TSMC's Parts Localization Program Drives Over NT$2 Billion in Annual Output Value

TSMC firmly believes that a responsible supply chain is the cornerstone of sustainable corporate operations. To this end, the Company actively drives supplier transformation and upgrading, designating "increasing the proportion of locally sourced parts in Taiwan" as a long-term strategic objective, with execution progress disclosed in its sustainability report. To meet the stringent demands of advanced process technologies and enhance the research, development, and manufacturing capabilities of local suppliers, TSMC launched the "Parts Localization and Innovation Program" in 2024. This initiative follows a dual approach of financial support and technical guidance. In addition to subsidizing suppliers for acquiring precision equipment and optimizing their development capabilities, the program introduces a unique benefit recognition and rebate mechanism. This mechanism acknowledges the commercial value generated based on the actual quantity of parts procured and utilized by TSMC, which is then offset against the suppliers' equipment buy-back costs after five years, fostering a mutually beneficial, win-win collaboration model. As of February 2026, TSMC has collaborated with 12 suppliers to successfully develop 22 Continuous Improvement Process (CIP) solutions, which have reduced parts validation and development lead times by 50%. This initiative has driven an annual output benefit exceeding NT$2 billion, demonstrating the tangible impact of supply chain localization.

Equipment Support and Buy-Back Mechanism: Realizing a Win-Win Cooperation Model

To ensure supplier technological development meets the stringent demands of advanced process technologies, TSMC established the "Parts Localization Committee." This committee focuses on five critical technology domains, including metal machining, brittle materials, ceramic sintering, surface coatings, and rubber O-rings. It publicly invites supplier proposals and subsidizes equipment purchase costs for qualified participants. Also, TSMC offers professional guidance and defect improvement support across five key dimensions: material physical and chemical property analysis, optimal geometric design simulation, critical parameter specification definition, machining process flow optimization, and advanced process validation. This comprehensive support accelerates suppliers' capabilities to produce parts that meet TSMC's rigorous standards.

Furthermore, to foster long-term collaboration and sustainable development, TSMC has launched a benefit recognition and rebate mechanism. This mechanism recognizes the commercial benefit generated from the procurement and utilization of supplier-produced parts, allowing the recognized benefit to offset suppliers' equipment repurchase costs after five years. To ensure fairness and protect the interests of both parties, a minimum repurchase price is set, stipulating that it cannot be lower than 30% of the original equipment cost. This initiative encourages suppliers to maintain their equipment effectively and maximize its utility. Also, by advancing their technological capabilities, suppliers can strive to become certified Original Equipment Manufacturer (OEM) suppliers, authorized to produce parts that meet industry standards. Through continuous value creation and asset accumulation, this mechanism enables both parties to achieve mutual growth and sustainable operations.

Promoting the continuous upgrade of local supply chains is not only a testament to TSMC's deep-rooted commitment to Taiwan but also a key strategic response to global market challenges. Through the successful implementation of the "Parts Localization and Innovation Program," TSMC has partnered with local suppliers to build a more resilient and competitive industrial ecosystem. The proposal solicitation for this year is scheduled to commence in March 2026, aiming to attract more parts suppliers to participate in technological innovation. Together with TSMC, these suppliers will contribute to co-creating a sustainable future for the semiconductor industry.