Risk Management

Winbond is a semiconductor manufacturing company so natural disasters, accidents, and man-made events may all make a serious impact on production operations, financial management, information security and climate change. A risk management mechanism was therefore set up by Winbond for early warning and response. Strict risk engineering control, implementation and management of safety rules and guidelines ensure proper implementation of risk engineering control, safety of the semiconductor industry. The highest standards of the company’s financial and sustainable development policies. These help Winbond fulfill our vision f sustainable enterprise.

The World Economic Forum:The Global Risks Report 2020 stated that the top five long-term global risks havebnow gradually shifted from “economic problems” to “environmental problems” such as extreme weather”, “climate action failure”, “natural disasters”, “loss of biological diversity”, and “man-made environmental disasters.” Businesses around the world are increasingly coming under pressure from the deteriorating environmental and climate conditions. Winbond has added “climate change risk” as a long-term emerging risk to our long-term business management.

The “ESH and Risk Management Committee” is also convened quarterly to discuss management goals and devise response strategies. Discussion of climate change topics will also be added to “Executive Management Meetings” chaired by the Chairman to increase the level of management control. Progress on actions taken for related topics will also be tracked after the meeting to ensure that all corporate risk management goals can be met.

Three Major Business Risks

Identification of Risks and Opportunities	Explanation of Impact Assessment	Response	Performance Management
Business Risk Management
Product Quality Anomaly	Loss of customer confidence and order cancellation.	Non-conforming products or processes must be immediately reported to personnel with the responsibility and authority for corrective action. They must ensure non-conforming products are not shipped to the customer and that all potential nonconforming products are identified and contained. The relevant units must analyze the cause and the impact on the production process then take improving action accordingly.	Strict quality controls and the improvement of product quality during the production process, that would help build long-term relationships with customers and increase satisfaction.
Infringement	Infringements may violate the law in severe cases that lead to civil and criminal liabilities for the management. Minor cases may also result in lead to financial damage or loss of business reputation for the company.	Proactive Prevention: Product R&D department works closely with IP department on patent search, analysis and research. Licensing, design around and other techniques are employed when necessary for avoiding (willful) IP infringement. Effective Response after the Facts:If accused of IP infringement, the Legal and IP Division will immediately contact all relevant departments to clarify facts of the matters and make possible efforts to protect the interests of Winbond and our customers.	Winbond respects IP rights of other parties and is willing to discuss for acquiring patent license if possible. This also could reduce litigation risks for the company.
Patent Risk	Impact on patent licensing negotiations and increases the risk of patent litigation.	In any circumstances the patent assignees , based on protecting their own patent rights, business strategy, requesting for high royalty payment or filing a law suit against Winbond, we will cooperate actively with outside counsels for proper responsive strategy.	By the following principle of mutually beneficial outcomes as well as interacting with patent assignees in a reasonable and respectful manner, Winbond has effectively controlled the patent risks and avoided negative impacts to the company.
Epidemic Risk	The COVID-19 pandemic led to factories being shut down and supply chain disruptions around the world.	Winbond monitors the latest COVID-19 developments as well as the production and business activities of vendors. Safety stock was also increased to deal with unexpected events. Strict epidemic prevention measures have also been implemented throughout the company including defined reporting processes, IR temperature screening, visitor management, rostered meal breaks, and regular disinfection.	The safety of our employees as well as supply of products have not been seriously affected by COVID-19 and we continued to operate as normal.
Financial Business Risk Management
Foreign Exchange Risk	The risk posed by changes in exchange rate from foreign currency transactions falls within the range permitted by the Procedures-for-Engaging-in-Financial-Derivatives-Transactions. Risk management is implemented through long-term foreign currency contracts.	We closely monitor the financial markets to identify trends and familiarize ourselves with financial products, regulations, and trading techniques. The management and relevant departments are provided with adequate and timely information for their reference. Our trading of derivative financial products is aimed primary as a hedge against economic risk. Credit risk is the most important factor when selecting transaction parties to avoid losses from breach of contract. Financial institutions with low credit risk that have good relations with the company and can provide professional information are preferred for transactions. Winbond caps the maximum unrealized losses from breach of contract in derivative financial productions at 20% of the total contract amount, or 3% of shareholder equity, whichever is lowest. A monthly assessment is carried out by the financial unit and a report produced for the head of the financial unit and senior executives authorized by the Board to predict the risks involved in each transactions as well as potential gains and losses.	Net losses from current exchanges in 2020 (including gain/loss from derivative financial products) amounted to NT$59,741,000. This represented just 0.15% of annual operating income and 4.43% of net profit before tax for the year. Winbond engages in the trading of derivative financial products as a hedge against foreign exchange risk from fluctuations in the exchange rate for our net foreign asset position. In 2020, derivative financial products with exposure to foreign exchange risks amounted to USD 264,000,000 and RMB 54,000,000. An assessment of fair value placed total unrealized gains at around NT$38,380,000 so the potential gains and losses were all within the manageable range.
Interest Rate Risk	The main source of risk is long-term borrowings with a floating interest rate for production process upgrades or capacity expansion.	Winbond tries to secure more interest rate terms based on the market conditions at the time in order to reduce the impact from interest range changes. The company bonds issued by Winbond have a fixed interest rate, are priced in NTD and are based on the amortized cost. Their cash flow and fair value are therefore not affected by interest range changes.	In 2020, the consolidated net interest expenses amounted to NTD 249,455,000 and accounted for 0.41% of our consolidated operating income for the year. The impact interest rate changes on company operations were therefore assessed to be within the manageable range. Winbond will continue to monitor the impact of interest rate trends on cash flow.
Information Risk Management
Information Security	Production disrupted by mass ransomware infection of factory machines. The infected machines could not be restored as there was no backup or the backup was also damaged. A lack of response responses and information as well as unfamiliarity with the reporting procedure all impacted on response and recovery time.	A thorough virus scan was carried out during machine maintenance. Full backups were also made of machines’ computers and stored separately. Regular backup and isolation of machine data for security. Large-scale factory exercise was conducted to verify that personnel, equipment and information were adequate to meet response and recovery requirements.	An offline backup procedure and environment has been established for the factory. Large-scale response exercise was implemented with the results used to improve the reporting procedure and information required. Surprise exercises are conducted in different regions each year to ensure familiarity with the reporting and response procedures.
Information Security	Production disrupted by malware attack against factory infrastructure. Production affected by malicious attacks against the factory’s auxiliary services such as water, electricity, and air conditioning.	Conduct self-assessment and analysis of current information security management situation, carry out risk assessment and draw up improvement plan. Conduct response exercises to verify that personnel, equipment and information were adequate to meet response and recovery requirements.	Improvements to the physical and logical environment were implemented in 2020 based on the improvement plan. Information security incident response and recovery exercises were conducted in the second half of 2020 to ensure familiarity with the reporting and response procedures.

