UNITED MICROELECTRONICS CORP [UMC] Filings

Large accelerated filer

Accelerated filer

Non-accelerated filer

Emerging growth company

20-F 1 d168667d20f.htm FORM 20-F Form 20-F

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM

20-F

(Mark One)

☐	REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

☒	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2021

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

☐	SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Date of event requiring this shell company report

For the transition period from

Commission file number

001-15128

United Microelectronics Corporation

(Exact name of Registrant as specified in its charter)

N/A

(Translation of Registrant’s name into English)

Taiwan, Republic of China

(Jurisdiction of incorporation or organization)

No. 3

Li-Hsin

Road II, Hsinchu Science Park,

Hsinchu City, Taiwan, Republic of China

(Address of principal executive offices)

Chitung Liu, Senior Vice President & Chief Financial Officer

Telephone:

+886-2-2658-9168

/ Email: ir@umc.com

8F, No. 68, Section 1, Neihu Road., Taipei 11493, Taiwan R.O.C.

(Name, Telephone,

E-mail

and/or Facsimile number and Address of Company Contact Person)

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


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
American Depositary Shares, each representing 5 Common Shares	UMC	New York Stock Exchange

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

None

(Title of Class)

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

None

(Title of Class)

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

12,483,247,566 Common Shares of Registrant issued and outstanding as of December 31, 2021

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

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

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation

S-T

(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a

non-accelerated

filer, or an emerging growth company. See definition of “large accelerated filer, ” “accelerated filer,” and “emerging growth company” in Rule

12b-2

of the Exchange Act.

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

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

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒

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


U.S. GAAP ☐		International Financial Reporting Standards as issued by the International Accounting Standards Board ☒		Other ☐

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow. Item 17 ☐ Item 18 ☐

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule

12b-2

of the Securities Exchange Act of 1934). Yes ☐ No ☒

Table of Contents

UNITED MICROELECTRONICS CORPORATION

FORM

20-F

ANNUAL REPORT

FISCAL YEAR ENDED DECEMBER 31, 2021

Table of Contents


		Page

SUPPLEMENTAL INFORMATION			1

FORWARD-LOOKING STATEMENTS IN THIS ANNUAL REPORT MAY NOT BE REALIZED			1

PART I.			4

ITEM 1	IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS		4
ITEM 2	OFFER STATISTICS AND EXPECTED TIMETABLE		4
ITEM 3	KEY INFORMATION		4
ITEM 4	INFORMATION ON THE COMPANY		19
ITEM 4A.	UNRESOLVED STAFF COMMENTS		37
ITEM 5	OPERATING AND FINANCIAL REVIEW AND PROSPECTS		38
ITEM 6	DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES		47
ITEM 7	MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS		51
ITEM 8	FINANCIAL INFORMATION		51
ITEM 9	THE OFFER AND LISTING		53
ITEM 10	ADDITIONAL INFORMATION		54
ITEM 11	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		72
ITEM 12	DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES		75

PART II.			77

ITEM 13	DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES		77
ITEM 14	MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS		77
ITEM 15	CONTROLS AND PROCEDURES		77
ITEM 16A.	AUDIT COMMITTEE FINANCIAL EXPERT		80
ITEM 16B.	CODE OF ETHICS		80
ITEM 16C.	PRINCIPAL ACCOUNTANT FEES AND SERVICES		80
ITEM 16D.	EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES		81
ITEM 16E.	PURCHASE OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS		81
ITEM 16F.	CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT		81
ITEM 16G.	CORPORATE GOVERNANCE		81
ITEM 16H.	MINE SAFETY DISCLOSURE		82

PART III.			83

ITEM 17	FINANCIAL STATEMENTS		83
ITEM 18	FINANCIAL STATEMENTS		83
ITEM 19	EXHIBITS		84

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SUPPLEMENTAL INFORMATION

The references to “United Microelectronics”, “we”, “us”, “our”, “our company” and “the Company” in this Annual Report refer to United Microelectronics Corporation and its consolidated subsidiaries, unless the context suggests otherwise. The references to “Taiwan” and “R.O.C.” refer to Taiwan, Republic of China. The references to “China” and “PRC” refer to People’s Republic of China. The references to “shares” and “common shares” refer to our common shares, par value NT$10 per share, and “ADSs” refer to our American Depositary Shares, each representing five common shares. The ADSs are issued under the Deposit Agreement, dated as of October 21, 2009, as amended, supplemented or modified from time to time, among United Microelectronics, JPMorgan Chase Bank, N.A. and the holders and beneficial owners from time to time of American Depositary Receipts issued thereunder. The references to “TIFRSs” refer to the Taiwan International Financial Reporting Standards as issued by the Financial Supervisory Commission in the Republic of China, “IFRSs” refer to International Financial Reporting Standards as issued by the International Accounting Standards Board, or IASB, and “U.S. GAAP” refer to the generally accepted accounting principles in the United States. Any discrepancies in any table between totals and sums of the amounts listed are due to rounding.

We publish our financial statements in New Taiwan dollars, the lawful currency of the R.O.C. In this Annual Report, “NT$” and “NT dollars” mean New Taiwan dollars, “$”, “US$” and “U.S. dollars” mean United States dollars, “¥” means Japanese Yen, “RMB¥” means Renminbi, “SGD” means Singapore Dollar and “€” means EURO.

FORWARD-LOOKING STATEMENTS IN THIS ANNUAL REPORT MAY NOT BE REALIZED

Our disclosure and analysis in this Annual Report contain or incorporate by reference some forward-looking statements. We have based these forward-looking statements on our current expectations and projections about future events. Although we believe that these expectations and projections are reasonable, such forward-looking statements are inherently subject to risks, uncertainties and assumptions about us, including, among other things:

•

our dependence on frequent introduction of new product services and technologies based on the latest developments;

•

the intensely competitive semiconductor, communications, consumer electronics and computer industries and markets;

•

risks associated with our international business activities;

•

our dependence on key personnel;

•

general economic and political conditions, including those related to the semiconductor, communications, consumer electronics and computer industries;

•

natural disasters, such as earthquakes and droughts, which are beyond our control;

•

possible disruptions in commercial activities caused by natural and human-induced disasters, and outbreaks of contagious diseases such as the

COVID-19

pandemic;

•

fluctuations in foreign currency exchange rates;

•

additional disclosures we make in our previous and future Form

20-F

annual reports and Form

6-K

periodic reports to the U.S. Securities and Exchange Commission, or the U.S. SEC; and

•

those other risks identified in the “Item 3. Key Information—D. Risk Factors” section of this Annual Report.

You can identify forward looking statements by the fact that they do not relate strictly to historical or current facts. The words “may”, “will”, “is/are likely to”, “anticipate”, “believe”, “estimate”, “expect”, “intend”, “plan” and similar expressions are intended to identify a number of these forward-looking statements. Forward-looking statements in this Form

20-F

include, but are not limited to, statements regarding our business strategies and future plans, anticipated business condition and financial results, our capital expenditure plans, our capacity management plans, expectations as to the capabilities of our technologies and manufacturing process, technological upgrades, investment in research and development, future market demand, regulatory or other developments in our industry, business expansion plans or new investments as well as business acquisitions and financing plans. Please see “Item 3. Key Information—D. 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. We do not and will not undertake the obligation to update or revise any forward-looking statements contained in this Annual Report whether as a result of new information, future events or otherwise. In light of these risks, uncertainties and assumptions, the forward-looking events discussed in this Annual Report might not occur and our actual results could differ materially from those anticipated in these forward-looking statements.

