TABLE OF CONTENTS

Taiwan Semiconductor Manufacturing Company Limited

EX-1.1 ARTICLES OF INCORPORATION OF TAIWAN SEMICONDUCTOR MANUFACTURING COMPANY LIMITED, AS AMENDED AND RESTATED ON JUNE 8, 2022.

EX-2a.1 DESCRIPTION OF SECURITIES REGISTERED UNDER SECTION 12 OF THE EXCHANGE ACT.

EX-3.1 RULES FOR ELECTION OF DIRECTORS, AS AMENDED AND RESTATED ON JULY 26, 2021.

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EX-3.2 RULES AND PROCEDURES OF BOARD OF DIRECTORS MEETINGS, AS AMENDED AND RESTATED ON NOVEMBER 8, 2022.

EX-4.13 LAND LEASE WITH CENTRAL TAIWAN SCIENCE PARK ADMINISTRATION RELATING TO THE FABS LOCATED IN TAICHUNG SCIENCE PARK (EFFECTIVE JANUARY 1, 2024 TO SEPTEMBER 1, 2029) (ENGLISH SUMMARY).

EX-4.31 LAND LEASE WITH HSINCHU SCIENCE PARK ADMINISTRATION RELATING TO AP3 LOCATED IN LONGTAN SCIENCE PARK (EFFECTIVE JANUARY 1, 2024 TO DECEMBER 31, 2034) (ENGLISH SUMMARY).

EX-4.34 LAND LEASE WITH CENTRAL TAIWAN SCIENCE PARK ADMINISTRATION RELATING TO AP5 LOCATED IN TAICHUNG SCIENCE PARK (EFFECTIVE JANUARY 1, 2024 TO JULY 26, 2031) (ENGLISH SUMMARY).

EX-4.52 TAIWAN SEMICONDUCTOR MANUFACTURING COMPANY LTD. EMPLOYEE RESTRICTED STOCK AWARDS RULES FOR YEAR 2023.

EX-4.53 TAIWAN SEMICONDUCTOR MANUFACTURING COMPANY LTD. EMPLOYEE RESTRICTED STOCK AWARDS RULES FOR YEAR 2024 (AS APPROVED BY THE BOARD OF DIRECTORS IN FEBRUARY 2024, AND SUBJECT TO SHAREHOLDER APPROVAL AND APPROVAL BY THE R.O.C. FINANCIAL SUPERVISORY COMMISSION).

EX-4.62 LAND LEASE WITH HSINCHU SCIENCE PARK ADMINISTRATION RELATING TO FAB20 (EFFECTIVE JUNE 1, 2023 TO DECEMBER 31, 2042) (ENGLISH SUMMARY).

EX-4.63 LAND LEASE WITH HSINCHU SCIENCE PARK ADMINISTRATION RELATING TO FAB20 (EFFECTIVE JULY 14, 2023 TO DECEMBER 31, 2042) (ENGLISH SUMMARY).

EX-4.64 LAND LEASE WITH SOUTHERN TAIWAN SCIENCE PARK ADMINISTRATION RELATING TO THE FABS (FAB 14 BRIDGE) LOCATED IN SOUTHERN TAIWAN SCIENCE PARK (EFFECTIVE JUNE 1, 2023 TO MAY 31, 2043) (ENGLISH SUMMARY).

EX-4.65 LAND LEASE WITH SOUTHERN TAIWAN SCIENCE PARK ADMINISTRATION RELATING TO AP7(EFFECTIVE FEBRUARY 15, 2024 TO FEBRUARY 14, 2044) (ENGLISH SUMMARY).

EX-8.1 SUBSIDIARIES OF TAIWAN SEMICONDUCTOR MANUFACTURING COMPANY LTD.

EX-12.1 CERTIFICATION OF CEO - RULE 13A-14(A)

EX-12.2 CERTIFICATION OF CFO - RULE 13A-14(A)

EX-13.1 CERTIFICATION OF CEO - RULE 13A-14(B)

EX-13.2 CERTIFICATION OF CFO - RULE 13A-14(B)

EX-15.1 CONSENT OF DELOITTE & TOUCHE

EX-17 ISSUERS OF GUARANTEED SECURITIES

EX-97 TAIWAN SEMICONDUCTOR MANUFACTURING COMPANY LIMITED CLAWBACK POLICY

EX-101.INS iXBRL INSTANCE DOCUMENT (EMBEDDED WITHIN THE INLINE XBRL DOCUMENT)

EX-101.SCH iXBRL TAXONOMY EXTENSION SCHEMA DOCUMENT

EX-101.CAL iXBRL TAXONOMY EXTENSION CALCULATION LINKBASE DOCUMENT

EX-101.DEF iXBRL TAXONOMY EXTENSION DEFINITION LINKBASE DOCUMENT

EX-101.LAB iXBRL TAXONOMY EXTENSION LABEL LINKBASE DOCUMENT

EX-101.PRE iXBRL TAXONOMY EXTENSION PRESENTATION LINKBASE DOCUMENT

EX-104 COVER PAGE INTERACTIVE DATA FILE (EMBEDDED WITHIN THE INLINE XBRL DOCUMENT)

“TSMC”, “tsmc”, “GIGAFAB”, “Open Innovation Platform”, “CyberShuttle”, “CoWoS”, “TSMC-SoIC”, “3DFabric”, “TSMC 3DFabric”“N6e”, and “N12e” are some of our registered and/or pending trademarks used by us in various jurisdictions, including the United States of America. All rights reserved.

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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. Such statements are made under the “safe harbor” provision under Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). 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:

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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 2-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. If any one or more of the assumptions underlying the industry or market data turns out to be incorrect, actual results may differ from the projections based on these assumptions. You should not place undue reliance on these forward-looking statements. 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.

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. Unless otherwise noted, all translations from NT dollars to U.S. dollars in this annual report were made at NT$30.7330.62 to US$1.00, the exchange rate set forth in the H.10 statistical release of the Federal Reserve Board on December 30, 2022.29, 2023.

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.

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PART I

Not applicable.

Not applicable.

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 U.S. Securities and Exchange Commission (“U.S. SEC”), 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: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.

Since 2018, there have been political and trade tensions among a number of the world’s major economies. These tensions have resulted or may result in the implementation of tariff, non-tariff trade barriers, and sanctions, including the use of export control restrictions and sanctions against certain countries and individual companies. These trade barrierscontrols and other measures that have been particularly impactful to the semiconductor industry and related markets. Prolonged or increased use of trade barriers and such measures may result in a decrease innegatively impact the growth of the global economy and the semiconductor industry, and could cause turmoil in global markets that often resultresulting in declines in electronic products sales from which we generate our income through our products and services. Also, any increase in the use of export control restrictions and sanctions to target certain countries and entities, any expansion of the extraterritorial jurisdiction of export control laws,such measures, or complete or partial ban on semiconductor products sales to certain entities could impact not only our ability to continue supplying products to those customers, but also our customers’ demand for our products, and could even lead to changes in semiconductor supply chains. For example, in May 2020 and again in August 2020, the U.S. tightened its export control measures against Huawei Technology Co. Ltd. and its affiliates (collectively, “Huawei”), including an expanded license requirement for providing Huawei with items subject to the U.S. export control jurisdiction. in 2020. To comply with relevant laws and regulations, we have discontinued shipment of products to Huawei since September 15, 2020. Since February 2022, there have been expansive measures, including sanctions and export controls imposed by several countries and regions against Russia, including certain individuals and entities, in connection with the military conflict in Ukraine. In October 2022 and October 2023, the U.S. adopted additional export controls over Chinaspecified countries (including China) under the U.S. Export Administration Regulations (“U.S. EAR”) on certain advanced computing integrated circuits (“ICs”), computer commodities that contain such ICs, and certain semiconductor manufacturing items, as well as controls on transactions involving items for supercomputer and semiconductor manufacturing end-uses. The new controls add new license requirements for items subject to the U.S. EAR where the items are destined to a semiconductor fabrication facility in China that fabricates ICs meeting specified advanced node parameters as well as for U.S. persons’ activities supporting such facility or semiconductor manufacturing items, and licenses for facilities owned by multinationals, like us, will be decided on a case-by-case basis.items. In the same month,October 2022, we secured a one-year general authorization from the U.S. government, which allows us to maintain our fab’s operations in Nanjing, China. This general authorization has been renewed and extended to be effective until May 31, 2024. We are also applying for a Validated End-User (the “VEU”) authorization for our Nanjing fab, which, once obtained, would be a permanent authorization that allows us to receive exports of eligible items from the U.S. without separate licenses. However, there is no assurance that we will be able to continue securing suchobtain the VEU authorization for our Nanjing fab or that the obtained general authorization on a timely basis or at all.will not be terminated in the future. On the other hand, measures adopted by an affected country to counteract the impact of another country’s actions or regulations could lead to significant legal liability to multinational corporations including our own. For example, in January 2021, China adopted a blocking statute that, among other matters, entitles Chinese entities incurring damages from a multinational’s compliance with foreign laws to seek civil remedies. As of the date of this annual report, our current results of operations have not been materially affected by the expanded export control regulations or the novel rules or measures adopted to counteract them. Nevertheless, depending on future developments in global trade tensions and military conflicts, such regulations, rules, or measures may have an adverse impact on our business and operations, and we may incur significant legal liability and financial losses as a result.

