UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM20-F

OR

For the fiscal year ended December 31, 20152019

OR

For the transition period fromto

OR

Date of event requiring this shell company report

For the transition period fromto

Commission file number1-14700

台灣積體電路製造股份有限公司

(Exact Name of Registrant as Specified in Its Charter)

No. 8,Li-Hsin Road 6

Hsinchu Science Park

Hsinchu, Taiwan

Republic of China

(Address of Principal Executive Offices)

Wendell Huang, Vice President & Chief Financial Officer & Spokesperson

Telephone:886-3-5055901 / Email: invest@tsmc.com

No. 8,Li-Hsin Road 6, Hsinchu Science Park, Hsinchu, Taiwan, Republic of China

(Name, Telephone,E-mail and/or Facsimile number and Address of Company Contact Person)

Securities registered or to be registered pursuant to Section 12(b) of the Act:

Securities registered or to be registered pursuant to Section 12(g) of the Act:

None

(Title of Class)

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:

None

(Title of Class)

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.

As of December 31, 2015,2019, 25,930,380,458 Common Shares, par value NT$10 each were outstanding.

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  x☒    No¨  ☐

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or (15)(d) of the Securities Exchange Act of 1934.    Yes  ¨☐    No  x☒

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x☒    No  ¨☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of RegulationS-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ¨☒    No  ¨☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer or a non-accelerated filer.an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” and large accelerated filer”“emerging growth company” in Rule12b-2 of the Exchange Act.

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act.  (Check one):☐

Large Accelerated Filer  x                 Accelerated Filer  ¨                 Non-Accelerated Filer  ¨†The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.

Item 17     ¨☐  Item 18¨☐

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule12b-2 of the Exchange Act).     Yes  ¨☐    No  x☒

TABLE OF CONTENTS

Taiwan Semiconductor Manufacturing Company Limited

i

i

“TSMC”, “tsmc”, “Open Innovation Platform”, “CyberShuttle”, “CoWoS”, and Open Innovation Platform (“OIP”)“TSMC-SoIC^®” are some of our registered trademarks used by us in various jurisdictions, including the United States of America. All rights reserved.

ii

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

This annual report includes statements that are, or may be deemed to be, “forward-looking statements” within the meaning of U.S. securities laws. The terms “anticipates,” “expects,” “may,” “will,” “could,” “should” and other similar expressions identify forward-looking statements. These statements appear in a number of places throughout this annual report and include statements regarding our intentions, beliefs or current expectations concerning, among other things, our results of operations, financial condition, liquidity, prospects, growth, strategies and the industries in which we operate.

By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. Forward-looking statements are not guarantees of future performance and our actual results of operations, financial condition and liquidity, and the development of the industries in which we operate may differ materially from those made in or suggested by the forward-looking statements contained in this annual report. Important factors that could cause those differences include, but are not limited to:

Forward-looking statements include, but are not limited to, statements regarding our strategy and future plans, future business condition and financial results, our capital expenditure plans, our capacity management plans, expectations as to the commercial production using 10/7-nanometer5-nanometer and more advanced technologies, technological upgrades, investment in research and development, future market demand, future regulatory or other developments in our industry, business expansion plans or new investments as well as business acquisitions and financing plans. Please see “Item 3. Key Information —– Risk Factors” for a further discussion of certain factors that may cause actual results to differ materially from those indicated by our forward-looking statements.

As used in this annual report, all references to “we”, “us”, the “Company” and “TSMC” are to Taiwan Semiconductor Manufacturing Company Limited and its consolidated subsidiaries.

PART I

Not applicable.

Not applicable.

Selected Financial and Operating Data

The selected consolidated statements of profit or loss and other comprehensive income data and other consolidated financial data for the years ended December 31, 2013, 20142017, 2018 and 2015,2019, and the selected consolidated statements of financial position data as of December 31, 20142018 and 2015,2019, set forth below, are derived from our audited consolidated financial statements included herein, and should be read in conjunction with, and are qualified in their entirety by reference to, these consolidated financial statements, including the notes thereto, which have been prepared in accordance with International Financial Reporting Standards or “IFRSs”(IFRS), asInternational Accounting Standards (IAS), IFRIC Interpretations (IFRIC), and SIC Interpretations (SIC) issued by the International Accounting Standards Board or “IASB”(IASB) (collectively, “IFRSs”). The selected consolidated statements of profit or loss and other comprehensive income data and other consolidated financial data for the yearyears ended December 31, 20122015 and 2016 and the selected consolidated statements of financial position data as of December 31, 20122015, 2016 and 2013,2017 set forth below are derived from our audited consolidated financial statements not included herein. Since 2013, our audited consolidated financial statements were prepared in accordance with IFRSs, pursuant to the transitional relief granted by the U.S. Securities and Exchange Commission in respect of the first-time adoption of IFRSs, we have only provided financial statements and financial information for the financial years ended December 31, 2012, 2013, 2014 and 2015. Additionally, financial data as of and for the year ended December 31, 2011 derived from our consolidated financial statements prepared in accordance with accounting principles generally accepted (“GAAP” or “R.O.C. GAAP”) in the Republic of China (“R.O.C.” or “Taiwan”) have not been included below.

In addition to preparing financial statements in accordance with IFRSs as issued by the IASB included in this annual report, we also prepare financial statements in accordance with the IFRSs as adopted for use in Taiwan (“Taiwan-IFRSs”), which we are required to file with the Financial Supervisory Commission (“FSC”) of the Republic of China (“R.O.C.” or “Taiwan”) and Taiwan Stock Exchange (“TWSE”) under the applicable regulations and listing rules of the TWSE. Please see “Item 5. Operating and Financial Reviews and Prospects – First Time Adoption of IFRSs” for more details.The English translationstranslation of such financial statements areis furnished to the SECSecurities and Exchange Commission (“SEC”) on Form6-K, which areis not incorporated by reference to this or any of our previous annual reports on Form20-F.

Exchange Rates

We publish our financial statements in New Taiwan dollars, the lawful currency of the R.O.C. In this annual report, “$”, “US$” and “U.S. dollars” mean United States dollars, the lawful currency of the United States, and “NT$” and “NT dollars” mean New Taiwan dollars. This annual report contains translations of certain NT dollar amounts into U.S. dollars at specified rates solely for the convenience of the reader. The translations from NT dollars to U.S. dollars and from U.S. dollars to NT dollars were made by the exchange rate as set forth in the statistical release of the Federal Reserve Board. Unless otherwise noted, all translations for the year 20152019 were made at the exchange rate as of December 31, 2015,2019, which was NT$32.7929.91 to US$1.00. On April 1, 2016, the exchange rate was NT$32.26 to US$1.00.

The following table sets forth, for the periods indicated, information concerning the number of NT dollars for which one U.S. dollar could be exchanged.

No representation is made that the NT dollar or U.S. dollar amounts referred to herein could have been or could be converted into U.S. dollars or NT dollars, as the case may be, at any particular rate or at all.

Capitalization and Indebtedness

Not applicable.

Reasons for the Offer and Use of Proceeds

Not applicable.

Risk Factors

We wish to caution readers that the following important factors, and those important factors described in other reports submitted to, or filed with, the Securities and Exchange Commission, among other factors, could affect our actual results and could cause our actual results to differ materially from those expressed in any forward-looking statements made by us or on our behalf, and that such factors may adversely affect our business and financial status and therefore the value of your investment:

Risks Relating to Our Business

Any global systemic political, economic and financial crisis (as well as the indirect effects flowing therefrom) could negatively affect our business, results of operations, and financial condition.

In recent times, several major systemic political, economic and financial crises negatively affected global business, banking and financial sectors, including the semiconductor industry and markets. Most recently, since 2018, there have been political and trade tensions among a number of the world’s major economies. These typestensions have resulted in the implementation of crises,tariff andnon-tariff trade barriers, including the prolongeduse of export control restrictions against certain countries and individual companies. These trade barriers have been particularly impactful to the semiconductor industry and related markets. Prolonged or increased use of trade barriers may result in a decrease in economicthe growth or insolvency of major countries,global economy and semiconductor industry, and could cause turmoil in global markets that often result in declines in electronic products sales from which we generate our income through our products and services. For example, thereAlso, any increase in the use of export control restrictions to target certain countries and companies, any expansion of the extraterritorial jurisdiction of export control laws, or complete or partial ban on semiconductor products sales to certain companies could be knock-on effects from these types of crises onimpact not only our business, including significant decreasesability to continue supplying products to those customers, but also our customers’ demand for our products, and could even lead to changes in orders from our customers; insolvency of key suppliers resulting in product delays; inability of customers to obtain credit to finance purchases of our products; customer insolvencies; and counterparty failures negatively impacting our treasury operations. semiconductor supply chains.

Any future systemic political, economic or financial crisis or market volatility, including but not limited to, interest rate fluctuation, inflation or deflation and changes in economic, fiscal and monetary policies in major economies, could cause revenuesrevenue or profits for the semiconductor industry as a whole to decline dramatically, and if the economic conditions or financial conditionconditions of our customers were to deteriorate, the demand for our products and services may decrease and additional accounting related allowances may be required, in the future and such additional allowanceswhich could reduce our operating income and net income. Further, in times of market instability, sufficient external financing may not be available to us on a timely basis, on commercially reasonable terms to us, or at all. If sufficient external financing is not available when we need such financing to meet our capital requirements, we may be forced to curtail our expansion, modify plans or delay the deployment of new or expanded services until we obtain such financing. Thus, further escalation of trade tensions, the use of export control restrictions as anon-tariff trade barrier or any future global economicsystemic crisis could materially and adversely affect our results of operations.

Since we are dependent onOur global manufacturing, design and sales activities subject us to risks associated with political, economic or other conditions or developments in various jurisdictions, including in particular the highly cyclical semiconductorR.O.C., as well as in international trade, which could negatively affect our business and electronics industries, which have experienced significantfinancial status and sometimes prolonged periodstherefore the market value of downturns and overcapacity, our revenues, earnings and margins may fluctuate significantly.your investment.

The electronics industriesmajority of our principal executive officers and semiconductor marketour principal production facilities are cyclicallocated in the R.O.C., and subjectthe majority of our net revenue is derived from our operations in the R.O.C. In addition, we have operations worldwide and a significant percentage of our revenue comes from sales to significantlocations outside the R.O.C. Operating in the R.O.C. and often rapid increasesoverseas exposes us to changes in laws, rules, regulations and decreasesthe enforcements of such laws, rules and regulations in product demand. Our semiconductor foundrycertain key areas that would have a material impact on our operations, such as intellectual property, antitrust, export control, import restrictions, and trade barriers or disputes, as well as the general political, economic and social conditions, outbreak of war or hostilities, terrorism, security risks, social unrests, protests, strikes, health conditions and possible disruptions in transportation networks, in the various jurisdictions in which we operate, which could result in an adverse effect on our business is affected by market conditionsoperations in such highly cyclical electronicsjurisdictions and our results of operations as well as the market price and the liquidity of our ADSs and common shares. Any major change in economic, fiscal and/or trade policies in the U.S. from which we derive a substantial portion of our revenue or in another major jurisdiction could severely affect our business, financial condition and results of operations. For example, recent political and trade tensions among major economies have resulted in and could escalate trade barriers, including higher tariffs on certain products and other protectionist measures that could reduce overall consumer demand, increase our manufacturing costs and make our pricing less competitive. If and to the extent certain countries adopt further protectionist measures such as import and export controls, our ability to offer our products and services in some markets or source key materials may be limited, which may have adverse effects directly and indirectly on our sales.