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GLOSSARY


AMS		Analog/mixed-signal.

ASIC		Application Specific Integrated Circuit. A custom-designed integrated circuit that performs specific functions which would otherwise require a number of off-the-shelf integrated circuits to perform.

BCD		Bipolar-Complementary Metal Oxide Semiconductor (“CMOS”)-Double Diffused Metal Oxide Semiconductor (“DMOS”). An integrated circuit and one of the most important components for power management integration circuits.

BSI-CSI		Back-Side Illuminated CMOS Image Sensor, which is recently used for mobile product image sensor with better performance and thinner chip.

Cell		Semiconductor structure in an electrical state, which can store a bit of information, mainly used as the building block of memory array.

Die		A piece of a semiconductor wafer containing the circuitry of an unpackaged single chip.

DRAM		Dynamic Random Access Memory. A type of volatile memory product that is used in electronic systems to store data and program instructions. It is the most common type of RAM and must be refreshed with electricity hundreds of times per second or else it will fade away.

eFlash		Embedded Flash Nonvolatile Memory. Used for most SoC (“System-on-Chip”) applications and has faster speed and enhanced security.

eHV		Embedded High Voltage Device. Used for Liquid Crystal Display (“LCD”) driver circuit to drive LCD devices.

FinFET		Fin Field-Effect Transistor.

FPGA		Field Programmable Gate Array. A programmable integrated circuit.

Integrated Circuit		Entire electronic circuit built on a single piece of solid substrate and enclosed in a small package. The package is equipped with leads needed to electrically integrate the integrated circuit with a larger electronic system. Monolithic and hybrid integrated circuits are distinguished by the type of substrate used.

Interconnect		The conductive path made from copper or aluminum that is required to achieve connection from one circuit element to the other circuit elements within a circuit.

Mask or Photomask		A piece of glass on which an integrated circuit circuitry design is laid out.

MCU		Microcontroller unit, a small computer on a single integrated circuit, containing one or more central processing units along with memory and programmable input/output peripherals.

Memory		A group of integrated circuits that a computer uses to store data and programs, such as ROM, RAM, DRAM and SRAM.

Micron		A unit of spatial measurement that is one-millionth of a meter.

MRAM		Magnetic Random Access Memory.

Nanometer		A unit of spatial measurement that is one-billionth of a meter.

PC		Personal computer.

RAM		Random Access Memory. A type of volatile memory forming the main memory of a computer where applications and files are run.

ReRAM		Resistive Random Access Memory.

RF-SOI		Radio Frequency Silicon on Insulator.

ROM		Read-Only Memory. Memory that is programmed by the manufacturer and cannot be changed. Typically, ROM is used to provide start-up data when a computer is first turned on.

Scanner		A photolithography tool used in the production of semiconductor devices. This camera-like step-and-scan tool projects the image of a circuit from a master image onto a photosensitized silicon wafer.

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Semiconductor		A material with electrical conducting properties in between those of metals and insulators. Essentially, semiconductors transmit electricity only under certain circumstances, such as when given a positive or negative electric charge. Therefore, a semiconductor’s ability to conduct can be turned on or off by manipulating those charges and this allows the semiconductor to act as an electric switch. The most common semiconductor material is silicon, used as the base of most semiconductor chips today because it is relatively inexpensive and easy to create.

SoC		System-on-Chip. A chip that incorporates functions currently performed by several chips on a cost effective basis.

SOI		Silicon-On-Insulator. Silicon wafer consisting of a thin layer of oxide, on top of which semiconductor devices are built.

SRAM		Static Random Access Memory. A type of volatile memory product that is used in electronic systems to store data and program instructions. Unlike the more common DRAM, it does not need to be refreshed.

Transistor		Tri-terminal semiconductor device in which input signal (voltage or current depending on the type of transistor) controls output current. An individual circuit that can amplify or switch electric current. This is the building block of all integrated circuits.

Volatile memory		Memory products which lose their data content when the power supply is switched off.

Wafer		Thin, round, flat piece of silicon that is the base of most integrated circuits.

8-inch wafer equivalents		Standard unit describing the equivalent amount of 8-inch wafers produced after conversion, used to quantify levels of wafer production for purposes of comparison. Figures of 8-inch wafer equivalents are derived by converting the number of wafers of all dimensions (e.g., 6-inch, 8-inch and 12-inch) into their equivalent figures for 8-inch wafers. 100 6-inch wafers are equivalent to 56.25 8-inch wafers. 100 12-inch wafers are equivalent to 225 8-inch wafers.

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PART I.

ITEM 1

IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

Not applicable.

ITEM 2

OFFER STATISTICS AND EXPECTED TIMETABLE

Not applicable.

ITEM 3

KEY INFORMATION

A.	[RESERVED]

B.	Capitalization and Indebtedness

Not applicable.

C.	Reasons for the Offer and Use of Proceeds

Not applicable.

D.	Risk Factors

Our business and operations are subject to various risks, many of which are beyond our control. If any of the risks described below actually occurs, our business, financial condition or results of operations could be seriously harmed.

Risks Related to Our Business and Financial Condition

Any global systemic political, economic and financial crisis could negatively affect our business, results of operations, and financial condition.

In recent times, several major systemic economic and financial crises negatively affected global business, banking and financial sectors, including the semiconductor industry and markets. These types of crises cause turmoil in global markets that often result in declines in electronic products sales from which we generate our income through our goods and services. In addition, these crises may cause a number of indirect effects such as undermining the ability of our customers to remain competitive when faced with the financial and economic challenges created by adverse political and macro-economic conditions and companies struggling to survive in the wake of these crises. For example, there could be in the future

knock-on

effects from these types of crises on our business, including significant reduction in orders from our customers; insolvency of key suppliers resulting in product delays; inability of customers to obtain credit to finance purchases of our products; customer insolvencies and bankruptcies; and counterparty failures negatively impacting our treasury operations. Any future systemic political, economic or financial crises could cause revenues for the semiconductor industry as a whole to decline dramatically, and if the economic conditions or financial condition of our customers were to deteriorate, additional accounting related allowances may be required in the future and such additional allowances could increase our operating expenses and therefore reduce our operating income and net income. Any disruption in global trade conditions such as the increase in tariffs or the escalation of regional trade tension will indirectly impact global business environment which may adversely impact our business, results of operations and financial condition.

The seasonality and cyclical nature of the semiconductor industry and periodic overcapacity make us particularly vulnerable to significant and sometimes prolonged economic downturns.

The semiconductor industry has historically been highly cyclical and, at various times, has experienced significant downturns. Since most of our customers operate in semiconductor-related industries, variations in order levels from our customers can result in volatility in our revenues and earnings. Because our business is, and will continue to be, largely dependent on the requirements of semiconductor companies for our services, downturns in the semiconductor industry will lead to reduced demand for our services.

Our operating revenues are also typically affected by seasonal variations in market conditions that contribute to the fluctuations of the average selling price of semiconductor services and products. The seasonal sales trends for semiconductor services and products closely mirror those for consumer electronics, communication and computer sales. We generally experience seasonal lows in the demand for semiconductor services and products during the first half of the year, primarily as a result of inventory correction by our customers. Any change in the general seasonal variations, which we cannot anticipate, may result in materially adverse effects on our revenues, operations and businesses.

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Our operating results fluctuate from quarter to quarter, which makes it difficult to predict our future performance.