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Any future systemic political, economic or financial crisis or market volatility, including but not limited to interest rate and foreign exchange rate fluctuations, inflation or deflation andor changes in economic, fiscal and monetary policies in major economies, could cause revenue or profits for the semiconductor industry as a whole to decline dramatically, and ifdramatically. If the economic conditions or financial conditions of our customers were to deteriorate, the demand for our products and services may decrease and additional accounting related allowances may be required, which could reduce our operating income and net income. For example, starting in March 2023, the capital and credit markets have experienced volatility and disruption as a result of the failures of Silicon Valley Bank and Signature Bank as well as UBS’ announced acquisition of Credit Suisse. Concerns about the soundness of the banking system may cause small- and medium-sized banks to tighten their lending to preserve liquidity, which in turn could weigh on economic growth. If such levels of market volatility and disruption continue or escalate into systematic financial crisis or global economic downturn, it could result in a number of adverse follow-on effects on our business, including decreased customer demand, delays in the payment of account receivables to us, and insolvency of suppliers or customers. In addition, 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. In conclusion, any of these events, including any future global systemic crisis or further escalation of trade tensions as described above, could materially and adversely affect our results of operations.

Our global manufacturing, design and sales activities subject us to risks associated with political, economic, financial, military or other conditions or developments in various jurisdictions, including in particular the R.O.C., as well as in international trade, 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 the 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 locations outside the R.O.C. Operating in the R.O.C. and overseas exposes us to changes in laws, rules, regulations and the enforcements of such laws, rules and regulations in certain key areas that could have a material impact on our operations, such as intellectual property, labor, antitrust, export control, import restrictions, and trade barriers or disputes. In addition, deterioration in general political, economic, financial or social conditions, military conflicts, the risk of outbreak of war or hostilities, terrorism events, security risks, social unrest, health conditions and possible disruptions in transportation networks in the various jurisdictions in which we operate or elsewhere, could have an adverse impact on our business and results of operations as well as the market price and the liquidity of our ADSs and common shares. Furthermore, 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 as well as military conflicts (such as the conflict in Ukraine since early 2022) have resulted in the imposition of trade barriers, such as sanctions and import and export controls, which could increase our manufacturing costs, limit our access to certain supplies, make our pricing less competitive, and limit our ability to offer our products and services in some markets or source key materials and key production equipment, which may have adverse direct or indirect effects on our sales.

Any law or government policy that encourages our customers to relocate their manufacturing capacity or supply chain to their own countries 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 fabs, employees and suppliers in the 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 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. Restrictions on our ability to transfer people among our operations in the R.O.C., the United States, the P.R.C., Japan, and JapanEurope efficiently due to, for example, immigration or travel restrictions may impair or reduce these advantages, and we may not be able to sustain our current ability to supply our customers with 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 relations between the R.O.C. and the P.R.C. as occasions to depress general market prices of the securities of R.O.C. companies, including our own. Also, the R.O.C. government has not lifted some trade and investment restrictions imposed on R.O.C. companies on the amount and types of certain investments that can be made in the P.R.C. Our plans, investment applications and/or any relevant regulatory approvals to establish or possibly expand operations in the P.R.C. may be delayed, interrupted, suspended or cancelled due to unforeseeable social and political factors in the R.O.C. or the P.R.C., and these potential operational risks can be aggravated by applicable export controls which impose license requirements on our P.R.C. fab’s acquisition of certain manufacturing tools.

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If we are unable to successfully manage the complexity of our global operations and deal with the challenges and risks related to our overseasglobal expansion, our business, financial condition and results of operations could be adversely affected.

We have multiple expansion projects that are currently underway, including the design and construction of new fabs worldwide. Global expansion has required and will continue to require considerable managerial, financial and other resources. We expect to face particular challenges in global expansion and operations, including but not limited to:

If we are unable to overcome the above challenges, our business, financial condition and results of operations could be adversely affected.

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 revenue and earnings.

A vast majority of our revenue is derived from customers who use our products in smartphones, high performance computing (“HPC”), smartphones, IoT, automotive, and digital consumer electronics. Any deterioration in or a slowdown in the growth of such end markets resulting in a substantial decrease in the demand for overall global semiconductor foundry services, including our products and services, could adversely affect our 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 trend of declining average selling prices (“ASP”) of end useend-use applications places downward pressure on the prices of the components that go into such applications. Decreases in the ASP of end use applications may increase pricing pressure on components produced by us, which, in turn, may negatively impact our revenue, margin and earnings.

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Since we are dependent on the highly cyclical semiconductor and electronics industries, which have experienced significant and sometimes prolonged periods of downturns and overcapacity, our revenue, margins and earnings may fluctuate significantly.

The electronics industries and semiconductor market are cyclical and subject to significant and often rapid fluctuations in product demand, which could impact our semiconductor foundry business. Variations in customer 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 and occasionally prolonged periods of downturns and overcapacity. Because we are, and will continue to be, dependent on the demand of electronics and semiconductor companies for our services, periods of downturns and overcapacity in the general electronics and semiconductor industries could lead to reduced demand for overall semiconductor foundry services, including our services. If we cannotare not able to take appropriate actions, such as reducing our costs to sufficiently offset declines in demand, our revenue, margins and earnings will likely suffer during periods of downturns and overcapacity.

If we are unable to remain a technological leader in the semiconductor industry, 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 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. For example, the global surge in the development of artificial intelligence (“AI”) has had a significant impact on customer demand for advanced semiconductor chips and the market dynamics in our industry; thus, our ability to continuously develop relevant technologies, products and services to meet these customer needs will be critical for us to effectively compete in this space. We also believe that the effective use of AI in our internal operations is important to our long-term success. As the AI technologies are rapidly evolving, if we are unable to deploy new AI technologies in our internal operations as effectively as our competitors, it may hurt our competitive position. 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 product time-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 smartphones, and increasing competition and concentration of customers (all further discussed among these risk factors). Also, the uncertainty and instability inherent in advanced technologies 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. If we are unable to overcome the above factors, 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/or our profit margin and earnings may decrease.

The markets for ourcompetition in the semiconductor foundry services are highly competitive.industry is fierce. 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 or different technologies than us. Other companies may have greater financial and other resources than us, such as the possibility of receiving direct or indirect government subsidies, economic stimulus funds, or other incentives that may be unavailable to us. The governments of the United States, China, Europe, South Korea and Japan provide various incentive programs to promote developments of their domestic semiconductor industries, such as the Creating Helpful Incentives to Produce Semiconductors and Science Act of 2022 (the “U.S. CHIPS Act”), which provides financial incentives to incentivize the development of U.S. semiconductor industry. Although governments in certain of the countries or regions where we are currently expanding or planning to expand our production capacity have extended or may in the future extend certain financial incentives to us, there is no assurance that we will be able to apply for or receive such financial incentives at the levels we expectanticipate or at all. Additionally, any financial incentives we receive may be subject to strict conditions imposed by the grantors, such as restrictions on the expansion of facilities in foreign countries of concern and on joint research and technology licensing efforts with foreign entities of concern on any technology or product that raises national security concerns, or the grantors could seek to recover any funds provided to us, or cancel, reduce or deny our requested subsidies or grants in the future. This could materially increase our operating costs andor otherwise adversely affect our results of operations.

Furthermore,Moreover, our competitors may, from time to time, also decide to undertake aggressive pricing initiatives in one or several technology nodes. Our competitors may also compete for our customers who seek to diversify their supply chains. These competitive activities may decrease our customer base, or our ASP,pricing, or both. If we are unable to compete effectively with such new and aggressive competitors on technology, manufacturing capacity, product quality, supply chain diversification and resilience, and customer satisfaction, we risk losing customers or business to such new contenders.

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

We perform long-term market demand forecasts for our products and services to manage our overall capacity. Based on our market demand forecasts, we have continued to add capacity to meet market needs for our products and services, including in Taiwan, in Arizona, U.S., in Nanjing, China, in Kumamoto, Japan and in Kumamoto, Japan.Dresden, Germany.

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Implementing these capacity expansion plans will increase our costs, and the increases may be substantial. For example, we would need to build new facilities, purchase additional equipment and hire and train personnel to operate the new 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.