Any U.S. law or government policy that encourages our U.S. customers to relocate their manufacturing capacity or supply chain to the U.S. or require their respective contractors, subcontractors and relevant agents to do so could also impair our ability to sustain our current level of productivity and manufacturing efficiency. An important aspect of our business operation is an ecosystem of interconnected semiconductor industries. Variationsfabs, employees and suppliers in order levelsthe R.O.C. that provides us with significant operational synergies, flexibility and efficiencies. For example, we are able to temporarily reassign thousands of our engineers and other relevant personnel from one manufacturing site to another that are in close proximity to each other, to refine specific designs and adapt manufacturing processes in a timely manner. These advantages permit us to operate our manufacturing fabs efficiently and resolve any technical or commercial difficulties quickly to maintain our competitive edge. If these advantages are impaired or lost as a result of government policy or otherwise, we may not be able to sustain our current ability to supply our customers may resultwith goods and services at the current level of cost, quality, quantity and delivery schedule to which our customers have been accustomed.

In addition, the financial markets have viewed certain past developments in volatility inrelations between the R.O.C. and P.R.C. as occasions to depress general market prices of the securities of Taiwanese companies, including our revenuesown. Also, the R.O.C. government has not lifted some trade and earnings. From time to time, the electronics and semiconductor industries have experienced significant and sometimes prolonged periods of downturns and overcapacity. Because we are, and will continue to be, dependentinvestment restrictions imposed on Taiwanese companies on the requirementsamount and types of electronicscertain investments that can be made in P.R.C. Our plans, investment applications and/or any relevant regulatory approvals to establish or possibly expand operations in P.R.C. may be delayed, interrupted, suspended or cancelled due to unforeseeable social and semiconductor companies for our services, periods of downturns and overcapacitypolitical factors in the general electronics and semiconductor industries could lead to reduced demand for overall semiconductor foundry services, including our services. If we cannot take appropriate actions such as reducing our costs to sufficiently offset declines in demand, our revenues, margin and earnings will suffer during periods of downturns and overcapacity.R.O.C. or P.R.C.

Decreases in demand and average selling prices for products that contain semiconductors may adversely affect demand for our products and may result in a decrease in our revenuesrevenue and earnings.

A vast majority of our revenue is derived from customers who use our servicesproducts in communication devices, personal computers,smartphones, high performance computing, IoT, automotive electronics, and digital consumer electronics products and industrial/standard products.electronics. Any decreasedeterioration in or a slowdown in the demand for any onegrowth of these products maysuch end markets resulting in a substantial decrease in the demand for overall global semiconductor foundry services, including our products and services, and maycould adversely affect our revenues.revenue. Further, semiconductor manufacturing facilities require substantial investment to construct and are largely fixed cost assets once they are in operation. Because we own most of our manufacturing capacities, a significant portion of our operating costs is fixed. In general, these costs do not decline when customer demand or our capacity utilization rates drop, and thus declines in customer demand, among other factors, may significantly decrease our margins. Conversely, as product demand rises and factory utilization increases, the fixed costs are spread over increased output, which can improve our margins. In addition, the historical and current trend of declining average selling prices (or “ASP”) of end use applications places downward pressure on the prices of the components that go into such applications. If the ASP of end use applications continues decreasing, the pricing pressure on components produced by us may lead to a reduction of our revenues,revenue, margin and earnings.

In light of the rise of new foundry service providers worldwide, ifSince we are unabledependent on the highly cyclical semiconductor and electronics industries, which have experienced significant and sometimes prolonged periods of downturns and overcapacity, our revenue, earnings and margins may fluctuate significantly.

The electronics industries and semiconductor market are cyclical and subject to compete effectivelysignificant and often rapid fluctuations in product demand, which could impact our semiconductor foundry business. Variations in order levels from our customers may result in volatility in our revenue and earnings. From time to time, the electronics and semiconductor industries have experienced significant, occasionally prolonged periods of downturns and overcapacity. Because we are, and will continue to be, dependent on the requirements of electronics and semiconductor companies for our services, periods of downturns and overcapacity in the highly competitivegeneral electronics and semiconductor industries could lead to reduced demand for overall semiconductor foundry segment of the semiconductor industry,services, including our services. If we may lose customers andcannot take appropriate actions such as reducing our profitcosts to sufficiently offset declines in demand, our revenue, margin and earnings may decrease.will likely suffer during periods of downturns and overcapacity.

If we are unable to remain a technological leader in the semiconductor industry, or if we are unable to timely respond to fast-changing semiconductor market dynamics, or unable to maintain our edge in product quality, we may become less competitive.

The semiconductor industry and its technologies are constantly changing. We compete by developing process technologies using increasingly advanced nodes and on manufacturing products with more functions. We also compete by developing new derivative technologies. If we do not anticipate these changes in technologies and rapidly develop new and innovative technologies, or our competitors unforeseeably gain sudden access to additional technologies, we may not be able to provide foundry services on competitive terms. In addition, our customers have significantly decreased the time in which their products or services are launched into the market. If we are unable to meet these shorter producttime-to-market, we risk losing these customers. These factors have also been intensified by the shift of the global technology market to consumer driven products such as mobile devices,smartphones, and increasing concentration of customers and competition (all further discussed among these risk factors). Also, the uncertainty and instability inherent in advanced technologies also impose challenges for achieving expected product quality and product yield. If we fail to maintain quality, it may result in loss of revenue and additional cost, as well as loss of business or customer trust. For example, in January 2019, we discovered the yield problems in12- and16-nanometer wafers caused by a batch of photoresist, which resulted in delayed delivery of products and had a negative effect on our gross margin and operating margin in the first quarter of 2019. We have strengthened inline wafer inspection and tightened control of incoming material to deal with the increasing complexity of leading-edge technologies. If we are unable to innovate new technologies that meet the demandsdemand of our customers or overcome the above factors, our revenues may decline significantly. Although we have concentrated on maintaining a competitive edge in research and development, if we fail to achieve advances in technologies or processes, we may become less competitive and our revenue may decline significantly.

In light of the rise of new foundry service providers worldwide, if we are unable to compete effectively in the highly competitive foundry segment of the semiconductor industry, we may lose customers and our profit margin and earnings may decrease.

The markets for our foundry services are highly competitive. We compete 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 us. Other companies may have greater financial and other resources than us, such as the possibility of receiving direct or indirect government subsidy, economic stimulus funds, or other incentives that may be unavailable to us. For example, Chinese companies are expected to be key players for new semiconductor fab development and fab equipment spending in part due to various incentives provided by the Chinese government. Furthermore, our competitors may, from time to time, also decide to undertake aggressive pricing initiatives in one or several technology nodes. These competitive activities may decrease our customer base or our ASP, or both. If we are unable to compete effectively with these new and aggressive competitors on technology, manufacturing capacity, product quality and customer satisfaction, we risk losing customers to these new contenders.

If we are unable to manage our capacity and production facilities effectively, our competitiveness may be weakened.

We perform long termlong-term market demand forecastforecasts for our products and services to manage our overall capacity. Because market conditions are dynamic, our market demand forecastforecasts may change significantly at any time. During periods of decreased demand, certain manufacturing lines or tools in some of our manufacturing facilities may be suspended or shut down temporarily. However, if subsequent demand increases rapidly in a short period of time, we may not be able to restore the capacity in a timely manner.manner to take advantage of the upturn.

Recently,According to the market demand forecasts, we have recently been adding capacity to meet market needs for our 300mm wafer fabs in the Hsinchu Science Park, Southern Taiwan Science Parkproducts and Central Taiwan Science Park, based on our market demand forecast.services. Expansion and modification of our production facilitiescapacity will increase our costs. For example, we will need to purchase additional equipment, hire additional personnel and train personnel to operate the new equipment or hire additional personnel.equipment. If we do not increase our net revenue accordingly, our financial performance may be adversely affected by these increased costs. See “Item 4. Information on The Company —– Capacity Management and Technology Upgrade Plans” for a further discussion.

WeHaving one or more large customers that account for a significant percentage of our revenue may not be ablerender us vulnerable to implementthe loss of or significant curtailment of purchases by such customers that could in turn adversely affect our planned growth or development if we are unable to obtain sufficient financial resources to meetresults of operations. Similarly, the increasing consolidation of our future capital requirements.customers may further increase our revenue concentration.

Planning capital requirements is challengingOver the years, our customer profile and the nature of our customers’ business have changed dramatically. While we generate revenue from hundreds of customers worldwide, our ten largest customers in 2017, 2018, and 2019 accounted for approximately 66%, 68%, and 71% of our net revenue in the highly dynamic, cyclicalrespective year. Our largest customer in 2017, 2018, and rapidly2019 accounted for 23%, 22%, and 23% of our net revenue in the respective year. Our second largest customer for each particular year accounted for less than 10% of our net revenue in 2017 as well as 2018, and 14% of our net revenue in 2019. A more concentrated customer base will subject our revenue to seasonal demand fluctuations from our large customers, and cause different seasonal patterns of our business. This customer concentration results in part from the changing dynamics of the electronics industry with the structural shift to mobile devices and applications and software that provide the content for such devices. There are only a limited number of customers who are successfully exploiting this new business model paradigm. Also, in order to respond to the new business model paradigm, we have seen the changes of nature in our customers’ business models. For example, there is a growing trend toward the system companies developing their own designs and working directly with semiconductor foundries which makes their products and services more marketable in a changing consumer market. Also, since the global semiconductor industry especially during timesis becoming increasingly competitive, some of general market volatilityour customers have engaged in industry consolidations in order to remain competitive. Such consolidations have taken the fixed income, interest rates, foreign currenciesform of mergers and equities markets. From time to time and increasingly so foracquisitions. If more of our major customers consolidate, this will further decrease the foreseeable next few years, we will continue to need significant capital to fundoverall number of our operations and managecustomer pool. In addition, regulatory restrictions such as export control directed at our capacity in accordance with market demand. Our continuedmajor customers could impact our ability to obtain sufficient external financing is subjectsupply products to a varietythose customers, reduce those customers’ demand for our products and services and impact their business operations. The loss of, uncertainties, including:

SufficientWe experienced and may be subject to attack onward by malicious software contained in the equipment we purchase and install. The cyber security risk management and solution enhancement actions have been taken continuously, such as building up an automated virus-scan system to prevent fab from installing virus infected tools, strengthening of firewall and network control to prevent computer viruses from spreading among tools and fabs, installation of proper anti-virus solutions for different computers, development and deployment of security monitor application to monitor and alert computer security issues, enhancement of computer vulnerability scan and patch updating, improving phishing email detection, employee awareness testing, external financing may notsecurity risk assessments, and the establishment of an integrated and automatic security operation platform. While these ongoing enhancements further improved the cyber security defense solutions, there can be availableno assurance that we are immune to malicious software attacks.