Our revenues, expenses and results of operations have varied significantly in the past and may fluctuate significantly from quarter to quarter in the future due to a number of factors, many of which are beyond our control. Our business and operations have at times in the past been negatively affected by, and are expected to continue to be subject to the risk of the following factors:

•

the seasonality and cyclical nature of both the semiconductor industry and the markets served by our customers;

•

our customers’ adjustments in their inventory;

•

the loss of a key customer or the postponement of orders from a key customer;

•

the rescheduling and cancellation of large orders;

•

our ability to obtain equipment, raw materials, electricity, water and other required utilities on a timely and economic basis;

•

COVID-19 pandemic and outbreaks of other contagious diseases, including but not limited to severe acute respiratory syndrome, avian flu, swine flu and Zika virus;

•

regulatory development and changes affecting our business operations globally;

•

global and regional geopolitical conditions, including arms conflicts and wars;

•

environmental events, such as fires and earthquakes, or industrial accidents; and

•

technological changes.

Due to the factors noted above and other risks discussed in this section, many of which are beyond our control, you should not rely on

quarter-to-quarter

comparisons to predict our future performance. Unfavorable changes in any of the above factors may seriously harm our business, financial condition and results of operations. In addition, our operating results may be below the expectations of public market analysts and investors in some future periods. In this event, the price of the common shares or ADSs may underperform or fall.

A decrease in demand for or selling prices of communication devices, consumer electronics and computer goods may decrease the demand for our services and reduce our margins.

Our customers generally use the semiconductors produced in our fabs in a wide variety of applications. We derive a significant percentage of our operating revenues from customers who use our manufacturing services to make semiconductors for communication devices, consumer electronics, PCs and other computers. The semiconductor industry experienced several downturns due to recent major financial crises and natural disasters. These downturns resulted in a reduced demand for our services and hence decreased our revenues and earnings. Any significant decrease in the demand for communication devices, consumer electronics, PCs or other computers may further decrease the demand for our services. In addition, if the average selling price of communication devices, consumer electronics, PCs or other computers decline significantly, we will be pressured to further reduce our selling prices, which may reduce our revenues and, therefore, reduce our margins significantly. As demonstrated by downturns in demand for high technology products in the past, market conditions can change rapidly, without apparent warning or advance notice. In such instances, our customers will experience inventory buildup and/or difficulties in selling their products and, in turn, will reduce or cancel orders for wafers from us. The timing, severity and recovery of these downturns cannot be predicted accurately or at all. When they occur, our business, profitability and price of the common shares and ADSs are likely to suffer. In addition, we may not be able to verify or guarantee the creditworthiness of some of our customers. If customers fail to make payments on a timely basis and accumulate substantial accounts receivable, we may not be able to collect payments or may incur substantial costs and expenses to pursue legal remedies to recover such losses, which may have an adverse effect on our financial conditions and results of operations.

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Overcapacity in the semiconductor industry may reduce our revenues, earnings and margins.

The prices that we can charge our customers for our services are significantly related to the overall worldwide supply of integrated circuits and semiconductor products. The overall supply of semiconductor products is based in part on the capacity of other companies, which is outside of our control. For example, in light of the current market conditions, some companies, including our largest competitors, have announced plans to increase capacity expenditures significantly. We believe such plans, if carried out as planned, will increase the industry-wide capacity and are likely to result in overcapacity in the future. In periods of overcapacity, if we are unable to offset the adverse effects of overcapacity through, among other things, our technology and product mix, we may have to lower the prices we charge our customers for our services and/or we may have to operate at significantly less than full capacity. Such actions could reduce our margin and profitability and weaken our financial condition and results of operations. We cannot give any assurance that an increase in the demand for foundry services in the future will not lead to overcapacity in the near future, which could materially adversely affect our revenues, earnings and margins.

Any problem in the semiconductor outsourcing infrastructure can adversely affect our operating revenues and profitability.

Many of our customers depend on third parties to provide mask tooling, assembly and test services, and we and our customers may not be able to control or direct such third parties to provide these services timely or at costs reasonable to our customers. If these customers cannot timely obtain these services on reasonable terms, they may not order any foundry services from us. This may significantly reduce our operating revenues and negatively affect our profitability.

We may be unable to implement new technologies as they become available, which may result in the decrease of our profitability and the loss of customers and market share.

The semiconductor industry is characterized by rapidly evolving and constantly changing technology. If we do not anticipate the technology evolution and rapidly adopt new and innovative technology, we may not be able to produce sufficiently advanced services at competitive prices. Our competitors may adopt new technology before we do and reduce our ability to compete effectively in the market. If we are unable to begin offering advanced services and processes on a competitive and timely basis, we may lose customers to our competitors providing similar technologies, which may cause our operating revenues to decline unless we can replace lost customers with new customers. In addition, the market prices for advanced technology and services tend to fall over time. As a result, if we are unable to offer new advanced services and processes on a competitive and timely basis, we may need to reduce prices that we set for our existing services and processes, which would have a negative effect on our profitability. We also depend upon the introduction of new technologies on a timely basis in order to benefit from the relatively higher prices such new technologies offer in the earlier stages of their life cycles. If we are unable to introduce new technologies on a timely and competitive basis, we may not be able to benefit from the relatively higher prices for new technologies, and our average selling price and profits would decrease accordingly.

We may be unable to provide leading technology to our customers if we lose the support of our technology partners.

Enhancing our manufacturing process technologies is critical to our ability to provide services for our customers. We intend to continue to advance our process technologies through internal research and development and alliances with other companies. In addition to our internal research and development team focused on developing new and improved semiconductor manufacturing process technologies, we are also dependent on some of our technology partners to advance certain process technology portfolios. In addition, we currently have patent cross-licensing agreements with several companies, including International Business Machines Corporation, or IBM. Some mask and equipment vendors also supply our technology development teams with masks and equipment needed to develop more advanced processing technologies. If we are unable to continue any of our joint development arrangements, patent cross-licensing agreements and other agreements, on mutually beneficial economic terms, if we

re-evaluate

the technological and economic benefits of such relationships, if we are unable to enter into new technology alliances and arrangements with other leading and specialty semiconductor companies, or if we fail to secure masks and equipment from our vendors in a timely manner sufficient to support our ongoing technology development, we may be unable to continue providing our customers with leading edge mass-producible process technologies and may, as a result, lose important customers, which would have a materially adverse effect on our businesses, results of operations and financial condition.

In addition, some of our customers rely upon third-party vendors, or intellectual property (IP) vendors, for the IP they embed into their designs. Although we work and collaborate with IP vendors with respect to such matters, there can be no guarantee that we will be successful or that the vendors will deliver according to our requirements or the needs of our customers. Failures to meet the targets or to deliver on a timely basis could cause customers to cancel orders and/or shift capacity to other suppliers.

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The COVID-19 pandemic may materially and adversely affect our business and operations, as well as our financial condition and results of operations.

Our business and results of operations may be adversely affected by the global COVID-19 pandemic and related events and we expect its impact to continue. The ongoing COVID-19 pandemic may materially adversely affect our business and results of operations in several ways, including but not limited to: (i) interruption and disruptions of our supply chains for equipment, parts and materials in terms of manufacturing, logistics, and manpower arrangements for tool installation; (ii) significant fluctuation in customer demands for certain products, leading to uncertainties for our capacity planning and our ability to meet such demands; (iii) strict border control measures and travel restrictions, which may delay or limit our employees or vendors from completing necessary training programs or providing services; and (iv) potential production delays for our products due to forced factory or office closures or partial operation.

