesechanges may increase tax uncertainty and have an adverse
effect on TSMC’s operating results. In order to control tax
risk, the Company closely monitors all domestic and foreign
governmental policies and regulations that might impact its
financial operations. TSMC has established risk management
procedures to collect information, analyze potential tax
implications, and develop countermeasures
Risks Associated with External Financing
In times of market instability, sufficient external financing
may not be available to the Company on a timely basis, oncommercially reasonable terms to the Company, or at all. If
sufficient external financing is not available when TSMC needs
such financing to meet its capital requirements, the Company
may be forced to curtail its expansion, modify plans or delay
the deployment of new or expanded services until it obtains
such financing.
Risks Associated with High-Risk/Highly Leveraged
Investments; Lending, Endorsements, and Guarantees
for Other Parties; and Financial Derivative Transactions
In 2022 and as of the date of this annual report, TSMC madeno high-risk or highly leveraged financial investments. All
financial derivative transactions engaged by TSMC were strictly
for hedging and not for trading or speculative purposes. All
guarantees and intercompany loans provided by TSMC and
TSMC’s subsidiaries were solely for TSMC and/or TSMC’s
wholly-owned subsidiaries. All guarantees and intercompany
loans were in compliance with relevant rules and regulations.
To manage risks of various financial transactions, TSMC hasestablished internal control policies and procedures based on
sound financial and business practices, all in compliance withthe relevant rules and regulations issued by the R.O.C. Financial
Supervisory Commission. TSMC’s policies and procedures
include “Procedures for Financial Derivatives Transactions,”“Procedures for Lending Funds to Other Parties,” “Proceduresfor Acquisition or Disposal of Assets,” and “Procedures forEndorsement and Guarantee.”
Risks Associated with Impairment Charges
Under Taiwan-IFRSs, TSMC is required to evaluate its tangible
assets, right-of-use assets and intangible assets for impairment
whenever triggering events or changes in circumstancesindicate that the asset may be impaired. If certain criteria aremet, TSMC is required to record an impairment charge. TSMC
is not able to estimate the extent or timing of any impairment
charge for future years. Any impairment charge required may
have a material adverse effect on the Company’s net income.
The determination of an impairment charge at any given
time is mainly based on the projected results of operations
over several years subsequent to that time. Consequently, an
impairment charge is more likely to occur during a period
when the Company’s operating results are otherwise alreadydepressed. See “Note 5. CRITICAL ACCOUNTING JUDGMENTS
AND KEY SOURCES OF ESTIMATION AND UNCERTAINTY” in
Annual Report section (II), Financial Statements for a discussionof how TSMC assesses if an impairment charge is required and,if so, how the amount is determined.
6.3.5 Other Risks
Potential Impact and Risks Associated with Sales ofSignificant Numbers of Shares by TSMC’s Directors, and/or Shareholders Who Own 10% or More of TSMC’s Total
Outstanding Shares
The value of TSMC shareholders’ investment may be reducedby possible future sales of TSMC shares owned by major
shareholders.
As of the date of this Annual Report, no single shareholder
owned 10% or more of TSMC’s total outstanding shares.
Risks of Trade Policies
As TSMC’s revenue is primarily derived from sales to major
economies in the world (please refer to “2.2.4 TSMC Position,
Differentiation and Strategy” on page 18-20 of this annual
report), any changes in the trade policies (such as the increaseof tariffs on certain products, the implementation of importand export controls, and the adoption of other trade barriers)of such major economies can affect the sales of TSMC or its
customers and thereby affect TSMC’s operating results.

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In May 2020 and again in August 2020, the U.S. tightened its
export control measures against Huawei Technology Co. Ltd.
and its affiliates (collectively, “Huawei”), including an expanded
license requirement for providing Huawei with items subject
to the U.S. export control jurisdiction. To comply with relevantlaws and regulations, we have discontinued shipment of
products to Huawei since September 15, 2020. Since February2022, there have been expansive measures, including sanctions
and export controls, imposed by several countries and regions
against Russia, including certain individuals and entities, inconnection with the military conflict in Ukraine. In October
2022, the U.S. adopted additional export controls over China
on advanced computing integrated circuits (“ICs”), computercommodities that contain such ICs, and certain semiconductor
manufacturing items, as well as controls on transactions
involving items for supercomputer and semiconductor
manufacturing end-uses. The new controls add new license
requirements for items destined to a semiconductor fabrication
facility in China that fabricates ICs meeting specified advanced
node parameters as well as U.S. persons’ activities supporting
such facility or semiconductor manufacturing like TSMC,
will be decided on a case-by-case basis. In the same month,
we secured a one-year general authorization from the U.S.
government, which allows us to maintain the Company’s
fab’s operations in Nanjing, China. However, there is no
assurance that we will be able to continue securing suchgeneral authorization on a timely basis or at all. On the other
hand, measures adopted by an affected country to counteract
the impact of another country’s actions or regulations could
lead to significant legal liability to multinational corporations
including our own. For example, in January 2021, China
adopted a blocking statute that, among other matters, entitles
Chinese entities incurring damages from a multinational’s
compliance with foreign laws to seek civil remedies.

TSMC continues to monitor the recent shifts in trade policies
and measures among the relevant major economies and willtake corresponding responsive actions in accordance withsubsequent developments.
Other Material Risks
In 2022 and as of the date of this Annual Report, TSMC’s
management was not aware of any other risk that could
potentially have a material impact on the financial status of theCompany.

Imposition of trade barriers, including protectionist measures,
sanctions and import and export controls, could increase ourmanufacturing costs, limit our access to certain supplies, makeour pricing less competitive, and impact the sales of TSMC or
its customers. In 2022 and as of the date of this annual report,
our current results of operations have not been materiallyaffected. Nevertheless, depending on future developmentsof global trade tensions, such relevant regulations, rules, ormeasures may have an adverse impact on our business andoperations, and we may incur significant legal liability andfinancial losses as a result.

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