In addition, we employ certain third party service providers for us on a timely basis, on reasonable market terms,and our affiliates worldwide with whom we need to share highly sensitive and confidential information to enable them to provide the relevant services. Despite that we require the third party service providers to comply with the confidentiality and/or internet security requirements in our service agreements with them, there is no assurance that each of them will strictly fulfill such obligations, or at all. As a result,Theon-site network systems of and theoff-site cloud computing networks such as servers maintained by such service providers and/or its contractors are also subject to risks associated with cyber attacks. If we or our service providers are not able to timely resolve the respective technical difficulties caused by such cyber attacks, or ensure the integrity and availability of our data (and data belonging to our customers and other third parties) or control of our or our service providers’ computing systems, our commitments to our customers and other stakeholders may be forced to curtailmaterially impaired and our expansionresults of operations, financial condition, prospects and modification plans or delay the deployment of new or expanded services until we obtain such financing.reputation may also be materially and adversely affected as a result.

We may not be able to implement our planned growth and development or maintain our leading position if we are unable to recruit and retain qualifiedkey executives, managers and skilled technical and service personnel.

We rely on the continued services and contributions of our executive officers andmanagement team, skilled technical and otherprofessional personnel. Our business could suffer if we lose, for whatever reasons,from the services and contributionsinability to fulfill personnel needs with high quality professionals in a timely fashion caused by the loss of some of these personnel and we cannot adequately replace them. We may be required to increase or reduce the number of employeesrelated changes in connection with any business expansion or contraction, in accordance with market demand for our products and services. Since there is intensefierce competition for thetalent recruitment, of these personnel, we cannot ensure that we will be able to fulfilltimely fulfillment of our personnel requirements in a timely manner during an economic upturn.demand.

We may be unable to obtain in a timely manner and at a reasonable cost equipment that are necessary for us to remain competitive.

Our operations and ongoing expansion plans depend on our ability to obtain an appropriate amount of equipment and related services from a limited number of suppliers in a market that is characterized from time to time by limited supply and long delivery cycles. During such times, supplier-specific or industry-wide lead times for delivery can be as long as six months or more. To better manage our supply chain, we have implemented various business models and risk management contingencies with suppliers to shorten the procurement lead time. Further, the growing complexities especially in next-generationadvanced lithographic technologies may delay the timely availability of the equipment and parts needed to exploit time sensitive business opportunities and also increase the market price for such equipment and parts. If we are unable to obtain equipment in a timely manner to fulfill our customers’ demandsdemand on technology and production capacity, or at a reasonable cost, our financial condition and results of operations could be negatively impacted.

Our revenue and profitability may decline if we are unable to obtain adequate supplies of raw materials in a timely manner and at commercially reasonable prices.

Our production operations require that we obtain adequate supplies of raw materials, such as silicon wafers, gases, chemicals, and photoresist, on a timely basis.basis and at commercially reasonable prices. In the past, shortages in the supply of some materials, whether by specific vendors or by the semiconductor industry generally, have resulted in occasional industry-wide price adjustments and delivery delays. In addition,Moreover, major natural disasters, trade barriers and political or economic turmoil occurring within the country of origin of such raw materials may also significantly disrupt the availability of such raw materials or increase their prices. Also, since we procure some of our raw materials from sole-sourcesole-sourced suppliers, there is a risk that our need for such raw materials may not be met or thatback-up supplies may not be readily available. In addition, recent trade tensions could result in increased prices or even unavailability of raw materials due to tariffs, export control or othernon-tariff barriers. Our revenue and earnings could decline if we are 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 that we cannot pass on to our customers.materials.

If the Ministry of Economic Affairs uses a substantial portion of our production capacity, we will not be able to service our other customers.

According to our agreement with the Industrial Technology Research Institute of Taiwan, or ITRI, the Ministry of Economic Affairs of the R.O.C., or an entity designated by the Ministry of Economic Affairs, has an option to purchase up to 35% of certain of our capacity, if our outstanding commitments to our customers are not prejudiced. Although the Ministry of Economic Affairs has never exercised this option, if this option is exercised to any significant degree during tight market conditions, we may not be able to provide services to all of our other customers unless we are able to increase our capacity accordingly or outsource such increased demand in a timely manner.

Any inability to obtain, preserve, enforce, defend and protect our technologies, and intellectual property rights and third-party licenses could harm our competitive position.

Our ability to compete successfully and to achieve future growth will dependdepends in part on the continued strength of our intellectual property portfolio. While we actively enforce and protect our intellectual property rights, there can be no assurance that our efforts will be adequate to prevent the misappropriation or improper use of our proprietary technologies, software, trade secrets orknow-how. Also, we cannot assure you that, as our business or business models expand into new areas, we will be able to develop independently the technologies, patents, software, trade secrets orknow-how necessary to conduct our business or that we can do so without unknowingly infringing the intellectual property rights of others. As a result, we may have to rely on, to a certain degree, licensed technologies and patent licenses from others. To the extent that we rely on licenses from others, there can be no assurance that we will be able to obtain any or all of the necessary licenses in the future on terms we consider reasonable or at all. The lack of necessary licenses could expose us to claims for damages and/or injunctions from third parties, as well as claims for indemnification by our customers in instances where we have contractually agreed to indemnify our customers against damages resulting from infringement claims.

We have received, from time-to-time,time to time, communications from third parties asserting that our technologies, our manufacturing processes, or the design IPs of the semiconductors made by us or the use of those semiconductors by our customers may infringe their patents or other intellectual property rights. These assertions have at times resulted in litigation. Because of the nature of the industry and our market position, we may continue to receive such communications in the future. These assertions have at times resulted in litigation. Recently, there has beenWe continue to face a notable increase in the number of assertions made and lawsuits initiated by certain litigious, well-funded,non-practicing entities and these litigious, non-practicing entitieswho are also becoming more aggressive in their monetary demandsdemand and requests forin seeking court-issued injunctions. We also encounter, fromtime-to-time, assertions and litigations initiated by semiconductor companies seeking to disrupt our business such as the patent infringement lawsuits in August 2019 filed by GlobalFoundries (“GF”) attempting to restrict our and our customers’ activities in the United States and Germany. We responded with counter-lawsuits against GF for patent infringement in September 2019 targeting its manufacturing activities in the U.S., Germany, and Singapore. Shortly after, we reached an agreement with GF in October 2019 to dismiss all litigation between the parties, as well as those that involve any of our customers. Such lawsuits orand assertions may increase our cost of doing business and may potentially be extremely disruptive if these non-practicingasserting entities succeed in blocking the trade of products made and services offered by us.

We have or are expanding See “Item 8. Financial Information – Legal Proceedings” for a further discussion. Also, as we expanded our manufacturing operations into certain offshore jurisdictions. Tonon-R.O.C jurisdictions, we have faced increasing challenges to manage risks of intellectual property misappropriation. Despite our efforts to adopt robust measures to mitigate the risk of intellectual property misappropriation in such new jurisdictions, we have implemented heightened safeguards against such misappropriation.cannot guarantee that the protection measures we adopted will be sufficient to prevent us from potential infringements by others, or at all.

If we fail to obtain or maintain certain technologies or intellectual property licenses (oror fail to prevent our intellectual property from being misappropriated)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 revenues. See “Item 8. Financial Information — Legal Proceedings” for a further discussion.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 arehave 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 risksupply of loss due to explosionutilities, such as water and fire because someelectricity, which in turn could disrupt operations. In addition, our suppliers and customers also have operations in such locations. For example, most of the materials we use in our manufacturing processes are highly combustible.

We andproduction facilities, as well as those of many of our suppliers use highly combustible and toxic materialscustomers 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 manufacturing processes and are therefore subjectoperations.

Thus, if one or more natural disasters that result in a prolonged disruption to the risk of loss arising from explosion, fire,our operations or environmental influences which cannot be completely eliminated. Although we maintain many overlapping risk prevention and protection systems, as well as fire and casualty insurance, our risk management and insurance coverage may not be sufficient to cover allthose of our potential losses. Ifcustomers or suppliers, or if any of our fabs or vendor facilities were to be damaged or cease operations as a result of an explosion fire, or environmental influences,fire, it could reduce our manufacturing capacity and may cause us to losethe loss of important customers, and thereby having a potentiallyhave an adverse and material impact on our operational and financial performance.

The recentCOVID-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 ofCOVID-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 theCOVID-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 ofCOVID-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 recentCOVID-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 byCOVID-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 ofcommercial-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 overone-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.

Conversely, if the U.S. dollar appreciates significantly versus other major currencies, the demand for the products and services of our customers and for our goods and services will likely decrease, which will negatively affect our revenue. Please see “Item 11. Quantitative and Qualitative Disclosures About Market Risk” for a further discussion.

Our failure to comply with applicable laws and regulations material to our operations such as export control, environmental and climate related laws and regulations, or the inability to timely obtain requisite approvals necessary for the conduct of our business, such as fab land and construction approvals, could harm our business and operational results or subject us to potential significant legal liability.

Because we engage in manufacturing activities in multiple jurisdictions and conduct business with our customers located worldwide, such activities are subject to a myriad of governmental regulations. For example, the manufacturing, assembling and testing of our products require the use of metals, chemicals, and materials that are subject to environmental, climate-related, health and safety, and humanitarian conflict-free sourcing laws, regulations and guidelines issued worldwide. Our failure to comply with any such laws or regulations, as amended from time to time, and our failure to comply with any information and document sharing requests from the relevant authorities in a timely manner could result in:

Complying with applicable laws and regulations, such as environmental and climate related laws and regulations, could also require us, among other things, to do the following: (a) purchase, use or install remedial equipment; (b) implement remedial programs such as climate change mitigation programs; (c) modify our product designs and manufacturing processes, or incur other significant expenses such as obtaining substitute raw materials or chemicals that may cost more or be less available for our operations.

Our inability to timely obtain approvals necessary for the conduct of our business could impair our operational and financial results. For example, if we are unable to timely obtain environmental related approvals needed to undertake the development and construction of a new fab or expansion project, then such inability may delay, limit, or increase the cost of our expansion plans that could also in turn adversely affect our business and operational results. In light of increased public interest in environmental issues, our operations and expansion plans may be adversely affected or delayed responding to public concern and social environmental pressures even if we comply with all applicable laws and regulations.

For further details, please see our compliance record with Taiwan and international environmental and climate related laws and regulations as well as our business continuity management of climate change policy in “Item 4. Information on The Company – Environmental and Climate Related Laws and Regulations”.

Any adverse results of our pending antitrust proceeding or other similar proceedings that we may be subject to could harm our business and operational results or subject us to potential significant legal liability.

We are subject to antitrust laws and regulations in multiple jurisdictions, and from time to time receive related inquiries from enforcement agencies. For example, on September 28, 2017, we were contacted by the European Commission, which has asked us for information and documents concerning alleged anti-competitive practices in relation to semiconductor sales. We are cooperating with the European Commission to provide the requested information and documents. In light of the fact that this proceeding is still in its preliminary stage, it is premature to predict how the case will proceed, the outcome of the proceeding or its impact. Any adverse results of such proceeding or other similar proceedings that may arise in other jurisdictions could harm our business and distract our management, and thereby have a material adverse effect on our results of operations or prospects, and subject us to potential significant legal liability.

Any impairment charges may have a material adverse effect on our net income.

Under IFRSs, we are required to evaluate our investments, tangible assets,right-of-use assets and intangible assets for impairment whenever triggering events or changes in circumstances indicate that the asset may be impaired. If certain criteria are met, we are required to record an impairment charge. We are also required under IFRSs to evaluate goodwill for impairment at least on an annual basis or more frequently whenever triggering events or changes in circumstances indicate that goodwill may be impaired and the carrying value may not be recoverable. We hold investments in certain publicly listed and private companies, some of which have incurred certain impairment charges as discussed further in our financial statements. We are 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 our net income.

