If we fail to obtain or maintain certain technologies or intellectual property licenses or
fail to prevent our intellectual property from being misappropriated and, if litigation relating to alleged intellectual property matters occurs, it could: (i) prevent us from manufacturing particular products or selling particular services or
applying particular technologies; and (ii) reduce our ability to compete effectively against entities benefiting from our misappropriated intellectual property, which could reduce our opportunities to generate revenue.
Our operational results could also be materially and adversely affected by disruptive events, such as earthquakes and contagious diseases, in the
locations in which we, our customers or our suppliers operate or by industrial accidents, fires or explosions.
The frequency and
severity of disruptive events, including damaging earthquakes, natural disasters and severe weather has been increasing, in part due to climate change or systemic regional geological changes. We have manufacturing and other operations in locations
subject to natural disasters, such as flooding, earthquakes, tsunamis, typhoons, and droughts that may cause interruptions or shortages in the supply of utilities, such as water and electricity, which in turn could disrupt operations. In addition,
our suppliers and customers also have operations in such locations. For example, most of our production facilities, as well as those of many of our suppliers and customers and upstream providers of complementary semiconductor manufacturing services,
are located in Taiwan and Japan, areas susceptible to earthquakes, tsunamis, flooding, typhoons, and droughts from time to time that may cause shortages in electricity or water, or interruptions to our operations.
Thus, if one or more natural disasters that result in a prolonged disruption to our operations or those of our customers or suppliers, or if
any of our fabs or vendor facilities were to be damaged or cease operations as a result of an explosion or fire, it could reduce our manufacturing capacity and cause the loss of important customers, and thereby have an adverse and material impact on
our operational and financial performance.
The recent COVID-19 pandemic may materially adversely
affect our business and results of operations in several ways, including but not limited to: (i) interruption of the operations of global semiconductor supply chains and those of our suppliers, including those in Asia, Europe and North America;
(ii) downward pressure on our global customer demand; and (iii) potential production delays for our products due to forced factory or office closures or partial operation. On March 18, 2020, we announced that one of our employees had
received a confirmed diagnosis of COVID-19, and has since recovered and been discharged from the hospital but remains under quarantine as of the date of this annual report. The Company has instituted various
measures, including disinfection routines, self-quarantine, mandatory hygienic practices and segregated work teams. However, given the uncertainty surrounding the COVID-19 pandemic, we cannot predict that such
measures will limit the spread of the virus in our workplace or whether our operations would be materially disrupted by the pandemic. As of the date of this annual report, our current business and results of operations have not been materially
affected by the pandemic. However, depending on unfolding developments of the pandemic, we could face various risks, including those identified here and others. As the pandemic is still ongoing and may worsen, there is significant uncertainty
surrounding its developments and impacts, including whether the current epidemic or continued spread of COVID-19 will cause an economic slowdown or a global recession, and we cannot predict at this time the
impact it will have on our business or results of operations.
The recent COVID-19 pandemic has
caused us to modify our business practices, including but not limited to health management of employees, customers and suppliers, management of production inventory, and supply chain risk management. We have formed an Epidemic Prevention
Committee to identify, implement and monitor such actions as required by the dynamic exigencies arising from the pandemic. There is no certainty that such measures and others will be sufficient to mitigate the risks posed by COVID-19, and our ability to perform critical functions could be materially adversely affected.
Our operation may
be interrupted, and our expansion may be limited, by power or utility shortage.
We have occasionally suffered power outages or
surges in Taiwan caused by difficulties encountered by our electricity supplier, the Taiwan Power Company, or other power consumers on the same power grid. Some of these have resulted in interruptions to our operations. Such shortages or
interruptions in electricity supply could further be exacerbated by changes in the energy policy of the government which intends to make Taiwan a nuclear-free country by 2025. If we are unable to secure reliable and uninterrupted supply of
electricity to power our manufacturing fabs within Taiwan, our ability to fill customers orders would be severely jeopardized.
Future expansions of our operations in the R.O.C. could be limited by shortages in water and electricity, and the limited availability of commercial-use land.
Adverse fluctuations in exchange rates could decrease our operating margin and/or revenue.
The majority of our sales are denominated in U.S. dollar and over one-half of our capital
expenditures are denominated in currencies other than NT dollar, primarily in U.S. dollar, Japanese yen and Euro. As a result, any significant fluctuations to our disadvantage in exchange rate of NT dollar against such currencies, in particular a
weakening of U.S. dollar against NT dollar, would have an adverse impact on our revenue and operating profit as expressed in NT dollar. For example, every 1% depreciation of the U.S. dollar against the NT dollar would result in approximately 0.4
percentage point decrease in our operating margin based on our 2019 results.
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