We have implemented various measures to address the abovementioned risks, including but not limited to, health management of our employees, management of production inventory and supply chain risk management. However, there is no certainty that the measures we have taken will be sufficient to mitigate the risks posed by COVID-19 pandemic, and our ability to perform critical functions and to meet customers’ needs could be materially adversely affected. In addition, there is also a risk that any post-pandemic downward changes in consumers’ demand for electronic products may in turn, lead to reduced demand for our products and services.

In addition, if any of our employees is suspected of having contracted COVID-19 or any contagious disease, we may under certain circumstances be required to quarantine such employees and the affected areas of our premises. Therefore, we may have to temporarily suspend part of or all of our operations. Furthermore, government actions to contain the outbreak may restrict the level of economic activities in affected regions, including Taiwan and China, and affect the willingness and ability of our employees and customers to travel, which may also adversely affect our business and prospects. Moreover, any lockdown or limitation on economic activities imposed by the governments may prevent us from operating our fabs effectively and cause disruption to our customers. As a result, we cannot assure you that any future outbreak of contagious diseases would not have a material adverse effect on our financial condition and results of operations.

The full extent of the future impact of the COVID-19 pandemic on our operational and financial performance is uncertain and will depend on many factors beyond our control, including, without limitation, the timing, extent, trajectory and duration of the pandemic; the availability, distribution and effectiveness of vaccines; the spread of new variants of COVID-19; the continued and renewed imposition of protective public safety measures; the continuing global disruption in supply chains in our industries and the impact of the pandemic on the global economy, inflation and demand for consumer products. Even after the pandemic has subsided and economic activities gradually increase, we may continue to experience material and adverse impacts to our business, operating results, and financial condition as a result of the pandemic’s lasting global economic impact, including any recession that has occurred or may occur in the future in our industries or continuing inflationary impacts.

Our business may suffer if we cannot compete successfully in our industry.

The worldwide semiconductor foundry industry is highly competitive. We compete with dedicated foundry service providers such as Taiwan Semiconductor Manufacturing Company Limited, Semiconductor Manufacturing International (Shanghai) Corporation, Globalfoundries Inc., as well as the foundry operation services of some integrated device manufacturers, such as Intel, Samsung Electronics, or Samsung, SK Hynix and Toshiba Corporation, or Toshiba. Integrated device manufacturers principally manufacture and sell their own proprietary semiconductor products, but may also offer foundry services. Other competitors such as Dongbu Anam Semiconductor, Hua Hong, Powerchip, TowerJazz, Vanguard and XMC have initiated efforts to expand and develop substantial additional foundry capacity. New entrants and consolidations in the foundry business are likely to initiate a trend of competitive pricing and create potential overcapacity in legacy technology. Some of our competitors have greater access to capital and substantially greater production, research and development, marketing and other resources than we do. As a result, these companies may be able to compete more aggressively over a longer period of time than we can.

The principal elements of competition in the wafer foundry market include:

•

technical competence;

•

time-to-volume

production and cycle time;

•

time-to-market;

•

research and development quality;

•

available capacity;

•

manufacturing yields;

•

customer service and design support;

•

price;

•

management expertise; and

•

strategic alliances.

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Our ability to compete successfully also depends on factors partially outside of our control, including product availability, IP, including cell libraries that our customers embed in their product designs, and industry and general economic trends.

We may not be able to implement our planned growth if we are unable to obtain the financing necessary to fund the substantial capital expenditures we expect to incur.

Our business and the nature of our industry require us to make substantial capital expenditures leading to a high level of fixed costs. The costs of facilities, tools and equipment to make semiconductors with advanced technology continue to rise, with each generation typically significantly more expensive than the

larger-in-size

more mature technologies which preceded. We expect to incur significant capital expenditures in connection with our growth plans. These capital expenditures will be made in advance of any additional sales to be generated by new or upgraded fabs as a result of these expenditures. Given the fixed-cost nature of our business, we have in the past incurred, and may in the future incur, operating losses if our revenues do not adequately offset our capital expenditures. Additionally, our actual expenditures may exceed our planned expenditures for a variety of reasons, including changes in:

•

our growth plan;

•

our process technology;

•

our research and development efforts and patent license arrangements;

•

market conditions;

•

interest rates;

•

exchange rate fluctuations; and

•

prices of equipment.

We cannot assure you that additional financing will be available on satisfactory terms, if at all. If adequate funds are not available on satisfactory terms, we may be forced to curtail our expansion plans or delay the deployment of our services, which could result in a loss of customers and limit the growth of our business.

We depend on a small number of customers for a significant portion of our operating revenues and any loss of these customers would result in significant declines in our operating revenues.

We have been largely dependent on a small number of customers for a substantial portion of our business. In 2021, our top ten customers accounted for 54.5% of our operating revenues and a customer from our wafer fabrication segment accounted for at least 10% of operating revenues for the years ended December 31, 2019, 2020 and 2021. We expect that we will continue to depend upon a relatively limited number of customers for a significant portion of our operating revenues. We cannot assure you that our operating revenues generated from these customers, individually or in the aggregate, will reach or exceed historical levels in any future period. Loss or cancellation of business from significant changes in scheduled deliveries to, or decreases in the prices of services sold to any of these customers could significantly reduce our operating revenues.

Our customers generally do not place purchase orders far in advance, which makes it difficult for us to predict our future revenues, adjust production costs and allocate capacity efficiently on a timely basis. In addition, due to the cyclical nature of the semiconductor industry, our customers’ purchase orders have varied significantly from period to period. As a result, we do not typically operate with any significant backlog, except in periods of extreme capacity shortage. The lack of significant backlog and the unpredictable length and timing of semiconductor cycles make it difficult for us to forecast our revenues in future periods. Moreover, our expense levels are based in part on our expectations of future revenues, and we may be unable to adjust costs in a timely manner to compensate for revenue shortfalls. We expect that in the future our operating revenues in any quarter will continue to be substantially dependent upon purchase orders received in that quarter.

Moreover, the increasing trend in mergers and acquisitions activities in the semiconductor industry could reduce total available customer base, which could potentially result in a loss of customers.

Our operations and business will suffer if we lose one or more of our key personnel without adequate replacements.

Our future success to a large extent depends on the continued services of our Chairman and key executive officers. We do not carry key person insurance on any of our personnel. If we lose the services of any of our Chairman or key executive officers, it could be difficult to find and integrate replacement personnel in a short period of time, which could harm our operations and the growth of our business.

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We may have difficulty attracting and retaining skilled employees, who are critical to our future success.

The success of our business depends upon attracting and retaining experienced executives, engineers and other employees to implement our strategy. The competition for skilled employees is intense in our industry, which is exacerbated by the shortage of qualified personnel with appropriate experiences and expertise. We expect demand for personnel in Taiwan to increase in the future as new wafer fabrication facilities and other businesses are established in Taiwan. We also expect demand for experienced personnel in other locations to increase significantly as our competitors establish and expand their operations. Some of our competitors are willing to offer better compensation than what we do to our executives, engineers and other employees. We do not have long-term employment contracts with any of our employees. If we were unable to retain our existing personnel or attract, assimilate and recruit new experienced personnel in the future, it could seriously disrupt our operations and delay or restrict the growth of our business.

Our transactions with affiliates and shareholders may hurt our profitability and competitive position.

We have provided foundry services to several of our affiliates and shareholders. We currently do not provide any preferential treatment to any of these affiliates and shareholders. However, we may in the future reserve or allocate our production capacity to these companies if there is a shortage of foundry services in the market to enable these companies to maintain their operations and/or to protect our investments in them. This reservation or allocation may reduce our capacity available for our other customers, which may damage our relationships with other customers and discourage them from using our services. This may hurt our profitability and competitive position.