The determination of an impairment charge at any given time is based significantly on the projected results of operations over a number ofseveral years subsequent to that time. Consequently, an impairment charge is more likely to occur during a period when our operating results are otherwise already depressed. See “Item 5. Operating and Financial Reviews and Prospects —– Critical Accounting Policies, And Judgments”Judgments and Key Sources of Estimation and Uncertainty” for a discussion of how we assess if an impairment charge is required and, if so, how the amount is determined.

Having one or more large customers that account for a significant percentage of our revenues may render us vulnerable to the loss of or significant curtailment of purchases by one or more large customers that could in turn adversely affect our results of operations. Similarly, the increasing consolidation of our customers may further increase our revenue concentration.

Over the years, our customer profile and the nature of our customers’ business have changed dramatically. While we generate revenue from hundreds of customers worldwide, our ten largest customers accounted for approximately 62%, 63 % and 63% of our net revenue in 2013, 2014 and 2015, respectively. Our largest customer accounted for 22%, 21% and 16% of our net revenue in 2013, 2014 and 2015, respectively. Our second largest customer in 2015 accounted for 16% of our net revenue, with 9% and 1% in 2014 and 2013, respectively. This customer concentration results in part from the changing dynamics of the electronics industry with the structural shift to mobile devices and applications and software that provide the content for such devices. There are only a limited number of customers who are successfully exploiting this new business model paradigm. Also, in order to respond to the new business model paradigm, we have seen the changes of nature in our customers’ business models. For example, there is a growing trend toward the rise of system houses that operate in a manner which make their products and services more marketable in a changing consumer market. Also, since the global semiconductor industry is becoming increasingly competitive, some of our customers have engaged in industrial consolidations in order to remain competitive. Such consolidations have taken the form of mergers and acquisitions. If more of our major customers consolidate, this will further decrease the overall number of our customer pool. The loss of, or significant curtailment of purchases by, one or more of our top customers, including curtailments due to increased competitive pressures, industrial consolidation, a change in their designs, or change in their manufacturing sourcing policies or practices of these customers, or the timing of customer or distributor inventory adjustments, or change in our major customers’ business models may adversely affect our results of operations and financial condition.

Any failure to achieve and maintain effective internal controls could have a material adverse effect on our business and results of operations.

Effective internal controls are necessary for us to provide reasonable assurance with respect to our financial reports and to effectively prevent fraud. If we cannot provide reasonable assurance with respect to our financial reports and effectively prevent fraud and corruption, our reputation and results of operations could be harmed.

We are required to comply with various R.O.C. and U.S. laws and regulations on internal controls. But internal controls may not prevent or detect misstatements because of their inherent limitations, including the possibility of human error, the circumvention or overriding of controls, fraud or corruption. Therefore, even effective internal controls can provide only reasonable assurance with respect to the preparation and fair presentation of financial statements. If we fail to maintain the adequacy of our internal controls, our business and operating results could be harmed, we could fail to meet our reporting obligations, and there could be a material adverse effect on the market price of our common shares and ADSs.

Our global manufacturing, design and sales activities subject us to risks associated with legal, political, economic or other conditions or developments in various jurisdictions, including in particular the R.O.C., which could negatively affect our business and financial status and therefore the market value of your investment.

The majority of our principal executive officers and our principal production facilities are located in the R.O.C., and a substantial majority of our net revenues are derived from our operations in the R.O.C. In addition, we have operations worldwide and a significant percentage of our revenue comes from sales to locations outside the R.O.C. Operating in the R.O.C. and overseas exposes us to changes in policies and laws, as well as the general political, economic and social conditions, outbreak of war or hostilities, terrorism, security risks, social unrests, protests, strikes, health conditions and possible disruptions in transportation networks, in the various countries in which we operate, which could result in an adverse effect on our business operations in such countries and our results of operations as well as the market price and the liquidity of our ADSs and common shares.

For example, the financial markets have viewed certain past developments in relations between the R.O.C. and P.R.C. as occasions to depress general market prices of the securities of Taiwanese companies, including our own. In addition, the R.O.C. government has not lifted some trade and investment restrictions imposed on Taiwanese companies on the amount and types of certain investments that can be made in P.R.C. In addition to the above factors, future expansions of our operations in Taiwan will likely be handicapped by shortages in water and electricity, the limited availability of commercial-use land, and experienced human resources. Our plans, investment applications and/or any relevant regulatory approvals to establish or possibly expand operations in China may be delayed, interrupted, suspended or cancelled due to unforeseeable social and political factors in Taiwan or China.

Our operational results could also be materially and adversely affected by natural disasters (such as earthquakes), shortages or interruptions in the supply of utilities (such as shortages in electricity caused by changes in governmental energy policy), in the locations in which we, our customers or our suppliers operate.

The frequency and severity of natural disasters and severe weather has been increasing, in part due to climate change or systemic regional geological changes that manifest in damaging earthquakes. We have manufacturing and other operations in locations subject to natural disasters, such as flooding, earthquakes, tsunamis, highly polluted air conditions and droughts as well as interruptions or shortages in the supply of utilities, such as water and electricity, or access to land, air or sea infrastructures, that could disrupt operations. We source key raw materials from locations subject to natural disasters, such as severe weather, flooding, earthquakes, tsunamis, and droughts, and any major natural disaster occurring in any such locations may cause disruptions to our business, operations and financial performance. As recently as February 6, 2016, Taiwan, in which the majority of our manufacturing fabs are located, suffered an earthquake that damaged some of our wafers and equipment and resulted in wafer delivery delays in the first quarter. 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, which are susceptible to earthquakes, tsunamis, flooding, typhoons, and droughts from time to time that may cause shortages in electricity and water or interruptions to our operations. In addition, 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, which have resulted in interruptions to our operations. Such shortages or interruptions in our electricity supply could further be exacerbated by potential 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 satisfy the orders of our customers will be severely undercut.

One or more natural disasters, shortage or interruptions to the supply of utilities (such as shortages in electricity caused by a nuclear-free energy policy) that results in a prolonged disruption to our operations, or the operations of our customers or suppliers, may adversely affect the results of our operations and financial conditions.

Our failure to comply with applicable environmental and climate related laws and regulations, as well as international laws, regulations and accords to which we are subject, could also harm our business and operational results.

The manufacturing, assembling and testing of our products require the use of metals, chemicals, minerals and materials that are subject to environmental, climate-related, health and safety, and humanitarian conflict-free sourcing laws (such as the U.S. SEC rule for filing Form SD to disclose the origins of certain strategic minerals), regulations and guidelines issued worldwide. Although we may be eligible for various exemptions and/or extensions of time for compliance, our failure to comply with any of these applicable laws or regulations could result in:

Existing and future environmental and climate related laws and regulations as well as applicable international accords to which we are subject, could also require us, among other things, to do the following: (a) purchase, use or install expensive pollution control, reduction or remediation equipment; (b) implement climate change mitigation programs and “abatement or reduction of greenhouse gas emissions” programs, or “carbon credit trading” programs; (c) modify our product designs and manufacturing processes, or incur other significant expenses associated with such laws and regulations such as obtaining substitute raw materials or chemicals that may cost more or be less available for our operations. It is still unclear whether such necessary actions would affect the reliability or efficiency of our products and services.

The above contingencies resulting from the actual and potential impact of local or international laws and regulations, as well as international accords on environmental or climate change, could harm our business and operational results by increasing our expenses or requiring us to alter our manufacturing and assembly and test processes. For further details, please see our compliance record with Taiwan and international environmental and climate related laws and regulations in “Item 4. Information on The Company — Environmental Regulations”.

Climate change, other environmental concerns and green initiatives also present other commercial challenges, economic risks and physical risks that could harm our operational results or affect the manner in which we conduct our business.

Increasing climate change and environmental concerns could affect the results of our operations if any of our customers request that we provide products and services that exceed any existing standard(s) of environmental compliance. If we are unable to offer such products or offer products that are compliant, but are not as reliable due to the lack of reasonably available alternative technologies or materials, we may lose market share to our competitors.

In addition, our inability to timely obtain environmental related approvals needed to undertake the development and construction of a new fab or expansion project may delay, limit, or increase the cost of our expansion plans that could also in turn adversely affect our business and operational results. In light of increased public interest in environmental issues, our operations and expansion plans may be adversely affected or delayed responding to public concern and social environmental pressures even if we comply with all applicable laws and regulations.

Further, energy costs in general could increase significantly due to climate change, environmental concern and other regulations. Therefore, our energy costs may increase significantly if utility or power companies pass on their costs, either fully or partially, such as those associated with carbon taxes, emission caps and carbon credit trading programs. For further details, please see details of our business continuity management of climate change policy in “Item 4. Information on The Company – Environmental Regulation”.

To mitigate risks resulting from climate change, we continue to actively carry out energy conservation measures and voluntary perfluorinated compounds (PFC) emission reduction projects, and conduct greenhouse gas inventories verification every year.

Adverse fluctuations in exchange rates could decrease our operating margin and/or revenues.

Over one-half of our capital expenditures and manufacturing costs are denominated in currencies other than NT dollars, primarily in U.S. dollars, Japanese yen and Euros. In 2015, more than 90% of our revenues were denominated in U.S. dollars and currencies other than NT dollars. Therefore, any significant fluctuation to our disadvantage in such exchange rates would have an adverse effect on our financial condition. For example, because our functional currency is denominated in NT dollars, every 1% depreciation of the U.S. dollar against the NT dollar exchange rate may result in approximately 0.4 percentage point decrease in our operating margin based on our 2015 results.

Conversely, if the U.S. dollar appreciates significantly versus other major currencies, the demand for the products and services of our customers and for our goods and services will likely decrease, which will negatively affect our revenues. Please see “Item 11. Quantitative and Qualitative Disclosures About Market Risk” for a further discussion on the possible impact of other market factors on our results of operations.

Fluctuations in inflationary and deflationary expectations and resulting general market volatility could negatively affect costs of and demand for our products and services, which may harm our financial results.

The global economy is becoming more vulnerable to sudden unexpected fluctuations in inflationary and deflationary expectations and conditions. Both high inflation and deflation adversely affect an economy, at both the macro and micro levels, by reducing economic efficiency and disrupting saving and investment decisions. Recently, dramatic fall in oil prices and negative interest rates in major world economies have exacerbated global fluctuations in inflationary and deflationary expectations. These macro-economic changes have resulted in general market volatility across all assets classes. Such fluctuations and volatility may negatively affect the costs of our operations and the business operations of our customers who may be forced to plan their purchases of our goods and services within an uncertain economy. Therefore, the demand for our products and services could unexpectedly fluctuate severely in accordance with expectations of inflation or deflation as affected by macro market volatility. Please see “Item 5. Operating and Financial Reviews and Prospects — Inflation & Deflation” for a further discussion.

AmendmentsAny amendments to existing tax regulations or the implementation of any new tax legislationlaws in the R.O.C., the United States or other jurisdictions in which we operate our business may have an adverse effect on our net income.

While we are subject to tax laws and regulations in various jurisdictions in which we operate or conduct business, our principal operations are conducted in the R.O.C. and we are exposed primarily to taxes levied by the government of the R.O.C. government. Any unfavorable changes of tax laws and regulations in this jurisdiction could increase our effective tax rate and have an adverse effect on our operating results. See “Item 5. Operating and Financial Reviews and Prospects – Taxation” for further discussion of significant tax regulation changes.