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In the past, we experienced and may in the future be subject to attack by malicious software. We have implemented and continually update rigorous cybersecurity measures to prevent and minimize harm caused by such attacks. Such measures include advanced virus scanning tools to protect fab equipment, strengthening firewall and network controls to prevent computer viruses from spreading among tools and fabs, installing advanced malware defense solutionsSee “Item 16K. Cybersecurity” for critical computers, introducing new solution architecture to secure internet access, adopting advanced solutions against distributed denial-of-service attacks from the internet, introducing new technology for data protection, enhancing and certifying office computer security compliance, improving email phishing defense and implementing employee awareness testing. We also established an integrated and automatic security operation platform, enabled the automation of cybersecurity event detection and response, enhanced internal security assessment automation, conducted external red team testing and practiced responses to ransomware attacks. For supply chain risks reduction, through collaboration, we helped major suppliers improve their security maturity and share industry security events and best practices on demand and by schedule. Moreover, we have collaborated with Semiconductor Equipment and Materials Institute (“SEMI”) to set up a Semiconductor Cybersecurity Committee to promote security standards (SEMI E187) as well as security assessment methodology for improving the resilience of semiconductor supply chain.further discussion. While these ongoing enhancements further improve our cybersecurity defense solutions, there can be no assurance that we are immune to cyberattacks.

In addition, we employ certain third-party service providers for us and our affiliates worldwide with whom we need to share highly sensitive and confidential information to enable them to provide the relevant services. While we require such third-party service providers to strictly fulfill the confidentiality and/or internet security requirements in our service agreements with them, there is no assurance that each of them will comply with such obligations. Moreover, such third-party service providers may also be susceptible to cyberattacks. If we or our service providers are not able to timely resolve the respective technical difficulties caused by such cyberattacks, or ensure the integrity and availability of our data (and data belonging to our customers and other third parties) or maintain control of our or our service providers’ computing systems, our commitments to our customers and other stakeholders may be materially impaired and our results of operations, financial condition, prospects and reputation may also be materially and adversely affected.

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 key executives, managers and skilled technical and service personnel.

We rely on the continued services and contributions of our management team, as well as skilled technical and professional personnel. Our business could suffer from the inability to fulfill personnel needs with high quality professionals in a timely fashion caused by the loss of personnel, talent shortages, illegal talent poaching, immigration controls, or related changes in market demand for our products and services. Since there is fierce competition for talent recruitment, we cannot ensure timely fulfillment of our personnel demand.

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

Our operations and ongoing expansion plans depend on our ability to obtain an appropriate amount ofnecessary equipment and related services available from a limited number of suppliers. WeAs a result, we may encounter the situation of limited supply andand/or long delivery cycles. To better manage our supply chain, we evaluate and project delivery lead times to minimize the impact of supply chain risks on operating costs. We have also implemented various collaborative business models and risk management contingencies with suppliers to ensure supply and shorten the procurement lead time. To enhance our sourcing capabilities for our global sites, we have also taken steps to strengthen our understanding of local regulations, policies, and supply chains. However, if we are unable to acquire in a timely manner the equipment and parts we need, we may fail to successfully implement capacity expansion plans and exploit time sensitive business opportunities. Additionally, ongoing trade tensions could result in increased prices for, or even unavailability of, key equipment, through delay or denial of necessary export licenses, adoption of additional export control measures and other tariff or non-tariff barriers. If we are unable to obtain equipment in a timely fashion to fulfill our customers’ demand for technology and production capacity, or unable to do so 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 and at commercially reasonable prices. In the past, shortages in the supply of some materials, whether by specific suppliers or by the semiconductor industry generally, have resulted in occasional industry-wide price adjustments and delivery delays. Moreover, major natural disasters, trade barriers and political or economic turmoil, including military conflicts and inflation, occurring within the country of 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-sourced suppliers, there is a risk that our need for such raw materials may not be met or that back-up supplies may not be readily available. Importation and domestic production limitations may also limit our ability to obtain adequate supplies of raw materials as well as materials of the necessary quality. In addition, recent trade tensions could result in increased prices or even unavailability of raw materials due to tariffs, export control or other non-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.

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

Our ability to compete successfully and to achieve future growth depends 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 or know-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 or know-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, communications from third parties, including non-practicing entities and semiconductor companies, 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. Because of the nature of the industry, our market position, and the expansion of our manufacturing operations outside of Taiwan, we may receive an increased number of such communications in the future. The assertions made and lawsuits initiated by litigious, well-funded, non-practicing entities are particularly aggressive in their monetary demand and in seeking court-issued injunctions. Such lawsuits and assertions may increase our cost of doing business and may potentially be extremely disruptive if these asserting entities succeed in blocking the trade of products made and services offered by us. See “Item 8. Financial Information – Legal Proceedings” for a further discussion. Also, with the expansion of our manufacturing operations into certain non-R.O.C jurisdictions, we have faced increased challenges in managing 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 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 or fail to prevent our intellectual property from being misappropriated and, if litigation relating to alleged intellectual property matters occurs, it could: (i) prevent us from manufacturing particular products or selling particular services or applying particular technologies; and (ii) reduce our ability to compete effectively against entities benefiting from our misappropriated intellectual property, which could reduce our opportunities to generate revenue.

Our operational results could also be materially and adversely affected by disruptive events such as earthquakes and droughts, or by industrial accidents, in the locations in which we, our customers or our suppliers operate.

Disruptions caused by natural and man-made disasters, including earthquakes, flooding, typhoons, droughts, tsunamis, sandstorms, wildfires, volcanic eruptions, fire, gas/chemical leakage, pandemic, cyber-attacks,supply chain disruption, geopolitical tensions, cyberattacks, sabotage, failure of critical facilities and equipment, shortages in the supply of utilities, such as water, electricity and natural gas, etc., could interrupt our operations. Most of our production facilities, as well as those of many of our suppliers, customers and upstream providers of complementary semiconductor manufacturing services, are located in areas susceptible to natural disasters and may face potential shortages of electricity or water, which could cause interruptions to our operations. On April 3, 2024, an earthquake struck Taiwan. The resulting damage was mostly to inventories and equipment. Based on a preliminary assessment, we estimated that related earthquake losses will be approximately NT$3 billion, net of insurance claim, and will be recognized in the second quarter of 2024.

Thus, if one or more natural disasters result in a prolonged disruption to our operations or those of our customers or suppliers, or if any of our fabs or vendor facilities were to be damaged or cease operations as a result of an unforeseen disruptive event, it could reduce our manufacturing capacity and cause the loss of important customers, and thereby have an adverse, material impact on our operational and financial performance.

Our operationoperations may be interrupted, and our expansion may be limited, by power or other utility shortages.outages or shortages, and our financial results may be adversely affected by increased prices of power or other utilities.

We have occasionally suffered power outages, dips or surges caused by difficulties encountered by our electricity supplier or other power consumers on the same power grid. Some of these incidents have resulted in interruptions to our operations. Such outages, shortages or interruptions in electricity supply could further be exacerbated by changes in the energy policy of the governments. If we are unable to secure reliable and uninterrupted supply of electricity to power our manufacturing fabs, our ability to fill customers’ orders would be jeopardized. Moreover, we have encountered and may continue to encounter increases in the prices of utilities. For example, effective from April 1, 2024, we are subject to a higher electricity tariff rate in Taiwan, which is estimated to increase by 25%, as compared to the tariff rate applicable to us in 2023. The increased prices for electricity could increase our manufacturing costs and therefore adversely impact our financial results.

In addition, due to climate change, severe weather events, such as droughts, and any measures taken by governments in response to such severe weather events may materially affect our operations.operations and our suppliers’ production. For further information, see “— Our operational results could also be materiallyexample, the measures taken by governments in response to droughts, including water rationing and adversely affected by disruptive events, such as earthquakes and droughts, or by industrial accidents, in the locations in which we,conservation, may cause interruption to our customersoperations or our suppliers operate.”expansion plans.

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If such events were to occur over prolonged periods of time, our operations and financial performance may be materially adversely affected. Moreover, our future capacity expansions in Taiwan and elsewhere could be curtailed by utility shortages.

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

Substantially all of our sales are denominated in U.S. dollars and over half of our capital expenditures are denominated in currencies other than the NT dollar, primarily in U.S. dollars, Euros and Japanese yen. As a result, any significant fluctuations to our disadvantage in the exchange rate of the NT dollar against such currencies, in particular a weakening of the U.S. dollar against the NT dollar, would have an adverse impact on our revenue and operating profit as expressed in NT dollars. For example, every 1% depreciation of the U.S. dollar against the NT dollar would result in an approximately 0.4 percentage point decrease in our operating margin based on our 20222023 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 equipment that is subject to export control laws and regulations, as well as metals, chemicals, and materials that are subject to environmental, climate-related, health and safety, and humanitarian forced labor prohibition and 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;programs and air pollution reduction plans; (c) modify our product designs and manufacturing processes, or incur other significant expenses such as paying any incurred carbon fees if our emission levels exceed applicable thresholds, and obtaining renewable energy sources, renewable energy certificates or carbon credits, substitute raw materials or chemicals that may cost more or 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 respondingin response to public concern and social environmental pressures even if we comply with all applicable laws and regulations.