If we fail to maintain an effective system of internal control over financial reporting, we may be unable to accurately report our financial results or prevent fraud, and investor confidence in our company may be adversely affected.

We are required to comply with the R.O.C. and the U.S. securities laws and regulations in connection with internal controls. As a public company in the United States, our management is required to assess the effectiveness of our internal control over financial reporting using the criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), or the COSO criteria, as required by Section 404 of the Sarbanes-Oxley Act of 2002. Moreover, even if our management concludes that our internal control over financial reporting is effective, our independent registered public accounting firm may decline to issue an opinion as to the effectiveness of our internal control over financial reporting, or may issue a report that is qualified or adverse. During the course of the evaluation of internal control over financial reporting, we or our independent registered public accounting firm may identify control deficiencies that we may not be able to remediate prior to the date of our first assessment of internal control over financial reporting. Our failure to achieve and maintain effective internal control over financial reporting could result in the loss of investor confidence in the reliability of our financial statements or prevent fraud, which in turn could harm our business and negatively impact the trading price of our securities.

Although effective internal controls can provide reasonable assurance with respect to the preparation and fair presentation of financial statements, they 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. 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.

The trend of adopting protectionist measures in certain countries, including the United States, could have a material adverse impact on our results of operations and financial condition.

Governments in the United States, PRC and certain other countries have implemented fiscal and monetary programs to stimulate economic growth as a result of the recent economic downturn, and many of these programs include protectionist measures that encourage the use of domestic products and labor. Recent policy developments by the governments in US, China and elsewhere also suggest an increased unwillingness to allow international companies to invest in or acquire local businesses. Since many of our direct customers and other downstream customers in the supply chain are located in or have operations in the countries where protectionist measures were adopted, such protectionist measures may have a material adverse effect on demand for our manufacturing services.

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We may decide to make strategic acquisitions of other companies, assets or businesses and such acquisitions may introduce significant risks and uncertainties, including risks related to integrating the acquired assets or businesses.

In order to position ourselves to take advantage of growth opportunities, we have made, and may continue to make, certain strategic acquisitions, mergers and alliances that involve significant risks and uncertainties. Even if we have identified a suitable target or partner for a strategic transaction, there is no guarantee that we will be able to negotiate a successful agreement at pricing favorable to us or to consummate the transaction in a timely manner, or at all. Furthermore, we may incur significant costs in pursuing such strategic transaction and invest in a substantial amount of time and effort without a guarantee that such transaction will be completed. Successful acquisitions and alliances in the semiconductor industry are difficult to accomplish because they require efficient integration and aligning of product offerings and manufacturing operations and coordination of sales and marketing and research and development efforts. The difficulties of integration and alignment may be increased by the necessity of coordinating geographically separated organizations, the complexity of the technologies being integrated and aligned and the necessity of integrating personnel with disparate business backgrounds and combining different corporate cultures. Furthermore, there is no guarantee that we will be able to identify a viable target for strategic acquisition, and we may incur significant costs and resources in such effort that may not result in a successful acquisition. In addition, we may also issue equity securities to pay for future acquisitions or alliances, which could be dilutive to existing shareholders. We may also incur debt or assume contingent liabilities in connection with acquisitions and alliances, which could impose restrictions on our business operations and harm our operating results.

We may not be able to fully realize the expected benefits from the acquisition of USJC and the operation of USJC may subject us to additional risks.

In October 2019, we closed a transaction to acquire Fujitsu’s interest in Mie Fujitsu Semiconductor Limited, or MIFS. Upon the closure of such transaction, MIFS was later renamed United Semiconductor Japan Corporation LTD., or USJC, and became one of our wholly-owned subsidiaries. There is a large number of processes, policies, procedures, operations, technologies and systems at USJC and UMC that must be integrated, including accounting and finance, payroll, revenue management, commercial operations, risk management and employee benefits. We expect to incur significant expenses and costs to complete the integration process which may adversely affect our financial performance. The integration of newly acquired businesses will also require a significant amount of time and attention from management. Moreover, even if we were able to fully integrate the business operations of USJC successfully, there can be no assurance that this integration will result in the realization of the full benefits of synergies, cost savings, innovation and operational efficiencies that may be possible from this integration or that these benefits will be achieved within a reasonable period of time. Delays in integrating USJC, which could be caused by factors outside of our control, could adversely affect the intended benefits of our business, financial results, financial condition and stock price. In addition, the acquisition may subject us to additional operational and financial risks, including the following:

•

uncertainties in the business relationships with our collaborators and suppliers;

•

loss of customers and uncertainties with continuation of customer relationships previously held by MIFS;

•

additional capital expenditures required to upgrade and operate the new fab;

•

additional costs relating to compliance with rules and regulations in Japan;

•

failure to achieve appropriate manufacturing yields or products to meet our or our customers’ specifications;

•

problems in ramping production and installing new equipment; and

•

loss of employees or labor issue.

Any of these risks may prevent us from realizing the benefits of the acquisition or reduce our ability to achieve profitability at the fab, which may have an adverse effect on our financial condition and results of operations.

Currency fluctuations could increase our costs relative to our revenues, which could adversely affect our profitability.

More than half of our operating revenues are denominated in currencies other than New Taiwan dollars, primarily in U.S. dollars. On the other hand, more than half of our costs of direct labor, raw materials and overhead are incurred in New Taiwan dollars. Although historically we hedged a portion of the resulting net foreign exchange position through the use of foreign exchange spot transactions, or currency forward contracts, we are still affected by fluctuations in foreign exchange rates among the U.S. dollar, the New Taiwan dollar and other currencies. Any significant fluctuation in exchange rates may impact on our financial condition and the U.S. dollar value of the ADSs and the U.S. dollar value of any cash dividends we distributed, which could have an adverse effect on the market price of the ADSs.

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Risks Relating to Manufacturing

Our manufacturing processes are highly complex, costly and potentially vulnerable to impurities and other disruptions that can significantly increase our costs and delay product shipments to our customers.

Our manufacturing processes are highly complex, require advanced and costly equipment and are continuously being modified to improve manufacturing yields and product performance. Impurities or other difficulties in the manufacturing process or defects with respect to equipment or supporting facilities can lower manufacturing yields, interrupt production or result in losses of products in process. As system complexity has increased and process technology has become more advanced, manufacturing tolerances have been reduced and requirements for precision have become even more demanding. Although we have been enhancing our manufacturing capabilities and efficiency, from time to time we have experienced production difficulties that have caused delivery delays and quality control problems, as is common in the semiconductor industry. In the past we have encountered the following problems:

•

capacity constraints due to changes in product mix or the delayed delivery of equipment critical to our production, including scanners, steppers and chemical stations;

•

construction delays during expansions of our clean rooms and other facilities;

•

difficulties in upgrading or expanding existing facilities;

•

manufacturing execution system or automatic transportation system failure;

•

unexpected breakdowns in our manufacturing equipment and/or related facilities;

•

changing or upgrading our process technologies;

•

raw materials shortages and impurities; and

•

delays in delivery and shortages of spare parts and in maintenance for our equipment and tools.

Should these problems persist or repeat, we may suffer delays in delivery and/or loss of business and revenues. In addition, we cannot guarantee that we will be able to increase our manufacturing capacity and efficiency in the future to the same extent as in the past.

Our profit margin may substantially decline if we are unable to continuously improve our manufacturing yields, maintain high capacity utilization and optimize the technology mix of our silicon wafer production.