If certain of our strategic investments fail to achieve their respective forecasted returns or objectives, we may suffer financial losses that may materially lower our profit margin and distributable earnings.

From time to time, we have made or will make a series of strategic investments. There is no guarantee that any of such investments will be successful commercially. Any such investment will incur risks, which may result in losses even with careful management. Any such loss resulting from such investments may result in significant impairment charges, lower profit margin and ultimately lower distributable earnings.

If our internet security systems succumb to cyber attacks initiated by third party entities worldwide, our manufacturing as well as daily operations may be severely interrupted or shutdown indefinitely that may materially harm our financial results, our commitments to our customers and stakeholders, and corporate goodwill.

Even though we have established a comprehensive internet and computing security network, we cannot guarantee that our computing systems which control or maintain vital corporate functions like our manufacturing operations and enterprise accounting would be completely immune to crippling cyber viral attacks launched by third party to gain unauthorized access to our internal network systems to sabotage our operations and goodwill. In the event of a serious cyber attack, our systems may lose important corporate data and our production lines may be shutdown indefinitely pending the resolution of such attack. These cyber attacks may also attempt to steal our trade secrets and other intellectual properties and other sensitive information, such as personal information of our employees and proprietary information of our customers and other stakeholders. Malicious hackers may also try to introduce computer viruses or corrupted software into our network systems to disrupt our operations or spy for sensitive information. These attacks may result in us having to pay damages for our delayed or disrupted orders or incur significant expenses in attempting to re-establish control over our network. If we are not able to timely resolve the technical difficulties caused by such cyber attacks, our financial results as well as our commitments to our customers and other stakeholders may be materially impaired.

Risks Relating to Ownership of ADSs

Your voting rights as a holder of ADSs will be limited.

Holders of American Depositary Receipts (ADRs) evidencing ADSs may exercise voting rights with respect to the common shares represented by these ADSs only in accordance with the provisions of our ADS deposit agreement. The deposit agreement provides that, upon receipt of notice of any meeting of holders of our common shares, the depositary bank will, as soon as practicable thereafter, mail to the holders (i) the notice of the meeting sent by us, (ii) voting instruction forms and (iii) a statement as to the manner in which instructions may be given by the holders.

ADS holders will not generally be able to exercise the voting rights attaching to the deposited securities on an individual basis. According to the provisions of our ADS deposit agreement, the voting rights attaching to the deposited securities must be exercised as to all matters subject to a vote of shareholders collectively in the same manner, except in the case of an election of directors. Election of directors is by means of cumulative voting. See “Item 10. Additional Information —– Voting of Deposited Securities” for a more detailed discussion of the manner in which a holder of ADSs can exercise its voting rights.

You may not be able to participate in rights offerings and may experience dilution of your holdings.

We may, from time to time, distribute rights to our shareholders, including rights to acquire securities. Under our ADS deposit agreement, the depositary bank will not distribute rights to holders of ADSs unless the distribution and sale of rights and the securities to which these rights relate are either exempt from registration under the United States Securities Act of 1933, as amended, (the “Securities Act”), with respect to all holders of ADSs, or are registered under the provisions of the Securities Act. Although we may be eligible to take advantage of certain exemptions for rights offerings by certain foreign companies, we can give no assurance that we can establish an exemption from registration under the Securities Act, and we are under no obligation to file a registration statement with respect to any such rights or underlying securities or to endeavor to have such a registration statement declared effective. Accordingly, holders of ADSs may be unable to participate in our rights offerings and may experience dilution of their holdings as a result.

If the depositary bank is unable to sell rights that are not exercised or not distributed or if the sale is not lawful or reasonably practicable, it will allow the rights to lapse, in which case you will receive no value for these rights.

The value of your investment may be reduced by possible future sales of common shares or ADSs by us or our shareholders or fluctuations in foreign exchange.

One or more of our existing shareholders may, from time to time, dispose of significant numbers of our common shares or ADSs. For example, the National Development Fund of Taiwan, R.O.C. which owned 6.38% of TSMC’s outstanding shares as of February 29, 2016, has2020, had from time to time in the past sold our shares in the form of ADSs in several transactions.

We cannot predict the effect, if any, that future sales of ADSs or common shares, or the availability of ADSs or common shares for future sale,sales, will have on the market price of ADSs or common shares prevailing from time to time. Sales of substantial amounts of ADSs or common shares in the public market, or the perception that such sales may occur, could depress the prevailing market price of our ADSs or common shares. In addition, fluctuations in the exchange rate between the U.S. dollar and the NT dollar may affect the U.S. dollar value of our common shares and the market price of the ADSs and the U.S. dollar value of any cash dividends paid in NT dollars on our common shares represented by ADSs.

The market value of our shares may fluctuate due to the volatility of, and government intervention in, the R.O.C. securities market.

The Taiwan Stock Exchange experienceshas experienced from time to time substantial fluctuations in the prices and volumes of sales of listed securities. There are currently limits on the range of daily price movements on the Taiwan Stock Exchange. In response to past declines and volatility in the securities markets in Taiwan, and in line with similar activities by other countries in Asia, the government of the R.O.C. formed the Stabilization Fund, which hashad purchased and may from time to time purchase shares of Taiwan companies to support these markets. In addition, other funds associated with the R.O.C. government havehad in the past purchased, and may from time to time purchase, shares of Taiwan companies on the Taiwan Stock Exchange or other markets. These funds havehad disposed and may from time to time dispose shares of Taiwan companies so purchased at a later time. In the future, market activity by government entities, or the perception that such activity is taking place, may take place or has ceased,cease, may cause fluctuations in the market prices of our ADSs and common shares.

Our History and Structure

Our legal and commercial name is(Taiwan 台灣積體電路製造股份有限公司 (Taiwan Semiconductor Manufacturing Company Limited). We believe we are currently the world’s largest dedicated foundry in the semiconductor industry. We were founded in 1987 as a joint venture among the R.O.C. government and other private investors and were incorporated in the R.O.C. as a company limited by shares on February 21, 1987. Our common shares have been listed on the Taiwan Stock Exchange since September 5, 1994, and our ADSs have been listed on the New York Stock Exchange since October 8, 1997.

Our Principal Office

Our principal executive office is located at No. 8,Li-Hsin Road 6, Hsinchu Science Park, Hsinchu, Taiwan, Republic of China. Our telephone number at that office is(886-3)563-6688. Our web sitewebsite iswww.tsmc.com. Information contained on our website is not incorporated herein by reference and does not constitute part of this annual report.

Business Overview of the Company

As a foundry, we manufacture semiconductors using our manufacturing processes for our customers based on their own or third parties’ proprietary integrated circuit designs.designs provided by them. We offer a comprehensive range of wafer fabrication processes, including processes to manufacture CMOScomplementary metal oxide silicon (“CMOS”) logic, mixed-signal, radio frequency (“RF”), embedded memory, BiCMOSbipolar complementary metal oxide silicon (“BiCMOS”, which uses CMOS transistors in conjunction with bipolar junction transistor) mixed-signal and other semiconductors. We estimate that our revenue market segment share among total foundries worldwide was 55%52% in 2015.2019. We also offer design, mask making, bumping, probing, and assemblyadvanced packaging, and testing services.

We believe that our large capacity, particularly for advanced technologies, is a major competitive advantage. Please see “—“– Semiconductor Manufacturing Capacity and Technology” and “—“– Capacity Management and Technology Upgrade Plans” for a further discussion of our capacity.

We count among our customers many of the world’s leading semiconductor companies, ranging from fabless semiconductor companies, system companies to integrated device manufacturers, including, but not limited to, Advanced Micro Devices, Inc., Broadcom Corporation, Huawei Tech, Marvell Technology GroupLimited, Hisilicon Technologies Co., Ltd., Intel Corporation, MediaTek Inc., NVIDIA Corporation, NXP Semiconductors N.V., OmniVision Technologies Inc., Qualcomm Inc., Sony Corporation Spreadtrum Communications,and Xilinx Inc. and Texas Instruments Inc. Fabless semiconductor and system companies accounted for approximately 81%, and integrated device manufacturers accounted for approximately 18% of our net revenue in 2015.

Our Semiconductor Facilities

We currently operate one 150mm wafer fab, six 200mm wafer fabs, and threefive 300mm wafer fabs, and four advanced backend fabs. Our corporate headquarters and fiveseven of our fabs are located in the Hsinchu Science Park, two fabs are located in the SouthernCentral Taiwan Science Park, one fab isfour fabs are located in the CentralSouthern Taiwan Science Park, one fab is located in the United States, one fab is located in Shanghai, and one fab is located in Shanghai.Nanjing. Our corporate headquarters and our fiveseven fabs in Hsinchu occupy parcels of land of a total of approximately 613,804814,532 square meters. We leasehave leased these parcels from the Hsinchu Science Park Administration in Hsinchu under agreements that will be up for renewal between March 2017December 2020 and December 2034.2039. We have leased from the Central Taiwan Science Park Administration a parcel of land of approximately 564,619 square meters for our Taichung fabs under agreements that will be up for renewal between September 2029 and December 2034. We have leased from the Southern Taiwan Science Park Administration approximately 765,4201,483,119 square meters of land for our fabs in the Southern Taiwan Science Park under agreements that will be up for renewal between July 2017December 2024 and March 2035.October 2039. We also own approximately 143,215 square meters of land located in Miaoli, Taiwan. WaferTech, LLC (“WaferTech”) owns a parcel of land of approximately 1,052,186 square meters in the State of Washington in the United States, where the WaferTech fab and related offices are located. TSMC China owns the land use rights of 369,087 square meters of land in Shanghai, where Fab 10 and related offices are located. TSMC Nanjing owns the land use rights of 453,401 square meters of land in Nanjing, where Fab 16 and related offices are located. Other than certain equipment under leases located at testing areas, we own all of the buildings and equipment for our fabs. In addition, as part of our plan to expand our operations in China, we have applied to and received permission from the Investment Commission of the R.O.C. Ministry of Economic Affairs on February 3, 2016, and entered into an investment agreement with the municipal government of Nanjing, China on March 28, 2016, to establish a wholly-owned subsidiary managing 300mm wafer fab and design service center with volume production of 16nm process technology scheduled to begin in the second half of 2018. Also, the total capital investment will be approximately US$3 billion.

Semiconductor Manufacturing Capacity and Technology

We manufacture semiconductors on silicon wafers based on proprietary circuitry designs provided by our customers or third party designers.customers. Two key factors that characterize a foundry’s manufacturing capabilities are output capacity and fabrication process technologies. Since our establishment, we have possessed the largest capacity among the world’s dedicated foundries. We also believe that we are the technology leader among the dedicated foundries in terms of our net revenue of advanced semiconductors with a resolution of 28-nanometer16-nanometer and below, and are one of the leaders in the semiconductor manufacturing industry generally. We are the first dedicated foundry with proven low-k interconnect technology in commercial production from the 0.13 micron node down to 28-nanometer node. In 2014,2019, we startedsuccessfully commenced volume production of 20-nanometer7-nanometer Plus technology, which is an enhanced version of7-nanometer, entered risk production of5-nanometer technology, which is on track for volume production in 2020, and continued thefull development of 16- and 10-nanometer technologies. In 2015, we started volume production of 16-nanometer technology and continued the development of 10- and 7-nanometer technologies.3-nanometer technology.