Climate Change Response

Public Welfare Promotion

Winbond identified 3 climate change risk factors and 2 climate change opportunity factors using a climate related financial disclosure framework (TCFD), internal and external research reports, and the latest market observations. Effective response strategies were devised through our comprehensive risk management system to strengthen our management and practices on climate change events. Every possible is being done to respond to the risks and opportunities brought about by climate change. We are therefore doing our part for this land even as we continue to follow the path of sustainability.

Climate Change Risks

Climate Change Risks	Risk Description	Scope of Impact	Winbond Response Strategy
Increased cost of energy prices	GHG reduction requirements may impact on the cost of energy use due to higher energy prices and need to improve equipment performance.	Market price	Promotion of workplace energy conservation and carbon reduction. Continue to undergo ISO 14064-1 GHG inventory verification. Set annual target for electricity savings.
More robust environmental regulation	Domestic environmental legislation is still being amended and is becoming stricter.	Operating cost	The responsible units are continuing to monitor and track related regulatory changes so that they can prepare in advance, in order to understand the risks involved and avoid non-compliance.
	Amendments to the Renewable Energy Development Act increases the cost of energy use for businesses.	Operating cost	Continue to the evaluate the green electricity provisions for large electricity users and installation proportions for renewable energy equipment.
	The Greenhouse Gas Reduction and Management Act will impose caps on GHG emissions and a carbon tax. These may increase operating costs by raising the cost of GHG emissions and electricity.	Operating cost	The EPA is now building a carbon trading platform that offers carbon credits for businesses that start reducing their carbon emissions early. Set annual targets for GHGH emissions.
	Extreme rainfall and drought:Reduction/disruption of production.	Business interruption	Promote water-recycling technology and watersaving measures as well as devise response plan. Increase competitiveness by improving ability to adapt to climate changes.
	Production activities affected by climate disasters such as: flooding, drought, fire, heat, and heavy snow. These events may impact on the delivery time of raw materials.	Business interruption	Continue to take part in academic and industry climate change seminars to share and discuss the effects of climate change. Winbond will also continue to engage in energy saving initiatives to reduce the business impact and improve our competitiveness. Increase internal inventory and track supplier delivery schedules to ensure the reliability of the supply chain.

Climate Change Opportunities

Climate Change Opportunities	Opportunity Description	Scope of Impact	Winbond Response Strategy
Development and/or choose of low carbon emission or pollution-reducing ecofriendly products	Choose low carbon emission or pollution reducing eco-friendly products.	Market opportunities	Develop low carbon emission / pollution-reducing products with suppliers.
Use of recycling and resource saving purchases	The outer cartons used for transporting wafers are recovered for reuse in future supplier shipments. FOSB/Mask Package Box/Parts are washed and reused to save resources.	Operating cost	Collaborate with suppliers on recycling rojects.

Risk Management

Risk Management

Three Major Business Risks

Business Risk Management

Financial Business Risk Management

Information Risk Management

Climate Change Response

Public Welfare Promotion

Climate Change Risks

Climate Change Opportunities