Our ability to maintain our profitability depends, in part, on our ability to:

•

maintain high capacity utilization, which is defined as the ratio of the

wafer-out

quantity of

8-inch

wafer equivalents divided by our estimated total

8-inch

equivalent capacity in a specified period. The estimated capacity figures may vary depending upon equipment delivery schedules, pace of migration to more advanced processing technologies and other factors affecting production

ramp-ups;

•

maintain or improve our manufacturing yields, which is defined as the percentage of usable devices manufactured on a wafer; and

•

optimize the technology mix of our production by increasing the number of wafers manufactured by utilizing different processing technologies.

Our manufacturing yields directly affect our ability to attract and retain customers, as well as the price of our services. Our capacity utilization affects our operating results because a large percentage of our operating costs are fixed. Our technology mix affects utilization of our equipment and process technologies, as well as the prices we can charge, either of which can affect our margins. If we are unable to continuously improve our manufacturing yields, maintain high capacity utilization or optimize the technology mix of our wafer production, our profit margin may substantially decline.

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We may have difficulty in ramping up production in accordance with our schedule, which could cause delays in product deliveries and decreases in manufacturing yields.

As is common in the semiconductor industry, we have from time to time experienced difficulties in ramping up production at new or existing facilities or effecting transitions to new manufacturing processes. As a result, we have suffered delays in product deliveries or reduced manufacturing yields. We may encounter similar difficulties in connection with:

•

the migration to more advanced process technologies, such as 45/40 and

28-nanometer

and more advanced process technology;

•

the joint development with vendors for more powerful tools (both in production and inspection) needed in the future to meet advanced process technology requirements; and

•

the adoption of new materials in our manufacturing processes.

We may face construction delays, interruptions, infrastructure failure and delays in upgrading or expanding existing facilities, or changing our process technologies, any of which might adversely affect our production schedule. Our failure to achieve our production schedule could delay the time required to recover our investments and seriously affect our profitability.

Our production schedules could be delayed and we may lose customers if we are unable to obtain raw materials and equipment in a timely manner.

We depend on our suppliers for raw materials. To maintain competitive manufacturing operations, we must obtain from our suppliers, in a timely manner, sufficient quantities of quality materials at acceptable prices. Although we source our raw materials from several suppliers, a small number of these suppliers account for a substantial amount of our supply of raw materials because of the consistent quality of their products. For example, in 2019, 2020 and 2021, we purchased a majority of our silicon wafers from five makers, Shin-Etsu Handotai Corporation, or Shin-Etsu, GlobalWafers, Siltronic and Sumco Group (including Sumco Corporation and Formosa Sumco Technology Corporation) and Soitec. From time to time, our suppliers have extended lead time or limited the supply of required materials to us because of capacity constraints. Consequently, from time to time, we have experienced difficulty in obtaining the quantities of raw materials we need on a timely basis.

In addition, from time to time we may reject materials that do not meet our specifications and quality standards, resulting in declines in output or manufacturing yields. We cannot assure you that we will be able to obtain sufficient quantities of raw materials and other supplies in a timely manner. Furthermore, the recent global supply chain disruption may adversely affect our ability to acquire and purchase raw materials in sufficient quantities or at all, or in a timely manner. Furthermore, the recent global supply chain disruption may adversely affect our ability to acquire and purchase raw materials in sufficient quantities or at all, or in a timely manner. If the supply of materials is substantially diminished or if there are significant increases in the costs of raw materials, we may be forced to incur additional costs to acquire sufficient quantities of raw materials to sustain our operations, which may increase our marginal costs and reduce profitability.

We also depend on a limited number of manufacturers and vendors that make and maintain the complex equipment we use in our manufacturing processes. We also rely on these manufacturers and vendors to improve our technology to meet our customers’ demands as technology improves. In periods of unpredictable and highly diversified market demand, the lead time from order to delivery of this equipment can be as long as fourteen to

forty-two

months. If there are delays in the delivery of equipment or in the availability or performance of necessary maintenance, or if there are increases in the cost of equipment, it could cause us to delay our introduction of new manufacturing capacity or technologies and delay product deliveries, which may result in the loss of customers and revenues.

We may be subject to the risk of loss due to fire because the materials we use in our manufacturing processes are highly flammable.

We use highly flammable materials such as silane and hydrogen in our manufacturing processes and may therefore be subject to the risk of loss arising from fires. The risk of fire associated with these materials cannot be completely eliminated. We maintain insurance policies to reduce losses caused by fire, including business interruption insurance. However, our insurance coverage is subject to deductibles and self-insured retention and may not be sufficient to cover all of our potential losses. If any of our fabs were to be damaged or cease operations as a result of a fire, it would temporarily reduce manufacturing capacity and reduce revenues.

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We and many of our customers and suppliers are vulnerable to natural disasters and other events outside of our control, which may seriously disrupt our operations.

Most of our assets and many of our customers and suppliers are located in certain parts of Taiwan. Our operations and the operations of our customers and suppliers are vulnerable to earthquakes, floods, droughts, power losses and similar events that affect the locations of our operations. The occurrence of any of these events could interrupt our services and cause severe damages to wafers in process, or cause significant business disruptions. For example, given the prolonged period in the lack of rainfall particularly acute in southern Taiwan which may impact our manufacturing capacity and may cause us to lose important customers, therefore may have a potentially adverse and material impact on our operational and financial performance. Besides the potential risks that may be caused by water shortage, we have in the past experienced severe earthquakes which adversely affected our wafer manufacturing operations in Taiwan. Although we had adopted practices in compliance with ISO 22301 business continuity standards which ensured the safety of our employees and minimized supply disruptions resulting from the earthquake and we recovered partially the losses resulting for this earthquake from our insurance policy, there is no guarantee that our business continuity practices will always be effective. There is also no guarantee that any future damages or business loss from severe natural disasters will be covered by such insurance, that we will be able to collect from our insurance carriers, should we choose to claim under our insurance policies, or that such coverage will be sufficient. Furthermore, the cost of insurance policies may increase in the future that will make it more expensive for us to obtain and maintain adequate insurance policies. In addition, our manufacturing facilities have occasionally experienced insufficient power supplies, and our operations have been disrupted.

Our operations may be delayed or interrupted and our business could suffer if we violate environmental, safety and health, or ESH, regulations.

The semiconductor manufacturing process requires the use of various gases, chemicals, hazardous materials and other substances such as solvents and sulfuric acid which may have an impact on the environment. We are always subject to ESH regulations, and a failure to manage the use, storage, transportation, emission, discharge, recycling or disposal of raw materials or to comply with these ESH regulations could result in (i) regulatory penalties, fines and other legal liabilities, (ii) suspension of production or delays in operation and capacity expansion, (iii) a decrease in our sales, (iv) an increase in pollution cleaning fees and other operation costs, or (v) damage to our public image, any of which could harm our business. In addition, as ESH regulations are becoming more comprehensive and stringent, we may incur a greater amount of capital expenditures in technology innovation and materials substitution in order to comply with such regulations, which may adversely affect our results of operations.

Climate change may negatively affect our business.

There is increasing concern that climate change is occurring and may have dramatic effects on human activity without aggressive remediation steps. The change in temperature would result in increased severity and frequency of extreme weather events such as cyclones, floods, water stress, high temperature and increasing risk of extinction for the world’s species. Public expectations for reductions in greenhouse gas emissions and climate-related risks could result in increased energy, water, transportation and raw material costs, which raised shareholder’s concern and caused several international standards and questionnaires being revised to request enterprises disclosing their risks and financial impacts. Consequently, our climate change risk assessment tool was developed and related departments participated in the identification work.

As climate change continues to be severe, the international community not only pays attention to the energy transition, but also successively establishes mechanisms for monetizing the impact of carbon emissions on society and the environment, such as carbon pricing mechanism, carbon border adjustment mechanism, etc. For example, we have an advanced

12-inch

wafer fab in Singapore. The Singapore government introduced a carbon tax from 2019 onwards, making it the first country in Southeast Asia to promote this measure. In Taiwan, the Environmental Protection Administration proposed a draft revision to the GHG Management Act with an amendment of its name to “Climate Change Response Act” in 2021. There are additional stringent regulations including a

carbon-fee

charging to promote GHG reduction and

low-carbon

economy development.

In addition, government’s energy policy may cause power shortage and affect our business operation. For example, “Dual control” to reduce energy intensity and to limit total energy consumption is a key measure that the Chinese government implements to help meet its energy and climate goals. In 2021, some provinces started to employ power rationing for high-energy-consuming industries. Although UMC has not been affected yet, we will continue to pay attention to this risk.

We have developed climate change risk assessment tool and related departments participated in the identification work. Adaptation and mitigation measures are developed in response to the identified climate change risk. Furthermore, we also disclosed risk and opportunity of climate change according to the framework of TCFD (Task Forced on Climate-related Financial Disclosures) in UMC Sustainability Report and our official website. In May 2021, UMC meets the TCFD performance assessment at management level of “Pioneer” which verified by SGS Taiwan Ltd., endorsing that our climate change risk assessment system and associated financial disclosure data are highly credible and transparent.

Disruptions in the international trading environment may seriously decrease our international sales.

A substantial portion of our operating revenues is derived from sales to customers located in countries other than the countries where our fabs are located. We operated fabs in Taiwan, Singapore, China and Japan. For the years ended December 31, 2019, 2020 and 2021, we generated approximately 27.9%, 27.0% and 27.4% of our operating revenues, respectively, from countries other than those where our fabs are located. We expect sales to customers from countries outside of Taiwan, Singapore, China and Japan will continue to represent a significant portion of our operating revenues. The success and profitability of our international activities depend on certain factors beyond our control, such as general economic conditions, labor conditions, political stability, tariff, tax laws, import duties, export control and foreign exchange controls of the countries in which we sell our products, and the political and economic relationships between these countries. As a result, our manufacturing services will continue to be vulnerable to disruptions in the international trading environment, including adverse changes in foreign government regulations, political unrest and international economic downturns.

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These disruptions in the international trading environment affect the demand for our manufacturing services and change the terms upon which we provide our manufacturing services overseas, which could seriously decrease our international sales.

Political, Economic, Regulatory and Legal Risks

We face substantial political risks associated with doing business in Taiwan, particularly due to the tense relationship between the R.O.C. and the People’s Republic of China, or the PRC, that could negatively affect the value of your investment.

Our principal executive offices and most of our assets and operations are located in Taiwan. Accordingly, our business, financial condition and results of operations and the market price of our common shares and the ADSs may be affected by changes in R.O.C. governmental policies, taxation, inflation or interest rates and by social instability and diplomatic and social developments in or affecting Taiwan which are outside of our control. Taiwan has a unique international political status. Since 1949, Taiwan and the Chinese mainland have been separately governed. The PRC claims that it is the sole government in China and that Taiwan is part of China. Although significant economic and cultural relations have been established between the R.O.C. and the PRC in the past few years, such as the adoption of the Economic Cooperation Framework Agreement and memorandum regarding cross-strait financial supervision, we cannot assure you that relations between the R.O.C. and PRC will not become strained again, in particular, considering the increasingly tense relationship between the United States and the PRC. For example, the PRC government has refused to renounce the use of military force to gain control over Taiwan and, in March 2005, passed an Anti-Secession Law that authorized

non-peaceful

means and other necessary measures should Taiwan move to gain independence from the PRC. Past developments in relations between the R.O.C. and the PRC have on occasions depressed the market prices of the securities of companies in the R.O.C. Such initiatives and actions are commonly viewed as having a detrimental effect to reunification efforts between the R.O.C. and the PRC. Relations between the R.O.C. and the PRC and other factors affecting military, political or economic conditions in Taiwan could materially and adversely affect our financial condition and results of operations, as well as the market price and the liquidity of our securities.

Our business depends on the support of the R.O.C. government and other government authorities in countries and regions where we operate, and a decrease in these supports may reduce our net income.

We, like many R.O.C. technology companies, have benefited from substantial tax incentives provided by the R.O.C. government and other government authorities in countries and regions where we operate under various different tax incentive programs, which are subject to the review and approval by the relevant tax authorities on the case by case basis. Although we will make our best efforts to meet the requirements under different incentive schemes and make the relevant applications, we cannot assure you that the tax authorities will grant the approval as we apply. Our application may be denied for reasons outside of our control, including changes in tax incentive regulations and criteria for qualifications. Additionally, the tax incentives granted, taken as a whole, may not be as favorable to us as those currently in effect. If any of the above occurs, our net income may decrease.

Our future tax obligations may adversely affect our net income.

We operate in various jurisdictions, which involve different tax regimes and application of tax regulations. Applicable taxes for which we make provisions could increase significantly as a result of changes in applicable tax laws in the countries where we operate.

Some of the above-mentioned tax incentives maybe subject to the investment milestone and comply with the terms and conditions set forth in the agreements with the government. Failure to fulfill the investment milestone or the terms and conditions would result in termination or revocation of the incentives. The local authority may have the rights to revoke these incentive rewards even if the company received tax benefits that it had enjoyed during the applicable period by the applicable tax laws or regulations.

The Organization for Economic Cooperation and Development (OECD) and G20 countries worked together to create the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (BEPS), which contemplates changes to numerous international tax principles. Over 135 members agreed to a

two-pillar

solution to address the tax challenges arising from the digitalization of the economy and Global Anti-Base Erosion Model Rules. Pillar 1 aims to ensure a better distribution of taxation of multinationals according to the countries in which they operate, and Pillar 2 aims to control tax competition on corporate profits by introducing a global minimum tax of 15%. The taxation of

two-pillar

solution is expected to implement as soon as Jan, 1 2023. In response to the domestic minimum corporate tax rate aimed by Pillar 2, Taiwan’s finance ministry planned to increase the Alternative

Minimum Tax from 12% to 15% effective from 2023. In addition, Taiwan finance ministry will endeavor to implement Pillar 1 and 2 as proposed by OECD and Inclusive Framework.

The R.O.C. income Tax Act was amended in 2016 to introduce controlled foreign company (CFC) provisions, and the implementation rules were announced in September 2017. The legislation has announced to effective on Jan, 1 2023.

The implementation of

two-pillar

solution and CFC rule may increase our income tax rate in future and cause adverse effect to our net income.

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Compliance with U.S. Conflict Minerals Law may affect our ability or the ability of our suppliers to purchase raw materials at an effective cost.

We are subject to U.S. disclosure rules on conflict minerals adopted by the SEC, pursuant to which we are required to conduct due diligence of our supply chain and file an annual report to disclose whether conflict minerals utilized by us originated in the Democratic Republic of the Congo (DRC) or an adjoining country. We have filed the conflict mineral disclosure report every year since 2014 in order to comply with such rules, we will continue to verify the relevant information with our vendors and suppliers and file the required report but we cannot assure you that we will be able to collect all the information required to comply with such regulations. If we are not able to confirm such information with vendors, or if we discover that some vendors are sourcing conflict minerals from prohibited countries, we may decide or be required to discontinue our relationship with such vendors, which may negatively impact our ability to obtain adequate supplies of materials needed for the manufacturing of our products and services. The failure to obtain necessary information or to maintain adequate supplies of materials from supply chains outside the DRC and adjoining countries may delay our production, increasing the risk of losing customers and business.