The following table lists our wafer fabs and those of our affiliates,subsidiaries in operation as of February 29, 2020, together with the year of commencement of commercial production, wafer size and the most advanced technology for volume production:

In 2015,2019, our annual capacity (in 300mm12-inch equivalent wafers) was approximately 912.3 million wafers, compared to approximately 812.0 million wafers in 2014.2018. This increase was primarily from the expansion of our 16-nanometer7-nanometer advanced technology.

Capacity Management and Technology Upgrade Plans

We perform long term market demand forecast for our products and services to manage our overall capacity and technology upgrade plans.plans based on long term market demand forecasts for our products and services. According to our current market demand forecasts, we intend to maintain ourthe strategy of expanding manufacturing capacity and upgrading manufacturing technologies to meet both the fabrication and the technology needs of our customers.

Our capital expenditures in 2013, 20142017, 2018, and 20152019 were NT$287,595330,588 million, NT$288,540315,582 million, and NT$257,517460,422 million (US$8,12314,903 million, translated from a weighted average exchange rate of NT$31.730.90 to US$1.00), respectively. Our capital expenditures in 20162020 are expected to be approximatelybetween US$915 billion to US$1016 billion, which, depending on market conditions, may be adjusted later. Our capital expenditures for 2013 were funded by our operating cash flow2017, 2018, and the issuance of corporate bonds and the capital expenditures for 2014 and 20152019 were funded by operating cash flow. Our capital expenditures for 20162020 are expected to be funded primarily by our operating cash flow.flow and partially by the issuance of corporate bonds. In 2016,2020, we anticipate our capital expenditures to focus primarily on the following:

These investment plans are still preliminary and may change according to market conditions.

Markets and Customers

The primary customers of our foundry services are fabless semiconductor companies, systems companies and integrated device manufacturers. The following table presents the breakdown of net revenue, including foundry services and others, by type of customers during the last three years:

We categorize our net revenue mainly based on the country in which the customer iscountries where our customers are headquartered, which may be different from the net revenue for the countries to which we actually sell or ship our products or different from where products are actually ordered. Under this approach, the following table presents a regional geographic breakdown of our net revenue during the last three years:

In 2019, our net revenue increased by NT$38,511 million from 2018, which was mainly due to an increase in orders from China of NT$32,307 million, or an 18% year-over-year increase, and from Asia Pacific of NT$7,078 million, or an 8% year-over-year increase. In 2018, our net revenue increased by NT$54,027 million from 2017, which was mainly due to an increase in orders from China of NT$65,593 million, or a 60% year-over-year increase, and from EMEA of NT$2,022 million, or a 3% year-over-year increase. The increase was partially offset by a decrease in orders from Asia Pacific of NT$9,242 million, or a 9% year-over-year decrease, and from Japan of NT$2,502 million, or a 4% year-over-year decrease.

We provide worldwide customer support. Our office in Hsinchu and wholly-owned subsidiaries in the United States, Canada, Japan, Mainland China, the Netherlands and South Korea are dedicated to serving our customers worldwide. Foundry services, which are both technologically and logistically intensive, involve frequent andin-depth interaction with customers. We believe that the most effective means of providing foundry services is by developing direct and close relationships with our customers. Our customer service and technical support managers work closely with the sales force to offer integrated services to customers. To facilitate customer interaction and information access on a real-time basis, a suite ofweb-based applications have also been offered to provide more active interactions with customers in design, engineering and logistics.

Commitments by Customers. Because of the fast-changing technology and functionality in semiconductor design, foundry customers generally do not place purchase orders far in advance to manufacture a particular type of product. However, we would engage in discussions with customers regarding their expected manufacturing requirements in advance of the placement of purchase orders.

Some of our customers have entered into arrangements with us to ensure that they have access to specified capacity. These arrangements are primarilymostly in the form of deposit agreements;agreements, and advanced cash deposits are made by customers for specified capacity at our fabs. Deposits are generally refunded when the terms and conditions set forth in the deposit agreementagreements are satisfied and shipments have been made. As of December 31, 2015,2019, we held approximately US$83850 million onof deposit from customers to reserve future capacity. See note 22 to our consolidated financial statements for further information.

The Semiconductor Fabrication Process

In general, the semiconductor manufacturing process begins with a thin silicon wafer on which an array of semiconductor devices is fabricated. The following processes cover assembly, packaging, and testing of the semiconductor devices. Our focus is on wafer fabrication although we also provide all other services either directly or through outsourcing arrangements.

Our Foundry Services

Range of Services. Because of our ability to provide a full array of services, we are able to accommodate customers with a variety of needs at every stage of the overall foundry process. The flexibility in input stages allows us to cater to a variety of customers with differentin-house capabilities and thus to service a wider class of customers as compared to a foundry that cannot offer design or mask making services, for example.

Fabrication Processes. We manufacture semiconductors using the complementary metal oxide silicon (“CMOS”)CMOS and the bipolar complementary metal oxide silicon (“BiCMOS”, which uses CMOS transistors in conjunction with bipolar junction transistor)BiCMOS processes. The CMOS process is currently the dominant semiconductor manufacturing process. The BiCMOS process combines the high speed of the bipolar circuitry and the low power consumption and high density of the CMOS circuitry. We use the CMOS process to manufacture logic semiconductors, mixed-signal/radio frequency (“RF”) semiconductors, which combine analog and digital circuitry in a single semiconductor, micro-electro-mechanical-system (“MEMS”), which combines micrometer featured mechanical parts, analog and digital circuitry in a single semiconductor, and embedded memory semiconductors, which combine logic and memory in a single semiconductor. The BiCMOS process is used to makehigh-end mixed-signal and other types of semiconductors.

Types of Semiconductors We Manufacture. We manufacture different types of semiconductors with different specific functions by changing the number and the combinations of conducting, insulating and semiconducting layers and by defining different patterns in which such layers are applied on the wafer. At any given point in time, there are thousands of different products in various stages of fabrication at our fabs. We believe that the keys to maintaining high production quality and utilization rates are our effective management and control of the manufacturing process technologies which comes from our extensive experience as the longest existing dedicated foundry and our dedication to quality control and process improvements. Our semiconductors are used for a variety of different platforms. The principle platforms include:

Smartphone Platform: We offer leading process technologies such as5-nanometer Fin Field-Effect Transistor (“FinFET”),6-nanometer FinFET,7-nanometer FinFET Plus, and7-nanometer FinFET logic process technologies, as well as comprehensive intellectual properties for premium product applications to further enhance chip performance, reduce power consumption, and decrease chip size. For mainstream product applications, we offer leading process technologies such as12-nanometer FinFET compact technology (“12FFC”),16-nanometer FinFET compact technology (“16FFC”),28-nanometer high performance compact (“HPC”),28-nanometer high performance mobile compact plus (“28HPC+”), and22-nanometerultra-low power (“22ULP”) logic process technologies, in addition to comprehensive intellectual properties, to satisfy customer needs for high-performance andlow-power chips. Furthermore, for premium,high-end,mid-end, andlow-end product applications, we also offer the most competitive, leading-edge specialty technologies, including RF, embedded flash memory, emerging memory technologies, power management, sensors, and display chips as well as advanced packaging technologies such as the leading integratedfan-out (“InFO”) technology.

High Performance Computing Platform:We provide customers with leading process technologies such as5-nanometer FinFET,6-nanometer FinFET,7-nanometer FinFET and12-nanometer/16-nanometer FinFET, as well as comprehensive intellectual properties, including high-speed interconnect intellectual properties, to meet customers’ high performance computing and communication requirements. We also offer multiple advanced packaging technologies such as chip on wafer on substrate (“CoWoS^®”), InFO, and three-dimensional integrated circuits technologies to enable homogeneous and heterogeneous chip integration to meet customers’ performance, power, and system footprint requirements. We will continue to optimize our High Performance Computing Platform offerings to help customers capture market growth driven by data explosion and application innovation.

Internet of Things (“IoT”) Platform:We provide leading, comprehensive, and highly integratedultra-low power (“ULP”) technology platform to support innovations for IoT and wearable applications. Our industry-leading offerings, including55-nanometer ULP,40-nanometer ULP,28-nanometer ULP,22-nanometerULP/ultra-low leakage (“ULL”), have been widely adopted by various IoT and wearable applications. We also extend our low Vdd (low operating voltage) offerings for extremelow-power applications. To support the ever-increasing demand in IoT edge computing and wireless connectivity, we also offer the most competitive and comprehensive leading-edge specialty technologies in RF, enhanced analog devices, embedded flash memory, emerging memory, sensors, and display chips, as well as multiple advanced packaging technologies including leading InFO technology.

Automotive Electronics Platform: We offer leading automotive technology to support the three megatrends – safer, smarter and greener – in the automotive industry. We are also the industry leader in providing a robust automotive IP ecosystem, which covers16-nanometer FinFET first and extends to7-nanometer FinFET and5-nanometer FinFET, for advanced driver-assistance systems (ADAS) and advancedin-vehicle infotainment (“IVI”), the two most computationally demanding systems in the automotive industry. In addition to the advanced logic technology platform, we offer broad and competitive specialty technologies, including28-nanometer embedded flash memory,28-nanometer,22-nanometer, and16-nanometer millimeter wave RF, high sensitivity CMOS Image/Lidar (light detection and ranging) sensors, and power management IC technologies. Magnetic random access memory (“MRAM”), an emerging technology, is being developed with good progress to meet automotiveGrade-1 requirements. All these automotive technologies are applied to our automotive process qualification standards based onAEC-Q100 standards.

Digital Consumer Electronics (“DCE”) Platform: We provide customers with leading and comprehensive technologies to unleash innovation and enable advancement for DCE applications, including digital TV (“DTV”),set-top box (“STB”), digital still camera and associated wireless local area network (“WLAN”), power IC, timing controller(“T-CON”) and so on. Our leading 16FFC/12FFC, 22ULP/22ULL and 28HPC+ technologies have been widely adopted by global leading 8K/4K DTV, 4K streaming STB and digital single-lens reflex (“DSLR”) camera makers and so on. We will continue to drive more cost competitive technologies through die size shrink for customers’ digital intensive chip designs, and to drive lower power consumption technologies for more cost-effective packaging.

The following is a general, non-exhaustive description of the key types of semiconductors that we currently manufacture. Depending on future market conditions, we may provide other services or manufacture other types of products that may be additive to or differ significantly from the following:

Logic Semiconductors. Logic semiconductors process digital data to control the operation of electronic systems. The largest segment of the logic market, standard logic devices, includes mobile computing chips, application processors, microcontrollers, digital signal processors (DSP), graphic chips and chipsets.

Mixed-Signal/RF Semiconductors. Analog/digital semiconductors combine analog and digital devices on a single semiconductor to process both analog and digital data. We make mixed-signal/RF semiconductors using both the CMOS and BiCMOS processes. We currently offer CMOS mixed-signal process down to the 28-nanometer technology for manufacturing mixed-signal/RF semiconductors. The primary uses of mixed-signal/RF semiconductors are in hard disk drives, wireless communications equipment and network communications equipment, with those made with the BiCMOS process occupying the higher end of the mixed-signal/RF market.