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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 potential antitrust 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 asked us for information and documents concerning alleged anti-competitive practices in relation to semiconductor sales. We cooperated with the European Commission to provide the requested information and documents. The European Commission subsequently decided to close the investigation in May 2020. Any adverse results of potential antitrust proceedings 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.

The COVID-19 pandemic could adversely affect our business and results of operations.

The COVID-19 pandemic has had impacts on worldwide economic activity. Prolonged impacts of COVID-19 or future similar events could adversely affect our business and results of operations in several ways, including but not limited to: (i) interruption of the operations of our supply chains for equipment, parts and materials in terms of manufacturing, logistics, and manpower arrangements for tool installation; (ii) fluctuation in our customers’ demands for certain products, leading to uncertainties for our capacity planning and also for meeting customer demand, which may harm our business with our customers and subject us to the risk of legal disputes; and (iii) potential production delays for our products due to forced fab or office closures or partial operation.

As of the date of this annual report, our current business and results of operations have not been materially affected by the COVID-19 pandemic, and with the easing of the COVID-19 pandemic, we do not expect our business and results of operations will be directly affected. Nevertheless, we could still face the post-pandemic downward changes in consumers’ demand for electronic products which in turn lead to reduced demand for and place downward pressure on the price of our products and services.

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

Under IFRSs, we are required to evaluate our 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 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 mainly based on the projected results of operations over several years subsequent to that time. Consequently, an impairment charge is more likely to occur during a period when our operating results are otherwise already depressed. See “Item 5. Operating and Financial Reviews and Prospects – Critical Accounting Policies, 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.

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.

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Risks Relating to Ownership of ADSs

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

Holders of American Depositary Receipts (ADRs)(“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 the R.O.C., which owned 6.38% of TSMC’s outstanding shares as of February 28, 2023,29, 2024, had from time to time in the past sold our shares in the form of ADSs in several transactions.

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

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Our History and Structure

Our legal and commercial name is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 (“NYSE”) 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 website is www.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 proprietary integrated circuit designs provided by them. We offer a comprehensive range of wafer fabrication processes, including processes to manufacture complementary metal-oxide-semiconductor (“CMOS”) logic, mixed-signal, radio frequency (“RF”), embedded memory, bipolar complementary metal-oxide-semiconductor (“BiCMOS”, which uses CMOS transistors in conjunction with bipolar junction transistor) mixed-signal and others. We also offer design, mask making, TSMC 3DFabric^TM advanced packaging and silicon stacking technologies and testing services. We produced 3028 percent of the world semiconductor excluding memory output value in 2022,2023, as compared to 2630 percent in the previous year.year, mainly due to an inventory correction within the semiconductor industry.

We believe that our scale and 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., Amazon Web Services, Inc., Broadcom Limited, Infineon Technologies AG, Intel Corporation, MediaTek Inc., NVIDIA Corporation, NXP Semiconductors N.V., Qualcomm Inc., Renesas Electronics Corporation,and Sony Semiconductor Solutions Corporation, and STMicroelectronics N.V.Corporation.

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Semiconductor Manufacturing Capacity and Technology

We manufacture semiconductors on silicon wafers based on proprietary circuitry designs provided by our 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 of 7-nanometer and below, and are one of the leaders in the semiconductor manufacturing industry for mainstream and specialty technologies. Our 5-nanometer technology and 3-nanometer technology successfully entered volume production in 2020 and 2022, respectively. Also, we are continuing to make progress on the development of our 2-nanometer technology which we expect to enteris on track, and its volume production is expected in 2025.

The following table lists our wafer fabs and those of our subsidiaries in operation as of February 28, 2023,29, 2024, together with the year of commencement of commercial production, wafer size and the most advanced technology for volume production:

In 2022,2023, our annual capacity (in 12-inch equivalent wafers) was approximately 1516 million wafers, compared to approximately 1415 million wafers in 2021.2022. This increase was primarily from the expansion of our 5-nanometer3-nanometer and 7-nanometer5-nanometer advanced technologies.

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We are entering a period of higher growth as the multiyear megatrends of 5G and high performance computing are expected to fuel strong demand for our semiconductor technologies in the next several years, after the COVID-19 pandemic accelerated digitalization in every aspect.years. We are working closely with our customers to address their needs in a sustainable manner.

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

Markets and Customers

We categorize our net revenue mainly based on the countries where our customers are headquartered, which may be different from 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 geographic breakdown of our net revenue during the periods indicated:

In 2023, our net revenue decreased by a total of NT$102,155 million compared to 2022, which was mainly due to a decrease in orders from Asia Pacific of NT$66,267 million, or a 27% year-over-year decrease and from North America of NT$64,427 million, or a 4% year-over-year decrease. The decrease was partially offset by an increase in orders from China of NT$21,985 million, or a 9% year-over-year increase. In 2022, our net revenue increased by a total of NT$676,476 million compared to 2021, which was mainly due to an increase in orders from North America of NT$498,660 million, or a 48% year-over-year increase, from China of NT$80,617 million, or a 49% year-over-year increase and from Japan of NT$47,178 million, or a 66% year-over-year increase. In 2021, our net revenue increased by a total of NT$248,160 million compared to 2020, which was mainly due to an increase in orders from North America of NT$208,471 million, or a 25% year-over-year increase, from Asia Pacific of NT$81,502 million, or a 56% year-over-year increase and from EMEA of NT$18,796 million, or a 27% year-over-year increase. The increase was partially offset by a decrease in orders from China of NT$69,231 million, or a 30% year-over-year decrease.

We provide worldwide customer support. Our office in Hsinchu and wholly-owned subsidiaries in the United States, Canada, Japan, China, the Netherlands and South Korea are dedicated to serving our customers worldwide. Foundry services, which are both technologically and logistically intensive, involve frequent and in-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 of web-based applications have also been offered to provide more active interactions with customers in design, engineering and logistics.

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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 different in-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. As we serve a large global customer base that entails a wide range of applications, such customer diversification helps to smooth fluctuations in demand.

Fabrication Processes. We manufacture semiconductors mainly using the complementary metal-oxide-semiconductor (“CMOS”)CMOS process. The CMOS process is currently the mainstream semiconductor manufacturing process. We use the CMOS process to manufacture logic semiconductors, mixed-signal/radio frequency 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, etc.

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 principal platforms include:

High Performance Computing Platform(“HPC”): Driven by data explosion and AI application innovation, high performance computingHPC has become one of the key growth drivers for our business. We provide customers, including both fabless IC design companies and system companies, with leading-edge logic process technologies such as 3-nanometer Fin Field-Effect Transistor (“FinFET”), 4-nanometer FinFET, 5-nanometer FinFET, 6-nanometer FinFET, 7-nanometer FinFET and 12-nanometer/ 16-nanometer FinFET, as well as comprehensive intellectual properties including high-speed interconnect intellectual properties to meet customers’ product requirements for transferring and processing vast amounts of data anywhere and anytime. In particular,at any time. Specifically, we introduced our first HPC-focused technology,technologies, N4X and N3X, representing the ultimate performance and maximum clock frequencies in our 5-nanometer family.and 3-nanometer families, respectively. Based on advanced process nodes, a variety of HPC products have been launched, such as AI accelerators, including AI graphics processor units (“GPUs”) and AI application specific integrated circuits (“ASICs”), personal computer central processing units (“CPUs”), graphics processor units (“GPUs”),consumer GPUs, field programmable gate arrays (“FPGAs”), server processors, accelerators, and high-speed networking chips, etc. These products can be used in current and future 5G/6G infrastructure,infrastructures, AI, cloud,Cloud, and enterprise data centers. We also offer multiple TSMC 3DFabric^TM advanced packaging and silicon stacking technologies, such as Chip-on-Wafer-on-Substrate (“CoWoS^®”), Integrated Fan-Out (“InFO”), and System on Integrated Chip (“TSMC-SoIC^®”), to enable homogeneous and heterogeneous chip integration to meet customers’customer requirements for high performance, high compute density and high energy efficiency, low latency and high integration. We will continue to optimize our HPC platform and strengthen collaboration with customers to help customers capture market growth in HPC markets.

Smartphone Platform:Smartphone: For customers’ premium product applications, we offer leading logic process technologies such as 3-nanometer FinFET enhanced (“N3E”), 3-nanometer FinFET, 4-nanometer FinFET plus (“N4P”), 4-nanometer FinFET, 5-nanometer FinFET plus (“N5P”), and 5-nanometer FinFET, as well as comprehensive intellectual properties to further enhance chip performance, reduce power consumption, and decrease chip size. For mainstream product applications, we offer a broad range of logic process technologies, including 6-nanometer FinFET, 7-nanometer FinFET plus, 7-nanometer FinFET, 12-nanometer FinFET compact plus (“12FFC+”), 12-nanometer FinFET compact (“12FFC”), 16-nanometer FinFET compact plus (“16FFC+”), 16-nanometer FinFET compact (“16FFC”), 28-nanometer high performance compact (“28HPC”), 28-nanometer high performance mobile compact plus (“28HPC+”), and 22-nanometer ultra-low power (“22ULP”), in addition to comprehensive intellectual properties, to satisfy customer needs for high-performance and low-power chips. Furthermore, for premium and mainstream product applications, we offer highly competitive, leading-edge specialty technologies to deliver specialty companion chips for customers’ logic application processors, including radio frequency (“RF”), RFfront-end, embedded flash memory, emerging memory, power management ICs (“PMICs”), sensors, and display chips, as well as TSMC 3DFabric^TM advanced packaging technologies, such as industry-leading InFO technology.

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Internet of Things (“IoT”): To serve the three megatrends of IoT, Platform: We“everything connected, smart and green,” we not only provide customers with solid logic technologies, including 5-nanometer, 6-nanometer, 7-nanometer, 12-nanometer, 16-nanometer, and 28-nanometer, but also build a leading, comprehensive,complete and highly integrated ultra-low power (“ULP”) technology platformsplatform based on our logic technologies to enable customers’ product innovations infor the artificial intelligence (“AI”) of things (“AIoT”, AI+ IoT) applications.. Our offerings includeindustry-leading ULP technologies, including the new FinFET-based 6-nanometer technology (“N6e^TM”) and 12-nanometer technology—technology (“N12e^TM featuring”), feature both energy efficiency withand high performance that results inperformance. These technologies provide more computing power and AI inferencing capability while reducing system power consumption. In addition, the planar transistor based mainstream technologies, such as 22-nanometer ultra-low leakage (“ULL”), 28-nanometer ULP, 40-nanometer ULP, and 55-nanometer ULP technologies, which have been widely adopted by various edge AIIoT system-on-a-Chipsystem-on-a-chip (“SoC”) and battery-powered applications. We haveproducts to extend battery life. Our ULP technology platform also extended our low Vdd (low operating voltage) offerings, providing simulation programprovides customers with integrated circuit emphasis (SPICE) models with a wide range of operating voltages for extreme low-power applications. In addition, we offer competitive and comprehensive specialty technologies, incovering RF, enhanced analog devices, embedded flash memory, emerging memory, sensors, and display chips,devices, and power management ICs,PMICs, as well as multiple TSMC 3DFabric^TM advanced packaging technologies, including InFO technology, totechnology. In doing so, we support the fast-growing demand inof various and rapidly growing AIoT product applications, including application processor (“AP”) and edge computing microcontroller (“MCU”), wireless connectivity, Bluetooth, baseband processor, radio frequency identification (“RFID”), display devices and wireless connectivity.PMICs. For extreme low power product application requirements, we have also extended our low operating voltage (“Low Vdd”) offerings and have provided simulation program with integrated circuit emphasis (“SPICE”) models with wide-range operating voltages and design guidelines to lower the adoption barrier and reduce product lead time to help customers successfully launch innovative products.

Automotive Platform:: We offer a comprehensive spectrum of technologies and services to support the automotive industry’s three megatrends – building vehicles that are safer, smarter and greener. We are also an industry leader in providing a robust automotive intellectual property ecosystem, which covers 5-nanometer FinFET, 7-nanometer FinFET, and 16-nanometer FinFET technologies, for advanced driver-assistance systems (“ADAS”), advanced in-vehicle infotainment (“IVI”), as well as zonal controllers for new electrical/electronic (“E/E”) architecture forin the next generation vehicles, including Internal Combustion Engine (“ICE”) and Electric Vehicle (“EV”). In 2023, we introduced 3-nanometer Auto Early (“N3AE”) program, providing automotive industry.process design kits (“PDKs”), to support automotive customers to adopt the industry’s most advanced 3-nanometer technology early on to design automotive applications. In addition to the advanced logic technology platform, we offer a broad array of competitive automotive-grade specialty technologies, including 28-nanometer embedded flash memory, 28-, 22- and 16-nanometer millimeter wave RF, high sensitivity CMOS Image/LiDAR (lightImage Sensor (“CIS”)/ light detection and ranging)ranging (“LiDAR”) sensors, and power management ICs.PMICs. The emerging technology of magnetoresistive random access memory (“MRAM”) has qualified for Automotivedemonstrated automotive Grade-1 capability on 22-nanometer, and is developinghas passed automotive Grade-1 requirements on 16-nanometer solution to meet Automotive Grade-1 requirement.in 2023. All these technologies are applied to our automotive process qualification standards based on AEC-Q100 standards of Automotive Electronic Council (“AEC”) and/or meeting our customers’ technology specifications.

Digital Consumer Electronics (“DCE”) Platform(“DCE”): We provide customers with leading and comprehensive technologies to deliver AI-enabled smart devices for DCE applications, including smart digital TV (“DTV”), set-top box (“STB”), digitalAI-embedded smart camera, and associated wireless local area network (“WLAN”), power management ICs,PMICs, timing controller (“T-CON”) and so on. Our leading6-nanometer FinFET, 7-nanometer FinFET, 16FFC/12FFC, 22ULP/22ULL and 28HPC+ technologies have been widely adopted by leading global makers of 8K/4K DTV, 4K streaming STB/ over-the-top (“OTT”), digital single-lens reflex (“DSLR”) devices, and so on. We will continue to make these technologies more cost competitive through die size shrink for customers’ digital intensive chip designs and to drive lower power consumption for more cost-effective packaging.

The following table presents a breakdown of our net revenue by platform during the periods indicated:

The decrease in our net revenue from 2022 to 2023 mainly came from Smartphone of NT$73,965 million, or an 8% year-over-year decrease, and from Internet of Things of NT$34,198 million, or a 17% year-over-year decrease. The decrease was partially offset by an increase from Automotive of NT$17,273 million, or a 15% year-over-year increase. The increase in our net revenue from 2021 to 2022 mainly came from the High Performance Computing Platform of NT$344,604 million, or a 59% year-over-year increase, and from the Smartphone Platform of NT$193,788 million, or a 28% year-over-year increase. The increase also came from the Internet of Things Platform of NT$63,109 million, or a 47% year-over-year increase. The increase in our net revenue from 2020 to 2021 mainly came from the High Performance Computing Platform of NT$147,970 million, or a 34% year-over-year increase, and from the Smartphone Platform of NT$49,787 million, or an 8% year-over-year increase. The increase also came from the Automotive Platform of NT$22,710 million, or a 51% year-over-year increase.

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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 2022.2023. In the design methodology area, we announced EDA and intellectual property readiness of 3-nanometer2-nanometer and 5-nanometer,3-nanometer, as well as continuous development of solutions to enhance power, performance and area (or PPA)(“PPA”) on existing production technology nodes, including 6-nanometer, 12-nanometer and 22-nanometer nodes based on 7-nanometer, 16-nanometer and 28-nanometer, respectively.nodes. In addition, we also announced the openness of 3Dblox Standard to the semiconductor industry, as well as the availability of various 3-Dimensional Integrated Circuit (“3DIC”) reference flows to support TSMC 3DFabric^TM that coverstechnologies in 3D silicon stacking and advanced packaging which cover a wide range of system-level design applications.

Multi-project Wafer Program (“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 accelerated time-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 3-, 4-, 5-, 6-, 7-, 12-, 16-, 22-, 28-, 40-, 45-, 55-, 65- and 90-nanometer processes to 0.13-, 0.18-, 0.25-, 0.35- and 0.5-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 current SoC 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, the SoC 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 base to identify future focus areas. We believe that satisfaction leads to better customer relationships, which would result in more business opportunities.

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

We also continually create inventions and in-house know-how. Since our inception, we have applied for and have been issued a substantial number of patents in the United States and other 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. We have periodic meetings with suppliers with respect to co-developing next-generation 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)(“CVD”) equipment, chemical mechanism polish (CMP)(“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 suppliers and/or is manufactured in relatively limited quantities, and certain equipment has only recently been developed. We believe that well management of the relationships with our equipment suppliers is important for us as a major purchaser of semiconductor fabrication equipment. We work closely with manufacturers that 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. Although most of our raw materials are available from multiple suppliers, some materials are purchased through sole-sourced suppliers. Our raw material procurement policy is to select only those suppliers 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 supplier will not adversely affect our operations. The quality and delivery performance of each supplier is evaluated quarterly and quantity allocations are adjusted for subsequent periods based on the evaluation.

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The most important raw material used in our production is silicon 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, Soitec Microelectronics of Singapore, and SUMCO Corporation of Japan. Together they supplied approximately 92.6%96.0%, 96.0%95.0% and 95.0%96.2% of our total wafer needs in 2020, 2021, 2022 and 2022,2023, respectively. We have in the past obtained, and believe we will continue to be able to obtain, a sufficient supply of wafers. 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 suppliers 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 risks of their suppliers. Please see “Item 3. Key Information – Risk Factors – Risks Relating to Our Business” for a discussion of the risk related to raw materials, including the fluctuation of prices of 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 regulations and periodic monitoring by the R.O.C. Environmental Protection Administration,Ministry of Environment, the U.S. Environmental Protection Agency, the State Environmental Protection Administration of China and the Japan Ministry of the Environment, and local environmental protection authorities in Taiwan, the U.S., China and Japan.

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., China, Japan and Japan.Europe. We conduct environmental audits at least once annually to ensure 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.

To fulfill our commitment to environmental sustainability in our business and operations, we have continued to explore and participate in initiatives to expand our use of renewable energy. In 2022,2023, TSMC used in total 2,1912,590 GWh in renewable energy, renewable energy certificates, and carbon credits globally, of which approximately 1,2251,493 GWh enabled our overseas sites to be 100% powered by clean energy for the fifthsixth consecutive year. As of the end of 2022,2023, we have signed power purchase agreements to purchase 2.93.1 GW of renewable energy, thereby eliminating an estimated 4.64.7 million metric tons of carbon dioxide equivalent emissions per year.

Environmental, Social and Governance (“ESG”) Initiatives

We firmly believe that our innovative technologies and services can help to bring positive changes and make positivesignificant contributions to the global community. We are stronglydeeply committed to pursuingcreating a sustainable future and achieving our vision of contributing to society through a range ofvarious ESG initiatives. In 2011, we establishedfounded the Corporate Social Responsibility Committee (renamed as the ESG Committee in 2021), which is in compliance to align with the vision and mission of the TSMC Corporate Social Responsibility Policy (renamed as the ESG Policy in 2021). We have beenIn 2019, we took further connected tosteps toward connecting with the international sustainability trend by establishing a CSR Executive Committee in 2019 (renamed as the ESG Steering Committee in 2021), which is comprised of senior executives from variousdiverse functions and tasked with developing our ESG strategies. In 2023, we established the Nominating, Corporate Governance and Sustainability Committee as the highest supervisory unit to ensure our efforts coincide with our values. In addition, we have mapped outcreated a blueprint for sustainable development that connectslinks our core advantagesstrengths with the United Nations’ Sustainable Development Goals (SDGs)(“SDGs”).

We currently focus our ESG efforts inon the following key areas:

Driving GreenDrive green manufacturing.We aimaspire to lead the industrybe a top benchmarking company in developing advanced semiconductorenvironmental protection and actively integrate green management into daily operations. We apply innovative technologies to climate and employing green product and process innovations to help address the impacts of climate change. We are committed to green manufacturing that implements continuous improvement projects in the areas of climate change, energy, management, water management, waste management,stewardship, circular resources, and air pollution control.control, promoting a comprehensive range of sustainable actions to pursue sustainable development.

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BuildingBuild a responsible supply chain. We seekare committed to build a greenresponsible purchasing and sustainablework closely with supply chain forpartners on technology, quality, delivery, human rights, and environmental protection. In the face of severe climate change challenges, we plan to further strengthen green innovation and climate resilience with suppliers and strive to create a low-carbonsemiconductor industry by working with our supplier partners and helping them to incorporate sustainability standards into their daily operations.supply chain.

CreatingCreate a diverse and inclusive workplace. We are dedicated to upholding our responsibility toward employees to foster a diverse and inclusive workplace. Our employees are the most valuable asset of TSMC. We are committed to building a diverse and encompassing workplace where each and every employee enjoys human rights, skill development, and a safe work environment. We also provide competitive compensation and welfare, striving to be a company that employees can be proud of.

Talent development.Develop talent. We support employees’ career development and seek to inspire the next generation of talent in the semiconductor industry through collaborationsprofessionals. To achieve this goal, we collaborate with middle and high schools, topworld-leading universities and research institutions and support ofto promote STEAM (i.e., science, technology, engineering, art and mathematics (STEAM) relatedmathematics) education.

CaringCare for the disadvantaged. We promote positive social change and reduce the resource gaps through the work of the TSMC Charity Foundation and theThe TSMC Education and Culture Foundation whichand TSMC Charity Foundation focus on serving the underservedchanging social landscape and its needs. The two foundations integrate and invest internal and external resources to empower young students, serve rural communities, empowering the youth, promoting environmental awareness, and supporting artsfoster art and culture.cultural literacy.

For further information on our ESG initiatives, please seerefer to our annual Sustainability Reports, which are available on our ESG website athttps://esg.tsmc.com/en/en-US/resources/documents.htmlESG-data-hub. The information contained on our website is not incorporated herein by reference and does not constitute part of this annual report.

Electricity and Water

We have occasionally suffered power outages, dips or surges caused by difficulties encountered by our electricity supplier, or other power consumers on the same power grid. Such power outages, dips or surges may lead to interruptions in our production schedule. The semiconductor manufacturing process uses extensive amounts of electricity and 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 water for our production in Taiwan. To help address these potential shortages and avoid the potential impact that insufficient electricity and water supplies may have on our semiconductor production, we have adopted various natural resources conservation methodologies. Moreover, we have encountered and may continue to encounter increases in the prices of utilities. For example, effective from April 1, 2024, we are subject to a higher electricity tariff rate in Taiwan, which is estimated to increase by 25%, as compared to the tariff rate applicable to us in 2023. The hike in electricity prices could increase our manufacturing costs and therefore adversely impact our financial results. Please see “Item 3. Key Information – Risk Factors – Risks Relating to Our Business” for a discussion of the risk related to shortages or increased prices in electricity and water.

Risk Management

We are committed to maintaining a proactive and robust enterprise risk management (“ERM”) system, as well as fostering a risk-aware culture, to enable us to respond to the dynamic business environment and shifting business demands and capitalize new opportunities. The Board of Directors has delegated risk oversight responsibilities to the Audit Committee (renamed as “Audit and Risk Committee”, effective as of February 14, 2023),Committee, which is authorized to review our ERM framework, including risk governance, risk management policy, ERM procedures and implementation status. AdheringWith close reference to the International Organization for Standardization (“ISO”) and Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) standards, our ERM framework was established to provide a systematic approach for risk management, which outlines the risk governance structure, processes and tools to assist with the identification, assessment, response, monitoring and reviewing of risks, and thereby assisting the management in making informed decisions to implement business strategies and achieve corporate objectives.

We have also implemented pre-crisis risk assessments, response procedures and recovery plans to respond to natural disasters and other disruptive events such as cyberattacks or epidemic/pandemic outbreaks that could interrupt the operation of our business. These plans were developed in accordance with business continuity management standards. Continuous efforts to enhance our operational resilience through ongoing exercises will enable us to respond effectively to a business disruption.

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 earthquake, fire, typhoon and other risks generally up to the respective policy limit 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 reducing losses.

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For further information, please see detailed risk factors related to the impact of climate change regulations and international accords, and natural disasters on our operations in “Item 3. Key Information – Risk 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 commercial production in 1995 and listed its shares on the Taipei Exchange (originally the R.O.C. Over-the-Counter Securities Exchange) in March 1998. In 2004, VIS completely terminated its DRAM production and became a dedicated foundry company. As of February 28, 2023,29, 2024, 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.TSMC Washington, LLC (“TSMC Washington”, previously WaferTech, LLC (“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 foundry in the United States. Initial trial production at WaferTech commenced in July 1998 and commercial production commenced in October 1998. In December 2023, WaferTech was renamed as TSMC Washington. As of February 28, 2023,29, 2024, we owned 100% of the equity interest in WaferTech.TSMC Washington.

TSMC Global Ltd. (“TSMC Global”). In December 1998, we established TSMC Holding Ltd. in the B.V.I. as a company with limited liability. In 2006, TSMC Holding Ltd. was renamed to TSMC Global Ltd. TSMC Global is a wholly-owned subsidiary primarily engaged in corporate treasury investment activities.

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. (“EDB”) to found a joint venture, SSMC, and build a fab in Singapore. The SSMC fab commenced commercial production in December 2000. As of February 28, 2023,29, 2024, 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 SoC design service company that provides large scale SoC implementation services. GUC listed its shares on the Taiwan Stock Exchange in November 2006. As of February 28, 2023,29, 2024, we owned approximately 34.8% of the equity interest in GUC. Please see “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 manufacture and sale of integrated circuits. TSMC China commenced commercial production in late 2004.

VisEra Technologies Company, Ltd. (“VisEra Technologies”). In October 2003, we and OmniVision Technologies Inc. (“OVT”), entered into an agreement to form VisEra Technologies, a joint venture in Taiwan, for the purpose of providing back-end service for CMOS image sensor manufacturing business. In November 2015, we obtained an additional 42.7% equity interest in VisEra Technologies from OVT. Following the above transactions, we owned approximately 86.9%acquired all of theOVT’s equity interest in VisEra Technologies. In March 2021, we disposed a total of 39.5 millioncertain common shares of VisEra Technologies to facilitate its initial public offering (“IPO”) and reduced our equity interest to approximately 72.8%. Immediately following VisEra Technologies completed the listing of its shares on the Taiwan Stock ExchangeTechnologies’ IPO in June 2022, and our shareholding was diluted to approximately 67.9% as of June 30, 2022.. As of February 28, 2023,29, 2024, we owned approximately 67.7%67.4% of the equity interest in VisEra Technologies.

TSMC Global Ltd. (“TSMC Global”). In December 1998, we established TSMC Holding Ltd. in the B.V.I. as a company with limited liability. In 2006, TSMC Holding Ltd. was renamed to TSMC Global Ltd. 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. In March 2015, Xintec listed its shares on the Taipei Exchange. Subsequent to Xintec’s IPO, our shareholding in Xintec was diluted to approximately 41.2%. As of February 28, 2023,29, 2024, we owned approximately 41.0% of the equity interest in Xintec. Please see “Item 7. Major Shareholders and Related Party Transactions” for a further discussion.

TSMC Nanjing. In May 2016, we established TSMC Nanjing (of which the manufacturing entity is Fab 16), a wholly-owned subsidiary primarily engaged in the manufacture and sale of integrated circuits. TSMC Nanjing commenced commercial production in April 2018.

TSMC Arizona. In November 2020, we established TSMC Arizona, a wholly-owned subsidiary that is expected to be primarily engaged in the manufacture and sale of integrated circuits. TSMC Arizona plans to build and operate anthree advanced semiconductor manufacturing facility, Fab 21,facilities in Phoenix, Arizona. Construction on the sitefirst facility commenced in April 2021. TSMC Arizona targets to commence2021 and commercial production is targeted in 2024.2025. In December 2022, we announced a plan for TSMC Arizona to build and operate a second semiconductor manufacturing facility, which is currently under construction. In April 2024, we further announced a plan for commercial production in 2026.TSMC Arizona to build and operate a third semiconductor manufacturing facility.

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Japan Advanced Semiconductor Manufacturing, Inc. (“JASM”). In December 2021, we established JASM, which is expected to be primarily engaged in the manufacture and sale of integrated circuits. In January 2022, Sony Semiconductor Solution Corporation (“Sony”) acquired a less than 20% equity interest in JASM. In April 2022, DENSO Corporation (“DENSO”) acquired a more than 10% minority equity interest in JASM. At the time of establishment, JASM plansplanned to build and operate a semiconductor manufacturing facility in Kumamoto, Japan. Construction on the site commenced in April 2022 and commercial production is expected to commence in 2024. In February 2024, we, Sony, DENSO and Toyota Motor Corporation (“Toyota”) announced further investment into JASM to build and operate a second semiconductor manufacturing facility. By way of such investment, Toyota will also take a minority stake in JASM. As of February 28, 2023,29, 2024, we owned approximately 71.4% of the equity interest in JASM. After the completion of the new investment, we will own approximately 86.5% of the equity interest in JASM.

European Semiconductor Manufacturing Company (ESMC) GmbH (“ESMC”). In June 2023, we established ESMC, which is expected to be primarily engaged in the manufacturing and sale of integrated circuits. In January 2024, Robert Bosch GmbH, Infineon Technologies AG, and NXP Semiconductors Germany GmbH, a wholly-owned subsidiary of NXP Semiconductors N.V. (“NXP”), together acquired 30% equity interest in ESMC. ESMC plans to build and operate a semiconductor manufacturing facility in Dresden, Germany. Construction on the site is expected to commence in 2024. As of February 29, 2024, we owned 70.0% of the equity interest in ESMC.

None.

The following discussion covers items for and a comparison between the fiscal years ended December 31, 20222023 and 2021.2022. For the discussion covering items for the fiscal year ended December 31, 20202021 and a comparison between the fiscal years ended December 31, 20212022 and 2020,2021, please refer to “Item 5” of our annual report on Form 20-F for the fiscal year ended December 31, 20212022 filed with the U.S. 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.” As a leader of the foundry segment, our net revenue and net income attributable to shareholders of the parent were NT$1,587,415 million and NT$592,359 million in 2021, and NT$2,263,891 million (US$73,670 million) and NT$992,923 million in 2022, and NT$2,161,736 million (US$32,31170,599 million) and NT$851,740 million (US$27,816 million) in 2022,2023, respectively. Please see “– Year to YearYear-to-Year Comparisons – Net Revenue” for a discussion of the changes in net revenue from 20212022 to 2022.2023.

The principal source of our revenue is wafer fabrication, which accounted for approximately 88%87% of our net revenue in 2022.2023. The rest of our net revenue was mainly derived from packaging and testing services, mask making, design, and royalty income. Factors that significantly impact our revenue include:

While the above factors are significant 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 conditions and other factors. We believe that customers find value in our flexible manufacturing capabilities, focus on customer service and timely delivery of high yield products, and 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 customers.

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Production Capacity. We currently own and operate our semiconductor manufacturing facilities. For the yearyears of 20212022 and 2022,2023, our production capacity was approximately 1415 million and 1516 million 12-inch equivalent wafers, respectively.

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Judgments on Lease Terms. In determining a lease term, we consider all facts and circumstances that create an economic incentive to exercise or not to exercise an option, including any expected changes in facts and circumstances from the commencement date until the exercise date of the option. Main factors considered include contractual terms and conditions covered by the optional periods, and the importance of the underlying asset to the lessee’s operations, etc. The lease term is reassessed if a significant change in circumstances that are within our control occurs.

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In the process of evaluating the potential impairment of tangible assets, right-of-use assets and intangible assets other than goodwill, we are required to review for impairment groups of assets related to the lowest level of identifiable independent cash flows. We determine the independent cash flows that can be related to specific asset groups. In addition, we determine the remaining useful lives of assets and the expected future revenue and expenses associated with the assets. Any change in these estimates based on changed economic conditions or business strategies could result in significant impairment charges or reversal in future periods. Our projection for future cash flow is generally lower during periods of reduced earnings. As a result, an impairment charge is more likely to occur during a period when our operating results are already otherwise depressed.

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Year to YearYear-to-Year Comparisons

Net Revenue and Gross Margin

Net Revenue

Our net revenue in 2022 increased2023 decreased by 42.6%4.5% from 2021,2022, which was mainly attributed to a decrease in wafer shipments, partially offset by an increase in ASP due to a higher proportion of advanced technology (7-nanometerand wafer shipments,below) revenue and a depreciation of the NT dollar against the U.S. dollar. We shipped approximately 15.312 million 12-inch equivalent wafers in 20222023 compared to 14.215.3 million in 2021.2022.

Gross Margin

Our gross margin fluctuates with the level of capacity utilization, price change, cost improvement, product mix and exchange rate, among other factors. Furthermore, our gross margin would be negatively impacted in the year when a new technology is introduced.

In 2022,2023, our gross margin increaseddecreased to 59.6%54.4% of net revenue from 51.6%59.6% in 2021,2022, mainly attributable to our value selling efforts, alower capacity utilization and 3-nanometer ramp-up, partially offset by more favorable foreign exchange rate, and cost improvement, partially offset by lower capacity utilization.rate.

Operating Expenses

Operating expenses increased by NT$57,48527,126 million in 2022,2023, or 34%12%, from 2021.2022.

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Research and Development Expenses

We remain strongly committed to being the leader in advanced process technologies development. We believe that continuing investment in process technologies is essential for us to remain competitive in the markets we serve.

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Liquidity and Capital Resources

Our sources of liquidity include cash flow from operations, cash and cash equivalents, current portion of marketable securities, and issuances of corporate bonds.

Our primary source of liquidity is cash flow from operations. Cash flow from operations for 20222023 was NT$1,610,5991,241,967 million (US$52,41140,561 million), reflecting an increasea decrease of NT$498,438368,632 million from 2021.2022.

Our cash, cash equivalents and current portion of marketable securities increased to NT$1,561,4861,687,644 million (US$50,81355,116 million) as of December 31, 2022,2023, compared to NT$1,188,4561,561,486 million as of December 31, 2021.2022. The current portion of marketable securities primarily consisted of fixed income securities. In 2022,2023, we issued NT dollar-denominated corporate bonds totaling NT$65,40085,700 million (US$2,1282,799 million) and U.S. dollar-denominated corporate bonds of US$4,500 million.. For further information, please refer to note 1918 and note 3231 to the consolidated financial statements.

We believe that our cash generated from operations, cash and cash equivalents, current portion of marketable securities, and ability to access capital market will be sufficient to fund our working capital needs, capital expenditures, debt repayments, dividend payments and other business requirements associated with existing operations over the next 12 months.

Cash and cash equivalents increased by NT$277,824122,614 million in 2022,2023, following an increase of NT$404,819277,824 million in 2021.2022.

Operating Activities

In 2023, we generated NT$1,241,967 million (US$40,561 million) net cash from operating activities, as compared to NT$1,610,599 million in 2022. The net cash generated from operating activities was primarily from NT$979,316 million in income before income tax and NT$532,191 million in non-cash depreciation and amortization expenses, partially offset by income tax payment, net changes in working capital and others of NT$269,540 million. The higher depreciation and amortization expenses in 2023 were mainly attributed to continuing investment in production capacity for advanced technologies.

In 2022, we generated NT$1,610,599 million (US$52,411 million) net cash from operating activities, as compared to NT$1,112,161 million in 2021. The net cash generated from operating activities was primarily from NT$1,144,072 million in income before income tax, NT$437,254 million in non-cash depreciation and amortization expenses, and net changes in working capital and income tax payment of NT$29,273 million. The higher depreciation and amortization expenses in 2022 were mainly attributed to continuing investment in production capacity for advanced technologies.

Investing Activities

In 2021,2023, net cash generated from operatingused in investing activities was primarily from NT$663,036906,120 million (US$29,592 million), as compared to NT$1,190,928 million in income before income tax and NT$422,395 million2022. The primary use of cash in non-cash depreciation and amortization expenses, and net changesinvesting activities in working2023 was for capital and income tax paymentexpenditures of NT$26,730949,817 million. The higher depreciation and amortization expenses in 2021 were mainly attributed to continuing investment in production capacity for advanced technologies.

Investing Activities

In 2022, net cash used in investing activities was NT$1,190,928 million, (US$38,755 million), as compared to NT$836,366 million in 2021. The primary use of cash in investing activities in 2022 was for capital expenditures of NT$1,082,672 million.

In 2021, net cash used in investing activities was primarily for capital expenditures of NT$839,196 million.

Our capital expenditures for 20222023 were primarily related to:

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See “Item 3. Key Information – Risk Factors”Factors – Risks Relating to Our Business” section for the risks associated with the inability of raising the requisite funding for our expansion programs. Please also see “Item 4. Information on The Company – Capacity Management and Technology Upgrade Plans” for discussion of our capacity management and capital expenditures.

Financing Activities

In 2023, net cash used in financing activities was NT$204,894 million (US$6,692 million), as compared to net cash used of NT$200,244 million in 2022. The net cash used in financing activities in 2023 was mainly due to cash dividend payments, partially offset by the proceeds from issuance of corporate bonds and increase in bank loans under hedging financial liabilities.

In 2022, net cash used in financing activities was NT$200,244 million, (US$6,516 million), as compared to net cash generated of NT$136,608 million in 2021. The net cash used in financing activities in 2022 was mainly due to cash dividend payments and decrease in short-term loans, partially offset by the proceeds from issuance of corporate bonds.

In 2021, net cash generated by financing activities was mainly from proceeds from issuance of corporate bonds and an increase in short-term loans, partially offset by cash dividend payments.

As of December 31, 2022,2023, our short-termbank loans under hedging financial liabilities were nilNT$27,290 million (US$891 million) and our aggregate long-term debt was NT$858,410927,576 million (US$27,93430,293 million), of which NT$19,3149,293 million (US$629303 million) was classified as current. The long-term debt mainly included NT dollar- and U.S. dollar-denominated corporate bonds with fixed interest rates ranging from 0.36% to 4.63% and remaining maturity ranging from less than 1one year to 3837 years.

Cash Requirements

The following table sets forth the maturity of our long-term debt, including principal and interest payments, outstanding as of December 31, 2022:

The following table sets forth information on our material contractually obligated payments (including principals and interests) for the periods indicated as of December 31, 2022:2023:

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We provided letters of credit and entrusted financial institutions to provide performance guarantees. See note 3736 to our consolidated financial statements for further information.

Significant amount of capital is required to build, expand, and upgrade our production facilities and equipment. Our capital expenditures for 20232024 are expected to be between US$3228 billion and US$3632 billion, which, depending on market conditions, may be adjusted later.

Taxation

The corporate income tax rate in R.O.C. is 20%. PursuantThe R.O.C. Controlled Foreign Company (“CFC”) rules enacted in 2016 have been implemented since January 1, 2023, pursuant to which, certain profits retained at a CFC located in a low-tax jurisdiction would be taxable at its parent company in Taiwan. On the regulations underother hand, effective from January 1, 2023, the R.O.C. Statute for Industrial Innovation wewas amended such that eligible companies that develop innovative technologies domestically and possess leading position in global supply chain may claim investment tax credit of 25% on qualified R&D expenditure and 5% on procurement of machinery/equipment for advanced processes. We are eligible for a tax creditthese new incentives pursuant to the R.O.C. Statute for 10% or 15% of qualified research and development expenditures. In addition, our undistributed earnings are reduced by deduction of capital expenditures in calculation of surtax imposed on undistributed earnings.Industrial Innovation.

The alternative minimum tax (“AMT”) imposed under the R.O.C. AMT Act is a supplemental income tax which applies if the amount of regular income tax calculated pursuant to the R.O.C. Income Tax Act and relevant laws and regulations is below the amount of basic tax prescribed under the R.O.C. AMT Act. The taxable income for calculating AMT includes most income that is exempt from income tax under various legislations, such as tax holidays. The prevailing AMT rate for business entities is 12%. As we were eligible for tax holidays, the 12% AMT was generally applicable to us.

We were eligible for five-year tax holidays for income generated from construction and capacity expansions of production facilities according to regulations under the Statute for Upgrading Industries of the R.O.C. The exemption period may begin at any time within five years, as applicable, following the completion of a construction or expansion of production facilities. The Statute for Upgrading Industries expired at the end of 2009. However, under the Grandfather Clause, we can continue to be eligible for five-year tax holidays if the relevant investment plans were approved by R.O.C. tax authority before the expiration of the Statute. Pursuant to the Grandfather Clause, we commenced the exemption period for part of Fab 15 (Phase I to IV) and part of Fab 14 (Phase III to IV) in 2018. The aggregate tax benefits of such exemption periods in 2021 and 2022 were NT$57,000 million and NT$96,378 million, (US$3,136 million), net of AMT effect, respectively.effect. This five-year tax holiday expired at the end of 2022.

Effective from January 1, 2023, the R.O.C. Statute for Industrial Innovation was amended such that eligible companies that develop innovative technologies domestically and possess leading position in global supply chain may claim investment tax credit of 25% on qualified R&D expenditure and 5% on procurement of machinery/equipment for advanced processes over a fiscal year. We anticipate that we will be eligible for the new incentives, and the potential tax benefit could partially offset the unfavorable impact from the expiration of five-year tax holidays at the end of 2022.

Off Balance Sheet Arrangements

There are no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenue or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.

Recent Accounting Pronouncements

Please refer to note 4 to the consolidated financial statements.

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Under the terms of the Indenture and the Guarantees, TSMC fully, unconditionally and irrevocably guarantees to each holder the full and prompt payment of the principal of, and premium (if any) and interest on, such debt securities (including any Additional Amounts, as defined in the Indenture, payable in respect thereof) when and as the same shall become due and payable as provided in such debt securities. TSMC (i) agrees that its obligations under the Guarantees will be enforceable irrespective of any invalidity, irregularity or unenforceability of the debt securities or the Indenture and (ii) waives its right to require the trustee to pursue or exhaust its legal or equitable remedies against the issuer prior to exercising its rights under the Guarantees. Moreover, if at any time any amount paid under a debt security or the Indenture is rescinded or must otherwise be restored, the rights of the holders of the debt securities under the Guarantees will be reinstated with respect to such payments as though such payment had not been made.

The Guarantees (i) constitute senior unsecured obligations of TSMC, (ii) at all times rank at least equally with all other present and future senior unsecured obligations of TSMC, except as may be required by mandatory provisions of law, (iii) are senior in right of payment to all future subordinated obligations of TSMC and (iv) are effectively subordinated to secured obligations of TSMC, to the extent of the assets serving as security therefor.

TSMC will be released from and relieved of its obligations under a Guarantee in the event (i) of repayment in full of the relevant series of debt securities, or (ii) that there is a Legal Defeasance (as defined in the Indenture) of the relevant series of debt securities, in each case provided that the transaction is otherwise carried out pursuant to and in accordance with all other applicable provisions of the Indenture.

The following summarized financial information is presented for the Obligor Group on a combined basis after elimination of intercompany transactions between entities in the combined group and amounts related to investments in any subsidiary that is a non-guarantor. This information is not intended to present the financial position or results of operations of the combined group of companies in accordance with U.S. GAAP or IFRSs.

Statement of Profit or Loss for Obligor Group