Similarly, many jurisdictions have promulgated regulations with the intention to deter human rights violations within supply chains. Possible violation by our suppliers may not be known to us and is beyond our control. While we believe our suppliers comply with applicable human rights requirements, there can be no guarantee that they will continue to do so, or that we will be able to obtain the necessary information on their activities to comply with whatever future requirements may be enacted.

Cyberattacks and data security breaches may adversely affect our operations and damage our reputation.

Our business and operations depend upon reliable and uninterrupted information technology services, including the integrity of our

web-based

and electronic customer service systems. Although we have implemented what we believe are reasonable precautions to prevent accidental and/or malicious disruption of these services, there can be no assurance that our preventive measures will preclude failure of the information technology,

web-based

and electronic customer service systems upon which our business depends. Our systems might also be damaged by natural or

man-made

events or by computer viruses, physical or electronics

break-ins,

cyber-attacks and similar disruptions affecting the global Internet. Disruption of these systems could adversely affect our ability to operate our business and to serve our customers, thereby negatively affecting our financial performance.

In addition, in the course of our operations, we receive confidential information from and about our customers, vendors, partners and employees. Although we take what we believe are reasonable precautions to protect such information from disclosure to or interruption, there are no guarantees our precautions will prevent accidental or malicious access to such information. In the event of such unauthorized access, our reputation could be adversely affected, customers and others may not entrust us with their confidential information, which would negatively affect our operations, and we may incur costs to remedy the breach. Furthermore, the loss of confidential information of third parties may result in legal claims against us, in which case we will incur additional costs and expenses to defend such litigation.

Moreover, many jurisdictions have proposed stringent regulations concerning data privacy, and such regulations may impose additional legal requirements that make our operations more expensive and/or less efficient. In addition, should we experience a breakdown in our systems or failure in our precautions that results in a violation of such regulations, we may suffer adverse customer reaction and face governmental penalties.

Intellectual property disputes could result in lengthy and costly arbitration, litigation or licensing expenses or prevent us from providing services to customers.

As is typical in the semiconductor industry, we or our customers may receive claims of infringement from time to time or otherwise become aware of potentially relevant patents or other intellectual property rights held by other parties that may cover some of our technology, products and services or those of our end customers. The semiconductor industry is characterized by vigorous protection and pursuit of intellectual property rights which has resulted in protracted and expensive arbitration and litigation for many companies.

Any litigation or arbitration regarding patents or other intellectual property could be costly and time consuming and could divert our management and key personnel from our business operations. We have in the past and may from time to time in the future become involved in litigation that requires our management to commit significant resources and time.

Because of the complexity of the technology involved and the uncertainty of litigation generally, any intellectual property arbitration or litigation involves significant risks. Any claim of intellectual property infringement against us may require us to:

•

incur substantial legal and personnel expenses to defend the claims or to negotiate for a settlement of claims;

•

pay substantial damages or settlement to the party claiming infringement;

•

refrain from further development or sale of our products;

•

enter into costly royalty or license agreements that might not be available on commercially reasonable terms or at all;

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•

cross-license our technology with a competitor to resolve an infringement claim, which could weaken our ability to compete with that competitor;

•

indemnify our distributors, end customers, licensees and others from the costs of and damages of infringement claims; and

•

curtail or modify our operations in response to regulatory inquiries relating to the alleged infringement, which may result in additional costs and expenses.

In addition, because we have a global operation, we may be subject to intellectual property disputes and litigation in foreign jurisdictions with divergent laws and practices, which will make it more costly and time consuming for us to initiate or defend such litigations. Furthermore, if we are engaged or involved in a high profile intellectual property dispute or litigation in foreign countries with stringent national security regulations, such as the U.S. and China, we may be subject to heightened scrutiny by government agencies in such countries, which may lead to adverse actions taken by such government agencies, including prolonged investigation and litigation, which can negatively affect our operations and damage our reputation. Any intellectual property claim or litigation could harm our business, results of operations, financial condition and prospects.

Geopolitical and economic conflicts between the United States and China may adversely affect our business

Geopolitical conflicts and tensions between the United States and China have threatened and destabilized trading relationships and economic activities between the two countries. Because we have operations in both countries, such conflicts and tensions may negatively impact our business. At various times during recent years, the United States and China have had disagreements over political and economic issues, including but not limited to, the recent imposition of tariffs by the U.S. on goods imported from China and to the U.S. government’s efforts to restrict transfer and sharing of technologies, including semiconductor technologies, between the two countries. In addition, the U.S. government may enact new and more restrictive export control regulations that may reduce our ability to ship and sell products to certain customers in China and Asia and increase our cost to implement additional measures to comply with such new regulations. In addition, disagreements between the United States and China with respect to their political, military or economic policies toward Taiwan may contribute to further controversies. These controversies and trade frictions could have a material adverse effect on our business by, among other things, making it more difficult for us to coordinate our operations between the United States and China, causing a reduction in the demand for our products by customers in the United States or China and reducing our profitability due to increasing cost of compliance.

Risks Related to the Common Shares and ADSs and Our Trading Markets

Restrictions on the ability to deposit common shares into our ADS program may adversely affect the liquidity and price of the ADSs.

The ability to deposit common shares into our ADS program is restricted by R.O.C. law. Under current R.O.C. law, no person or entity, including you and us, may deposit common shares into our ADS program without specific approval of the R.O.C. FSC except for the deposit of the common shares into our ADS program and for the issuance of additional ADSs in connection with:

(A)

distribution of share dividends or free distribution of our common shares;

(B)

exercise of the preemptive rights of ADS holders applicable to the common shares evidenced by ADSs in the event of capital increases for cash; or

(C)

delivery of our common shares which are purchased in the domestic market in Taiwan directly by the investor or through the depositary or are already in the possession of the investor to the custodian for deposit into our ADS program, subject to the following conditions: (a) the

re-issuance

is permitted under the deposit agreement and custody agreement, (b) the depositary may accept deposit of those common shares and issue the corresponding number of ADSs with regard to such deposit only if the total number of ADSs outstanding after the issuance does not exceed the number of ADSs previously approved by the R.O.C. FSC, plus any ADSs issued pursuant to the events described in (A) and (B) above and (c) this deposit may only be made to the extent previously issued ADSs have been withdrawn.

As a result of the limited ability to deposit common shares into our ADS program, the prevailing market price of our ADSs on the NYSE may differ from the prevailing market price of the equivalent number of our common shares on the Taiwan Stock Exchange.

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Holders of our ADSs will not have the same proposal or voting rights as the holders of our common shares, which may affect the value of your investment.

Except for treasury common shares and common shares held by our subsidiaries which meet certain criteria provided under the R.O.C. Company Act, each common share is generally entitled to one vote and no voting discount will be applied. However, except as described in this Annual Report and in the deposit agreement, holders of our ADSs will not be able to exercise voting rights attached to the common shares evidenced by our ADSs on an individual basis. Holders of our ADSs will appoint the depositary or its nominee as their representative to exercise the voting rights attached to the common shares represented by the ADSs. The voting rights attached to the common shares evidenced by our ADSs must be exercised as to all matters brought to a vote of shareholders collectively in the same manner.

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