CMOS Image Sensor Semiconductors. Image sensors are primarily used in camera phones and tablets. We are currently the leading foundry for the production of CMOS image sensors, characterized by technology features including low dark current, high sensitivity, small pixel size and high dynamic range achieved through integration with mixed mode processes.

High Voltage Semiconductors. We currently offer a range of high-voltage processes including high voltage CMOS (“HVCMOS”), bipolar-CMOS-DMOS (Diffusion Metal Oxide Semiconductor) (“BCD”) and ultra-high voltage technology (“UHV”), ranging from 5V to 800V, which are suitable for various panel-size display driver and power supply applications.

The table below presents a breakdown of our net revenue by platform during the last three years by each semiconductor type:years:

The increase in our net revenue from 2018 to 2019 mainly came from the Smartphone Platform of NT$57,161 million, or a 12% year-over-year increase, and from the IoT Platform of NT$21,251 million, or a 33% year-over-year increase. The increase was partially offset by a decrease from the High Performance Computing Platform of NT$26,088 million, or an 8% year-over-year decrease. The increase in our net revenue from 2017 to 2018 mainly came from the High Performance Computing Platform of NT$76,516 million, or a 29% year-over-year increase, and from the IoT Platform of NT$13,316 million, or a 26% year-over-year increase. The increase was partially offset by a decrease from the Smartphone Platform of NT$37,723 million, or a 7% year-over-year decrease.

Design and Technology Platforms. Modern integrated circuit designers need sophisticated design infrastructure to optimize productivity and cycle time. Such infrastructure includes design flow for electronic design automation (“EDA”), silicon proven building blocks such as libraries and intellectual properties, simulation and verification design kits such as process design kit (“PDK”) and technology files. All of this infrastructure is built on top of the technology foundation, and each technology needs its own design infrastructure to be usable for designers. This is the concept of our technology platforms.

For years, we and our alliance partners have spent considerable effort, time and resources to build our technology platforms. We unveiled an Open Innovation Platform^® (“OIP”) initiative in 2008 to further enhance our technologies offerings. More OIP deliverables were introduced over the years, as well as in 2015.2019. In the design methodology area, we announced EDA and IP readiness of5-nanometer, as well as continuous development of solutions to enhance power, performance and area (“PPA”) on existing production technology nodes, including6-nanometer,12-nanometer and22-nanometer nodes based on7-nanometer,16-nanometer and28-nanometer, respectively. In addition, we also announced the releaseavailability of 10-nanometer Fin Field-Effect Transistor (“FinFET”) (“10FF”)various3-Dimensional Integrated Circuit reference flow for both full-chip and intellectual property design.flows covering a wide range of applications.

Multi-project Wafers Program (“CyberShuttle”CyberShuttle^®”). To help our customers reduce costs, we offer a dedicated multi-project wafer processing service that allows us to provide multiple customers with circuits produced with the same mask. This program reduces mask costs by a very significant amount, resulting in acceleratedtime-to-market for our customers. We have extended this program to all of our customers and library and intellectual property partners using our broad selection of process technologies, ranging from the latest 10-5-,6-, 7-,12-,16-,22-,28-,40-,45-, 55-, 16-, 28-, 40-, 45-, 55-65- and 65-nanometer90-nanometer processes to 0.13-,0.18-, 0.25-, 0.35-,0.25-,0.35- and0.5-micron. This extension offers a routinely scheduled multi-project wafer run to customers on a shared-cost basis for prototyping and verification.

We developed our multi-project wafer program in response to the currentsystem-on-chip development methodologies, which often require the independent development, prototyping and validation of several intellectual properties before they can be integrated onto a single device. By sharing mask costs among our customers to the extent permissible, thesystem-on-chip supplier can enjoy reduced prototyping costs and greater confidence that the design will be successful.

Customer Service

We believe that our dedication to customer service has been an indispensable factor in attracting new customers, helping to ensure the satisfaction of existing customers, and building a mutually beneficial relationship with our customers. The key elements are our:

We also conduct an annual customer satisfaction survey to assess customer satisfaction and to ensure that their needs are adequately understood and addressed. Continuous improvement plans based upon customer feedback are an integral part of this business process. We use data derived from the survey as a key indicator of our corporate performance as well as a base to identify future focus areas. We believe that satisfaction leads to better customer relationships, which would result in more business opportunities.

Research and Development

The semiconductor industry is characterized by rapid changes in technology, frequently resulting in the introduction of new technologies to meet customers’ demandsdemand and in the obsolescence of recently introduced technology and products. We believe that, in order to stay technologically ahead of our competitors and to maintain our market position in the foundry segment of the semiconductor industry, we need to maintain our position as a technology leader not only in the foundry segment but in the semiconductor industry in general. We spent NT$47,95280,733 million, NT$56,82985,895 million and NT$65,54591,419 million (US$1,9993,056 million) in 2013, 20142017, 2018 and 2015,2019, respectively, on research and development, which represented 8.0%8.2%, 7.4%8.3% and 7.8%8.6% of our net revenue, respectively. We plan to continue to invest significant amounts on research and development in 2016,2020, with the goal of maintaining a leading position in the development of advanced process technologies. Our research and development efforts have allowed us to provide our customers access to certain advanced process technologies, such as 28-nanometer, 20-nanometer16-,10- and 16-nanometer7-nanometer technology for volume production, prior to the implementation of those advanced process technologies by many integrated device manufacturers and our competitors. In addition, we expect to advance our process technologies further down to 10/7-nanometer5- and 3-nanometer and below in the coming years to maintain our technology leadership. We will also continue to invest in research and development for our mature technologies offerings to provide function-rich process capabilities to our customers. Our research and development efforts are divided into centralized research and development activities and research and development activities undertaken by each of our fabs. Our centralized research and development activities are principally directed toward developing new logic,system-on-chip (“SOC”SoC”), derivatives andpackage/system-in-package (“SIP”) technologies, and cost-effective 3D wafer level system integration solutions, including IntegratedFan-Out (“InFO”),Chip-on-Wafer-on-Substrate (“CoWoS^®”), and Chip-on-Wafer-on-SubstrateSystem on Integrated Chip (“CoWoS”TSMC-SoIC^®”) technologies.Fab-related research and development activities mostly focus on upgrading the manufacturing process technologies.

In continuing to advance our process technologies, we intend to rely primarily on our internal engineering capability,know-how and know-how and our research and development efforts, including collaboration with our customers, equipment vendors and external research and development consortia.

We also continuously create in-house inventions and know-how.in-houseknow-how. Since our inception, we have applied for and have been issued a substantial number of patents in the United States and other patents,countries, the majority of which are semiconductor-related.

Competition

We compete internationally and domestically with other foundry service providers, as well as with a number of integrated device manufacturers. We compete primarily on process technologies, manufacturing excellence, customer trust and service quality, such as earlier technology readiness, better quality, faster yield improvement and shorter cycle time. The level of competition varies with the process technologies involved. For example, in more mature technologies, competitors tend to be numerous and offer specialized processes. Some companies compete with us in selected geographic regions or niche application markets. In recent years, substantial investments have been made by others to establish new foundry capacities worldwide, or to transform certain manufacturing operations of integrated device manufacturers into foundry capacities.

Equipment

The quality and technology of the equipment used in the semiconductor manufacturing process are important in that they effectively define the limits of our process technologies. Advances in process technologies cannot be brought about without commensurate advances in equipment technology. To accelerate the development ofWe have periodic meetings with important suppliers with respect toco-developing next-generation lithographic technology, in August 2012 TSMC joined the ASML Holding N.V. Customer Co-Investment Program. The program’s scope includes development of extreme ultraviolet (EUV) lithography technology and 450mm lithography tools. Under the agreement with ASML, TSMC made an investment of EUR838 million to acquire 5% of ASML’s equity, which had all been disposed as of October 8, 2015, and has committed EUR276 million, to be spread over five years, to ASML’s research and development program.equipment.

The principal pieces of equipment used by us to manufacture semiconductors are scanners, cleaners and track equipment, inspection equipment, etchers, furnaces, wet stations, strippers, implanters, sputterers, chemical vapor deposition (CVD) equipment, chemical mechanism polish (CMP) equipment, testers and probers. Other than certain equipment under leases located at testing areas, we own all of the equipment used at our fabs.

In implementing our capacity management and technology advancement plans, we expect to make significant purchases of equipment required for semiconductor manufacturing. Some of the equipment is available from a limited number of vendors and/or is manufactured in relatively limited quantities, and certain equipment has only recently been developed. We believe that our relationships with our equipment suppliers are good and that we have enjoyed the advantages of being a major purchaser of semiconductor fabrication equipment. We work closely with manufacturers to provide equipment customized to our needs for certain advanced technologies.

Raw Materials

Our manufacturing processes use many raw materials, primarily silicon wafers, chemicals, gases and various types of precious metals. Raw materials costs constituted 12.5%12.0%, 13.2%12.4%, and 10.5%12.1% of our net revenue in 2013, 20142017, 2018 and 2015,2019, respectively. Although most of our raw materials are available from multiple suppliers, some materials are purchased through sole-sourced vendors. Our raw material procurement policy is to select only those vendors who have demonstrated quality control and reliability on delivery time and to maintain multiple sources for each raw material whenever possible so that a quality or delivery problem with any one vendor will not adversely affect our operations. The quality and delivery performance of each vendor is evaluated quarterly and quantity allocations are adjusted for subsequent periods based on the evaluation.

The most important raw material used in our production is silicon wafers,wafer, which is the basic raw material from which integrated circuits are made. The principal suppliers for our wafers are Formosa SUMCO Technology Corporation of Taiwan, GlobalWafers of Taiwan, Shin-Etsu Handotai of Japan, Siltronic AG of Germany, and SUMCO Corporation of Japan, and SunEdison Semiconductor Ltd. of the United States.Japan. Together they supplied approximately 93.3%92.9%, 94.3%91.7%, and 95.5%91.5% of our total wafer needs in 2013, 20142017, 2018 and 2015,2019, respectively. We have in the past obtained, and believe we will continue to be able to obtain, a sufficient supply of wafers. Please see “Item 3. Key Information—Risk Factors—Risks Relating to Our Business” for a discussion of the risk related to raw materials. In order to secure a reliable and flexible supply of high quality wafers, we have entered into long-term agreements and intend to continue to develop strategic relationships with major wafer vendors to cover our anticipated wafer needs for future years. Also, we actively address supply chain issues and bring together fab operations, materials management, quality system and risk management teams to mitigate potential supply chain risks and enhance supply chain agility. This taskforce works with our primary suppliers to review their business continuity plans, qualify their dual-plant materials, prepare safety inventories, improve the quality of their products and manage the supply chain riskrisks of their suppliers.

Competition

We compete internationally and domestically with foundry service providers, as well as with integrated device manufacturers that devote Please see “Item 3. Key Information – Risk Factors – Risks Relating to Our Business” for a significant or exclusive portiondiscussion of their manufacturing capacitythe risk related to foundry operations. We compete primarily on process technologies, manufacturing excellence, customer trust and service quality, such as earlier technology readiness, better quality, faster yield improvement and shorter cycle time. The levelraw materials, including the fluctuation of competition varies with the process technologies involved. For example, in more mature technologies, competitors tend to be numerous with specialized application offered. Some companies compete with us in selected geographic regions or niche application markets. In recent years, substantial investments have been made by others to establish new foundry capacities worldwide, or to transform certain manufacturing operationsprices of integrated device manufacturers into foundry capacities to compete with us.our main raw materials.

Environmental and Climate Related Laws and Regulations

The semiconductor production process generates gaseous chemical wastes, greenhouse gases (“GHG”), liquid wastes, wastewater and other industrial wastes in various stages of the manufacturing process. We have installed in our fabs various types of pollution control equipment for the treatment of gaseous and liquid chemical wastes and wastewater, equipment for GHG emission reduction and equipment for the recycling of used chemicals and treated water. Operations at our fabs are subject to regulationregulations and periodic monitoring by the R.O.C. Environmental Protection Administration, the U.S. Environmental Protection Agency and the State Environmental Protection Administration of mainland China, and local environmental protection authorities in Taiwan, the U.S. and mainland China.

We have adopted pollution control and GHG emission reduction measures to ensure compliance with environmental protection and climate related standards consistent with the practice of the semiconductor industry in Taiwan, the U.S. and mainland China. We conduct environmental audits at least once annually to ensure that we are in compliance in all material respects with and we believe that we are in compliance in all material respects with, applicable environmental and climate related laws and regulations. An environmental, safety and health (“ESH”) team operates at the corporate level that is responsible for policy establishment and enforcement, coordination with ESH teams located at each manufacturing facility and for coordination and interaction with government agencies worldwide.

Electricity and Water

We use electricity supplied by the Taiwan Power Company in our manufacturing process in Taiwan. We have occasionally suffered power outages or surges caused by difficulties encountered by the Taiwan Power Company, which have led to interruptions in our production schedule. The semiconductor manufacturing process uses extensive amounts of electricity and fresh water. Due to changes in the energy policy of the government, the growth of manufacturers in the Hsinchu Science Park, Southern Taiwan Science Park and Central Taiwan Science Park, and the droughts that Taiwan experiences from time to time, there is concern regarding future availability of sufficient electricity and fresh water and the potential impact that insufficient electricity and water supplies may have on our semiconductor production. To help address these potential shortages, we have adopted various natural resources conservation methodologies. Please see “Item 3. Key Information – Risk Factors – Risks Relating to Our Business” for a discussion of the risk related to shortage in electricity and water.

Risk Management

We employ anmaintain a comprehensive enterprise risk management system to integrate the prevention and control of risk. We have also prepared emergency response, crisis management and business continuity plans to respond to natural disasters and other disruptive events such as cyber attacks or epidemic outbreaks that could interrupt the operation of our business. These plans have been developed in order to prevent or minimizereduce the loss of personnel or damage to our facilities, equipment and machinery caused by natural disasters and other disruptive events. We also maintain insurance with respect to our facilities, equipment and inventories. The insurance for the fabs and their equipment covers, subject to some limitations, various risks, including fire, typhoons, earthquakes and other risks generally up to the respective policy limitslimit for their replacement values and lost profits due to business interruption. In addition, we have insurance policies covering losses with respect to the construction of all our fabs. Equipment and inventories in transit are also insured. No assurance can be given, however, that insurance will fully cover any losses and our emergency response plans will be effective in preventing or minimizingreducing losses in the future.

For further information, please see detailed risk factors related to the impact of climate change regulations and international accords, and business trendsnatural disasters on our operations in “Item 3. Key Information—Information – Risk Factors—Factors – Risks Relating to Our Business”.

Our Subsidiaries and Affiliates

Vanguard International Semiconductor Corporation (“VIS”). In 1994, we, the R.O.C. Ministry of Economic Affairs and other investors established VIS, then an integrated dynamic random access memory (“DRAM”) manufacturer. VIS commenced volume commercial production in 1995 and listed its shares on the Taipei Exchange (originally the R.O.C.Over-the-Counter (Taipei Securities Exchange) in March 1998. In 2004, VIS completely terminated its DRAM production and became a dedicated foundry company. On April 14, 2014 and June 12, 2015, we sold 82 million and 82 million common shares of VIS, respectively. Subsequent to the above transactions and asAs of February 29, 2016,2020, we owned approximately 28.3% of the equity interest in VIS. Please see “Item 7. Major Shareholders and Related Party Transactions” for a further discussion.

WaferTech in the United States.WaferTech. In 1996, we entered into a joint venture called WaferTech (of which the manufacturing entity is Fab 11) with several U.S.-based investors to construct and operate a US$1.2 billion foundry in the United States. Initial trial production at WaferTech commenced in July 1998 and commercial production commenced in October 1998. As of February 29, 2016,2020, we owned 100% of the equity interest in WaferTech.

Systems on Silicon Manufacturing Company Pte. Ltd. (“SSMC”). In March 1999, we entered into an agreement with Koninklijke Philips NV (“Philips”) and EDB Investment Pte. Ltd. to found a joint venture, SSMC, and build a fab in Singapore. The SSMC fab commenced production in December 2000. As of February 29, 2016,2020, we owned approximately 38.8% of the equity interest in SSMC. Please see “Item 7. Major Shareholders and Related Party Transactions” for a further discussion.

Global Unichip Corporation (“GUC”). In January 2003, we acquired a 52.0% equity interest in GUC, a System-on-Chip (SoC)SoC design service company that provides large scale SoC implementation services. GUC has been listed its shares on Taiwan Stock Exchange sincein November 3, 2006. As of February 29, 2016,2020, we owned approximately 34.8% of the equity interest in GUC. Please see “Item��Item 7. Major Shareholders and Related Party Transactions” for a further discussion.

TSMC China. In August 2003, we established TSMC China (of which the manufacturing entity is Fab 10), a wholly-owned subsidiary primarily engaged in the manufacturingmanufacture and sellingsale of integrated circuits. TSMC China commenced production in late 2004.

VisEra Technologies Company, Ltd. (“VisEra”VisEra Technologies”). In October 2003, we and OmniVision Technologies Inc. (“OVT”), entered into a shareholders’an agreement to form VisEra Technologies, Company, Ltd., a joint venture in Taiwan, for the purpose of providingback-end service for CMOS image sensor manufacturing service.business. On November 20, 2015, we obtained an additional 42.7% beneficial equity interest in VisEra Technologies from OmniVision Technologies Inc. (“OVT”)OVT when OVT was acquired by a Chinese consortium. As of February 29, 2016,2020, we owned approximately 85.5%86.9% of the equity interest in VisEra.

TSMC Global. In July 2006, we established TSMC Global in the British Virgin Islands. TSMC Global is a wholly-owned subsidiary primarily engaged in corporate treasury investment activities.

Xintec, Inc. (“Xintec”).In January 2007, we acquired a 51.2% equity interest in Xintec, a supplier of wafer level packaging service, to support our CMOS image sensor manufacturing business. Since June 2013, we no longer consolidated Xintec in our financial statements as the number of our appointed directors on Xintec’s board consisted less than a majority. OnIn March 30, 2015, Xintec listed its shares on the R.O.C. Over-the-Counter (Taipei Exchange).Taipei Exchange. Subsequent to Xintec’s IPO, our shareholding in Xintec was diluted to approximately 41.2%. On November 20, 2015, we obtained additional 10.2% beneficial equity interest in Xintec from OmniVision Technologies Inc. (“OVT”) when OVT was acquired by a Chinese consortium, and subsequently sold 5.1%As of the equity interest in Xintec each on November 30, 2015 and April 11, 2016, respectively. Following the above transactions,February 29, 2020, we owned approximately 41.1%41.0% of the equity interest in Xintec. Please see “Item 7. Major Shareholders and Related Party Transactions” for a further discussion.

Motech Industries, Inc. (“Motech”). In February 2010, we acquired a 20.0% equity interest in Motech, a Taiwan solar cell manufacturer. Motech has been a publicly traded company on the R.O.C. Over-the-Counter (Taipei Exchange) since May 2003. On June 1, 2015, Motech and Topcell Solar International Co., Ltd merged, with Motech being the surviving entity and our equity interest in Motech was diluted to approximately 18.0%. On November 30, 2015, we sold around 29 million common shares of Motech. Subsequent to the above transaction and as of February 29, 2016, we owned approximately 12.0% of the equity interest in Motech.

TSMC Solar Ltd. (“TSMC Solar”).Nanjing. In May 2016, we established TSMC SolarNanjing (of which the manufacturing entity is Fab 16), a wholly-owned subsidiary primarily engaged in research, development, design,the manufacture and salessale of technologies and products related to renewable energy and energy saving. As we believed that its solar business was no longer economically sustainable,integrated circuits. TSMC Solar ceased its manufacturing operationNanjing commenced commercial production in August 2015. On December 14, 2015, TSMC Solar was merged into us.April 2018.

None.

The following discussion covers items for and a comparison between the fiscal years ended December 31, 2019 and 2018. For the discussion covering items for the fiscal year ended December 31, 2017 and a comparison between the fiscal years ended December 31, 2018 and 2017, please refer to “Item 5” of our annual report on Form20-F for the fiscal year ended December 31, 2018 filed with the SEC.

Overview

We manufacture a variety of semiconductors based on designs provided by our customers. Our business model is commonly called a “dedicated semiconductor foundry.” The foundry segment of the semiconductor industry as a whole experienced rapid growth over the last 29 years since our inception. As the leader of the foundry segment, of the semiconductor industry, our net revenue and net income attributable to shareholders of the parent were NT$597,0241,031,474 million and NT$183,978363,053 million in 2013, NT$762,806 million2018, and NT$254,3021,069,985 million in 2014 and NT$843,497 million (US$25,72435,774 million) and NT$302,851353,948 million (US$9,23611,834 million) in 2015,2019, respectively. Our net revenue in 20142019 increased by 27.8% from 2013,3.7% compared to 2018, mainly dueattributed to the introduction of the 20-nanometergrowing demand for7-nanometer products and continuing strongthe depreciation of NT dollar against the US dollar on a weighted average basis from 2018 to 2019, partially offset by the decline in demand for 28-nanometermost mature technology products. Our net revenue in 2015 increased by 10.6% from 2014, mainly due to the introduction of the 16-nanometer products, continuing strong demand for 20-nanometer products, and NT dollar depreciation.

The principal source of our revenue is wafer fabrication, which accounted for approximately 95%87% of our net revenue in 2015.2019. The rest of our net revenue was majorlymainly derived from packaging and testing services, mask making, design, and royalty income. Factors that significantly impact our revenue include:

Though equally important, four ofWhile the above factors are discussedsignificant factors, four of which are elaborated as follows:

Pricing. We establish pricing levels for specific periods of time with our customers, some of which are subject to adjustment during the course of that period to take into account market developmentsconditions and other factors. We believe that customers find value in our large capacity, flexible manufacturing capabilities, focus on customer service and timely delivery of high yield products, have contributedand this value is reflected in our pricing. Our pricing enables us to continue to invest significantly in research and development to deliver ever-improving products to our ability to obtain premium pricing for our wafer products.customers.

Production Capacity. We currently own and operate our semiconductor manufacturing facilities. The aggregate production capacity had been expanded fromto approximately 712 million 300mm12-inch equivalent wafers in 2013, to approximately 8 million in 20142018 and approximately 9 million in 2015.2019.

Technology Migration.

Our operations utilizeoperation utilizes a variety of process technologies, ranging from mature process technologies of 0.50.25 micron or above circuit resolutions to advanced process technologies of 16/20-nanometer7-nanometer circuit resolutions. The table below presents a breakdown of wafer revenue by circuit resolution during the last three years: