Public companies are required to disclose risks that can affect the business and impact the stock. These disclosures are known as “Risk Factors”. Companies disclose these risks in their yearly (Form 10-K), quarterly earnings (Form 10-Q), or “foreign private issuer” reports (Form 20-F). Risk factors show the challenges a company faces. Investors can consider the worst-case scenarios before making an investment. TipRanks’ Risk Analysis categorizes risks based on proprietary classification algorithms and machine learning.

Chunghwa Telecom Co disclosed 32 risk factors in its most recent earnings report. Chunghwa Telecom Co reported the most risks in the “Finance & Corporate” category.

Risk Overview Q4, 2023

Risk Distribution

34% Finance & Corporate

22% Tech & Innovation

19% Macro & Political

16% Legal & Regulatory

9% Production

0% Ability to Sell

Finance & Corporate - Financial and accounting risks. Risks related to the execution of corporate activity and strategy

This chart displays the stock's most recent risk distribution according to category. TipRanks has identified 6 major categories: Finance & corporate, legal & regulatory, macro & political, production, tech & innovation, and ability to sell.

Risk Change Over Time

2020

S&P500 Average

Sector Average

Risks removed

Risks added

Risks changed

Chunghwa Telecom Co Risk Factors

New Risk (0)

Risk Changed (0)

Risk Removed (0)

No changes from previous report

The chart shows the number of risks a company has disclosed. You can compare this to the sector average or S&P 500 average.

The quarters shown in the chart are according to the calendar year (January to December). Businesses set their own financial calendar, known as a fiscal year. For example, Walmart ends their financial year at the end of January to accommodate the holiday season.

Risk Highlights Q4, 2023

Main Risk Category

Finance & Corporate

With 11 Risks

Finance & Corporate

With 11 Risks

Number of Disclosed Risks

From last report

S&P 500 Average: 31

From last report

S&P 500 Average: 31

Recent Changes

1Risks added

0Risks removed

3Risks changed

Since Dec 2023

1Risks added

0Risks removed

3Risks changed

Since Dec 2023

Number of Risk Changed

-5

From last report

S&P 500 Average: 3

-5

From last report

S&P 500 Average: 3

See the risk highlights of Chunghwa Telecom Co in the last period.

Risk Word Cloud

The most common phrases about risk factors from the most recent report. Larger texts indicate more widely used phrases.

Risk Factors Full Breakdown - Total Risks 32

Finance & Corporate

Total Risks: 11/32 (34%)Below Sector Average

Share Price & Shareholder Rights6 | 18.8%

Share Price & Shareholder Rights - Risk 1

Stockholders may have more difficulty protecting their interests under the laws of the ROC than they would under the laws of the U.S.

Our corporate affairs are governed by our Articles of Incorporation, the TMA, and by the laws governing corporations incorporated in the ROC. See "-Extensive regulation of our industry may limit our flexibility to respond to market conditions and landscape, and our business and revenues may suffer." The rights of stockholders and the responsibilities of management and the members of the board of directors of Taiwan companies are different from those applicable to a corporation incorporated in the U.S. For example, controlling or major stockholders of Taiwan companies do not owe fiduciary duties to minority stockholders. As a result, holders of our common shares and ADSs may have more difficulties protecting their interests in connection with actions taken by our management or members of our board of directors than they would as public stockholders of a United States corporation.

Share Price & Shareholder Rights - Risk 2

Our largest stockholder may take actions that conflict with our public stockholders' best interests.

As of December 31, 2023, our largest shareholder, the government of the ROC, through the MOTC, owned approximately 35.29% of our outstanding common shares. Accordingly, the government, through its control over our board, as all non-independent board members were appointed by the MOTC, may continue to have the ability to control our business, including matters relating to: - any sale of all or substantially all of our assets;- the approval of our annual operation and projects budget;- the composition of our senior management;- the timing and distribution of dividends;- the election of a majority of our directors; and - our business activities and direction. We cannot assure you that our largest shareholder will not take actions that impair our ability to conduct our business competitively or conflict with the best interests of our public stockholders.

Share Price & Shareholder Rights - Risk 3

The value of your investment may be reduced by future sales of our ADSs or common shares by us, by the government of the ROC or by other stockholders.

The government may continue to sell our common shares. Sales of substantial amounts of ADSs or common shares by the government or any other stockholder in the public market, or the perception that future sales may occur, could depress the prevailing market price of our ADSs and common shares.

Share Price & Shareholder Rights - Risk 4

We may be sanctioned or the network establishment approval granted to us may be abolished for violations of limits on foreign ownership of our common shares, and these limits may materially and adversely affect our ability to obtain financing.

According to the TMA, which was effective from July 1, 2020 (excluding certain articles regarding frequency allocation that was set effective from November 1, 2020), the total amount of our shares directly held by foreigners shall not exceed 49%, and the total amount of our shares directly and indirectly held by foreigners shall not exceed 60%. As of April 8, 2024, foreign direct holdings of our outstanding share capital was at approximately 15.84%. If we fail to comply with the applicable foreign ownership limitations, the network establishment approval granted to us may be abolished. We cannot predict the manner in which the NCC will exercise its authority over us in the case of a violation, or whether the NCC will lower the foreign ownership cap at any time. If we are deemed to be in violation of our foreign ownership limitations, any consequences arising from such violation may materially and adversely affect us. Moreover, since we are unable to control ownership of our common shares or ADSs representing our common shares, and we have no ability to stop transfers among stockholders, or force particular stockholders to sell their shares, we may be subject to monetary fines, or the network establishment approval granted to us may be abolished, even if there is no fault of our own. In that event, our business could be disrupted, our reputation could be damaged and the market price of our ADSs and common shares could decline. These limitations may also materially and adversely affect our ability to obtain adequate financing to fund our future capital requirements or to obtain strategic partners, and alternate forms of financing may not be available on terms favorable to us, or at all.

Share Price & Shareholder Rights - Risk 5

You will be more restricted in your ability to exercise voting rights than the holders of our common shares, which may diminish your influence over our corporate affairs and may reduce the value of your ADSs.

Holders of American depositary receipts evidencing our ADSs may exercise voting rights with respect to the common shares represented by these ADSs only in accordance with the provisions of our deposit agreement. The deposit agreement provides that, upon receipt of notice of any meeting of holders of our common shares, the depositary bank will, as soon as practicable thereafter if requested by us in writing, mail to ADS holders the notice of the meeting sent by us, voting instruction forms and a statement as to the manner in which instructions may be given by the holders. Generally, ADS holders will not be able to exercise voting rights attached to the underlying securities on an individual basis. Under the deposit agreement, the voting rights attached to the underlying securities must be exercised as to all matters subject to a vote of stockholders collectively in the same manner, except in the case of an election of directors. The election of our directors is by means of cumulative voting. In the event the depositary does not receive voting instructions from ADS holders in accordance with the deposit agreement, our chairman or his or her designee will be entitled to vote the common shares represented by the ADSs in the manner he or she deems appropriate at his or her discretion, which may not be in your interest.

Share Price & Shareholder Rights - Risk 6

You are required to register with the TWSE and appoint several local agents in Taiwan if you withdraw common shares from our ADS facility and become our stockholder, which may make your ownership burdensome.

If you are a non-ROC person and wish to withdraw common shares represented by your ADSs from our ADS facility and hold those common shares, you are required under the current laws and regulations of the ROC to appoint an agent, also referred to as a tax guarantor, in the ROC for filing tax returns and making tax payments. A tax guarantor must meet certain qualifications set by the Ministry of Finance of the ROC and, upon appointment, becomes a guarantor of your ROC tax obligations. If you wish to repatriate profits derived from the sale of withdrawn common shares or cash dividends or interest on funds derived from the withdrawn common shares, you will be required to submit evidence of your appointment of a tax guarantor and the approval of the appointment by the ROC tax authorities. You may not be able to appoint and obtain approval for a tax guarantor in a timely manner. In addition, under the current laws of the ROC, you will be required to be registered as a foreign investor with the TWSE for making investments in the ROC securities market prior to your withdrawal and holding of common shares represented by the ADSs. You will be required to appoint a local agent in Taiwan to, among other things, open a securities trading account with a local securities brokerage firm and a bank account to remit funds, exercise stockholders' rights and perform other functions as holders of ADSs may designate. You must also appoint a local bank to act as custodian for handling confirmation and settlement of trades, safekeeping of securities and cash proceeds and reporting and declaration of information. Without the relevant registration and appointment of the local agent and custodian and the opening of a securities trading account and bank account, you will not be able to hold, subsequently sell or otherwise transfer our common shares withdrawn from the ADS facilities on the TWSE.

Accounting & Financial Operations3 | 9.4%

Accounting & Financial Operations - Risk 1

Our business and operation may be adversely impacted if we fail to achieve and maintain effective internal control or if our independent registered public accountants are unable to attest to or express an unqualified opinion on the effectiveness of our internal controls over financial reporting.

We are subject to the reporting requirements of the SEC. The SEC, as directed by Section 404 of the U.S. Sarbanes-Oxley Act of 2002, adopted rules requiring U.S. public companies to include a report of management on our internal control over financial reporting in their annual reports that contain an assessment by management of the effectiveness of our internal control over financial reporting. The effectiveness of our internal control over financial reporting has been audited by Deloitte & Touche, an independent registered public accounting firm, which has also audited our consolidated financial statements for the year ended December 31, 2023. Deloitte & Touche has issued an attestation report on the effectiveness of our internal control over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board (United States). See "Item 15. Controls and Procedures-Attestation Report of the Registered Public Accounting Firm." We are also required to comply with various ROC and U.S. laws and regulations on internal controls, but our internal controls, including policies and procedures, may not prevent or detect misstatements or misconduct because of their inherent limitations, including the possibility of human error, the circumvention or overriding of controls, fraud or corruption. While the management report included in this annual report concluded that our internal control over financial reporting was effective, we cannot assure you that our management will be able to conclude that our internal control over financial reporting will be effective in future years, and that our internal controls can prevent fraud and corruption. If in future years we fail to maintain effective internal controls in accordance with the Sarbanes-Oxley Act or other applicable laws, or if we are found not to be in compliance with applicable laws, we could face investigations or other enforcement actions, be subject to criminal, administrative, and civil penalties and other remedial measures, suffer a loss of investor confidence in the reliability of our consolidated financial statements, which in turn could negatively impact the trading price of our ADSs, and could result in lawsuits being filed against us by our stockholders, lead to adverse impact on our business, or otherwise harm our reputation.

Accounting & Financial Operations - Risk 2

Our results of operations and financial condition under Taiwan IFRSs may differ materially from our reported results of operations and financial condition under IFRSs.

While we have adopted Taiwan IFRSs for ROC reporting purposes, we adopt IFRSs for certain filings with the SEC, including our annual reports on Form 20-F. Taiwan IFRSs differs from IFRSs in certain significant respects, including to the extent that any new or amended standards or interpretations applicable under IFRSs may not be timely endorsed by the FSC. Furthermore, the dividends for 2023 that are expected to be declared at our 2024 annual general stockholders' meeting are calculated based on Taiwan IFRSs.

Accounting & Financial Operations - Risk 3

Our actual financial results may differ materially from our published guidance.

Starting in 2013, we continued to voluntarily publish our operating results guidance on an annual basis in accordance with the Taiwan IFRSs. We may from time to time update our operating results guidance after evaluating the effects of any changes to the estimates and assumptions that we used to calculate the projections of our operating results. Our projections are based on a number of estimates and assumptions that are inherently subject to significant uncertainties and contingencies, including the risk factors described in this annual report. In particular, our projections are forward-looking statements that are necessarily speculative in nature, and it can be expected that one or more of the estimates on which the projections were based will not materialize or will vary significantly from actual results, and such variances will likely increase overtime. Although our revenues, operating income, net income and EPS exceeded our expectations in 2023, our financial results will depend on future developments, which are highly uncertain and cannot be predicted.

Debt & Financing1 | 3.1%

Debt & Financing - Risk 1

The market value of your investment may fluctuate due to the volatility of, and government intervention in, the Taiwan securities market.

Our common shares are traded on the Taiwan Stock Exchange, or the TWSE, which has a smaller market capitalization and is more volatile than the securities markets in the U.S. and many European countries. The market value of our ADSs may fluctuate in response to the fluctuation of the trading price of our common shares on the TWSE. The TWSE has experienced substantial fluctuations in the prices and trading volumes of listed securities, and there are currently limits on the range of daily price movements. In 2023, the TWSE Index reached a low of 14,199.13 on January 4, 2023, and peaked at 17,930.81 on December 29, 2023. On April 8, 2024, the TWSE Index closed at 20,417.70. The TWSE has experienced certain problems, including market manipulation, insider trading and payment defaults. The recurrence of these or similar problems could have a material adverse effect on the market price and liquidity of the securities of Taiwan companies, including our ADSs and common shares, in both the domestic and the international markets. In response to declines and volatility in the securities markets in Taiwan, the government of the ROC formed the National Financial Stabilization Fund to support these markets through open market purchases of shares in Taiwan companies from time to time. The details of the transactions of the National Financial Stabilization Fund have not been made public. In addition, the government's Labor Insurance Fund and other funds associated with the government have in the past purchased, and may from time to time purchase, shares of Taiwan companies listed on the TWSE or other markets. As a result of these activities, the market price of common shares of Taiwan companies may have been and may currently be higher than the prices that would otherwise prevail in the open market. Market intervention by government entities, or the perception that such activity is taking place, may take place or has ceased, may cause sudden movements in the market prices of the securities of Taiwan companies, which may affect the market price and liquidity of our common shares and ADSs.

Corporate Activity and Growth1 | 3.1%

Corporate Activity and Growth - Risk 1

We may not realize the benefits we expect from our investments, which may materially and adversely affect our business, financial condition, results of operations and prospects.

We have made significant capital investments in our network infrastructure and information technology systems. To continue developing our business and offer more attractive and innovative services/solutions, we intend to continue making substantial capital expenditures in different areas and new technologies. However, customer acceptance of those new services/solutions may not be at the expected rate or level, or it may be unable to satisfy our customers' demands in time, thus impairing the expected return from our investments. We cannot assure you that services enabled by the new technologies we are implementing, such as Artificial Intelligence, or AI, Multi-access Edge Computing, or MEC, Open Radio Access Network, and Innovative Optical and Wireless Network, or IOWN, will be accepted by customers as expected. In addition, there might be risks of unforeseen complications in deploying these new services and technologies, and we cannot assure whether anticipated capital expenditures for providing such services will exceed our estimate. These new services and technologies may not be developed/deployed on schedules or may not be accepted by customers or reach expected commercial benefits. The failure of any of our services to achieve commercial acceptance could result in additional capital expenditures or a reduction in profitability to the extent that we are required under applicable accounting standards to recognize a charge for impairment of assets. Any such charge could materially and adversely affect our financial condition and results of operations. We recognized an impairment loss for investment properties, property, plant and equipment, as well as intangible assets in the past. In 2023, we concluded that the recoverable amount representing the fair value less costs of disposal of investment properties was lower than the carrying amount. Therefore, we recognized an impairment loss of NT$336 million (US$10.9 million) for investment properties. Also, in 2023, we evaluated and determined that the recoverable amount of certain property, plant and equipment was nil and recognized an impairment loss of NT$299 million (US$9.8 million) as a result. Furthermore, we cannot assure you that we will be able to maintain control of and consolidate the results of operations of our minority-owned subsidiaries. For example, we consolidated the results of operations of SENAO because we have remained in control over SENAO's relevant activities and the governance of the entity. Please refer to Note 3 and Note 14 to our consolidated financial statements included in this annual report for details. We might be unable to maintain control over SENAO's relevant activities, which could adversely affect our consolidated results of operations and ability to meet the operating results guidance that we have projected. We may also make equity investments in companies from time to time, but we cannot assure you of their profitability and whether any losses related to our equity investments will not have a material adverse effect on our financial condition or results of operations. For example, we invested in Next Commercial Bank Co., Ltd., or NCB, in 2020. Although NCB launched its services on March 29, 2022 and serves as a pivotal strategic investment for our company's fintech strategy, it has yet to generate profits.

Tech & Innovation

Total Risks: 7/32 (22%)Above Sector Average

Trade Secrets1 | 3.1%

Trade Secrets - Risk 1

Your right to participate in any future rights offerings may be limited, which may cause dilution to your holdings.

We may from time to time distribute rights to our stockholders, including rights to acquire our securities. Under the deposit agreement, the depositary will not offer you those rights unless the distribution to ADS holders of both the rights and any related securities are either registered under the U.S. Securities Act of 1933, as amended, or the Securities Act, or exempt from registration under the Securities Act. We are under no obligation to file a registration statement with respect to any such rights or securities or to endeavor to cause such a registration statement to be declared effective. Moreover, we may not be able to establish an exemption from registration under the Securities Act. Accordingly, you may be unable to participate in our rights offerings and may experience dilution in your holdings. If the depositary is unable to sell rights that are not exercised or not distributed or if the sale is not lawful or reasonably practicable, it will allow the rights to lapse, in which case you will receive no value for these rights.

Cyber Security1 | 3.1%

Cyber Security - Risk 1

As an internet service provider, we may not be able to protect our customers and their information from cyberattacks, nor protect our services or those of our partners with whom we share our confidential information from disruptions due to cybersecurity breaches.

Driven by emerging technologies such as AI, IoT and cloud services, cybersecurity threats have evolved into multi-faceted mixed attacks. Any cybersecurity incident or privacy leakage will damage customers' rights and cause us penalties and financial losses. In addition, malware attacks, which are often imbedded into supply chain software, have become more frequent and diverse, and would adversely impact business services or privacy leakage. The Cyber Security Management Act came into force on January 1, 2019. According to the Act, a critical infrastructure provider shall satisfy the requirements of the cybersecurity responsibility level, to amend and implement the cybersecurity maintenance plan. The "Administration Regulations of Cyber Security on Telecommunications Business," promulgated pursuant to the "Telecommunications Management Act," was enforced on July 1, 2020. According to the Regulations, telecommunications enterprises shall establish a cybersecurity maintenance plan and implement it accordingly. If we fail to comply with such requirements, we may be subject to administrative penalties. We may suffer negative consequences, such as remedial costs, increased cybersecurity protection costs, lost revenues, litigation and reputational damage due to cyberattacks. See "Item 16K. Cybersecurity."

Technology5 | 15.6%

Technology - Risk 1

Changes in technology may render our current technologies obsolete or require us to obtain approvals for introducing new services or make substantial capital investments, financing or successfully manage our liquidity and cash flows.

The telecommunications industry in Taiwan has been characterized by rapid increases in the diversity and sophistication of the technologies and services offered. As a result, we need to constantly upgrade our telecommunications technologies and services to respond to evolving industry conditions and customer requirements, rendering some less advanced technologies obsolete. The cost of implementing new technologies, upgrading our networks or expanding capacity could be significant. In particular, we have made and will continue to make substantial capital expenditures in the near future to effectively respond to technological changes to meet the increasingly robust high-bandwidth requirements of digital convergence services. After obtaining 5G mobile broadband services spectrum, we started our 5G network construction. Our ability to obtain additional financing will also depend on a number of factors. These factors include, but are not limited to, our financial condition, results of operations, financing cost, telecommunications industry conditions, financial market conditions, and relevant government and other regulatory approvals. Furthermore, failure to comply with covenants in our debt documents or repay debts when due may negatively affect our credit ratings, which will cause our financing costs to increase and weaken our fundraising capabilities, further affecting our liquidity position and financial condition. Any inability to obtain the funding for our capital expenditures on commercially acceptable terms could jeopardize our expansion plans and materially and adversely affect our business prospects and future results of operations.

Technology - Risk 2

Our long-term international bandwidth supply may be disrupted by unexpected delays for new international submarine cables.

The complicated permitting processes have caused unexpected delays on operation and construction. In particular, the construction of our new submarine cable, Southeast Asia-Japan 2 Submarine Cable, or SJC2, which connects various countries in the Asia Pacific region, has been delayed unexpectedly. The target service commencement date was pushed back to the end of 2024, which is more than three years later than the original plan. In the foreseeable future, submarine cables remain an indispensable international bandwidth solution, especially for Taiwan, and cannot be replaced by alternatives like satellite and microwave transmissions. Disruptions on new submarine cable projects will not only affect our services to individual customers but will also endanger our IDC, terrestrial links and international bandwidth sales, and eventually may have a material adverse effect on our business.

Technology - Risk 3

Our ability to deliver services may be disrupted due to systems failures, network shutdowns, earthquakes or other natural disasters.

Our ability to deliver services could be disrupted by systems failures, network shutdowns or other unanticipated problems at our facilities. For example, our submarine cables might be broken due to removals of sand and gravel by certain sand pumper dredgers, which would cause suspensions of our fixed line services, MOD, broadband access and mobile services. Taiwan is also susceptible to earthquakes and typhoons. However, we do not carry insurance to cover damage caused by earthquakes, typhoons or other natural disasters, including the effects of climate changes (such as drought, floods and increased storm severity), or any resulting business interruption. Our services are currently carried through our fixed and mobile communications networks, as well as through our transmission networks consisting of optical fiber cable, microwave, submarine cable and satellite transmission links, which could be vulnerable to damage or interruptions in operations due to natural disasters. The occurrence of natural disasters could impact our ability to deliver services and have a negative effect on our results of operations. In 2023, we recorded losses on property, plant and equipment arising from natural disasters such as earthquakes and typhoons in the amount of approximately NT$1.16 million (US$0.04 million). Furthermore, we might also be liable for losses claimed from our customers that were incurred from our failure to deliver our services. These potential liabilities could also have a material adverse effect on our results of operations.

Technology - Risk 4

If new technologies adopted by us do not perform as expected, or if we are unable to effectively deliver new services based on these technologies in a commercially viable manner, our revenue growth and profitability will decline.

We are constantly evaluating new growth opportunities. Some of these opportunities involve new services for which there are no proven markets, and may not develop as expected. Our ability to deploy and deliver these services will depend, in many instances, on new but unproven technologies. These new technologies may not perform as expected or generate an acceptable return. In addition, we may not be able to develop new technologies to effectively, competitively and economically deliver these services. In the 5G era and ICT realm, there could be more services beyond that of standard operators by delivering services via a B2B2X model, which is substantially dependent on the availability of applications and devices developed by third parties. If we fail to deliver commercially viable services based on the new technologies that we adopt, our financial condition and results of operations may be materially and adversely affected. In addition, we may need to cooperate with certain third parties to deliver these new services. To the extent that these third parties fail to perform their obligations, our services, financial condition and results of operations may be materially and adversely affected.

Technology - Risk 5

Actual or perceived health risks related to mobile handsets and base stations could lead to decreased mobile service usage and difficulties in increasing network coverage and could expose us to potential liability.

According to some published reports, the electromagnetic signals from mobile handsets and cellular base stations may pose health risks or interfere with the operation of electronic equipment. Although the findings of those reports are disputed, actual or perceived risks of using mobile communications devices or of cellular base stations could have a material adverse effect on mobile service providers, including us. For example, our customer base could be reduced, our customers may reduce their usage of our mobile services, we could encounter difficulties in obtaining sites for additional cellular base stations required to expand our network coverage or we may be requested to reduce the number of existing cellular base stations. As a result, our mobile services business may generate less revenues and our financial condition and results of operations may be materially and adversely affected. In addition, we could be exposed to potential liability for any health problems caused by mobile handsets and base stations.

Macro & Political

Total Risks: 6/32 (19%)Above Sector Average

Economy & Political Environment2 | 6.3%

Economy & Political Environment - Risk 1

Any decline in the Taiwan economy, downturn in the global ICT and technology industry, geopolitical uncertainty or slowdown in global economic growth may materially and adversely affect our financial condition, results of operations and prospects.

Our business depends on economic growth, and we conduct most of our operations and generate most of our revenues in Taiwan. We cannot assure you that the economic conditions in Taiwan will continue to improve in the future, and any uncertainty or further deterioration in Taiwan's economic conditions could have a material adverse effect on our financial condition and results of operations. In addition, Taiwan's economy is highly dependent on the global technology industry. Although we have adopted a variety of measures to mitigate risks associated with the global ICT and technology industry, any downturn in the global ICT and technology industry, including but not limited to, global supply chain disruption, interest rate fluctuation, inflation or deflation and changes in economic, fiscal and monetary policies in major economies, exchange rate fluctuation and risk of recession may have a material adverse effect on Taiwan's economy, which in turn could adversely affect the demand for our products and services. There are also concerns over tensions, armed conflicts, wars, civil unrest, election results and geopolitical uncertainty in various regions, such as Russia-Ukraine War, Israel-Palestine Conflict, the Middle East, Asia Pacific and the Central Asia region, which have resulted or could result in increased economic volatility and in increasing costs of cybersecurity and network maintenance. The economic slowdown in Mainland China and the U.S. could also have a material adverse effect on economies around the world. In particular, there have been increasing concerns over the global economic slowdown, disputes between the U.S. and Mainland China and global climate change issues, all of which could cause turbulence in the international and Taiwan's financial markets and the global technology industries. Although we conduct most of our operations and generate most of our revenues in Taiwan, any slowdown in global economic growth may materially and adversely affect our financial condition, results of operations and prospects.

Economy & Political Environment - Risk 2

We face substantial political risks associated with doing business in Taiwan, particularly due to domestic political events and the tense relationship between the ROC and the People's Republic of China, which could adversely affect our financial condition and results of operations.

Our principal executive offices and substantially all of our assets are located in Taiwan, and substantially all of our revenues are derived from our operations 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 ROC 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 Mainland China have been separately governed. The People's Republic of China, or PRC, claims that PRC is the sole legitimate government in China, and Taiwan is a part of China. In addition, the PRC government has refused to renounce the use of military force to gain control over Taiwan. Past developments in relations between the ROC and the PRC have on occasion depressed the market prices of the securities of companies in the ROC. Relations between the ROC 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. In addition, the complexities of the relationship between the ROC and PRC require companies involved in cross-strait business operations to carefully monitor their actions and manage their relationships with both ROC and PRC governments. We cannot assure you that we will be able to successfully manage our relationships with the ROC and PRC governments for our cross-strait business operations, which could have an adverse effect on our ability to expand our business and conduct cross-strait business operations.

Natural and Human Disruptions2 | 6.3%

Natural and Human Disruptions - Risk 1

Changed

Any outbreak of contagious diseases may materially and adversely affect our business and operations, as well as our financial condition and results of operations.

Any outbreak of contagious diseases, such as COVID-19, influenza, Zika virus, dengue fever or Ebola virus, may disrupt our ability to adequately staff our business and disrupt our operations. If any of our employees is suspected of having contracted any contagious disease, we may, under certain circumstances, be required to implement a work-from-home policy or quarantine such employees and the affected areas of our premises. As a result, we may have to temporarily suspend part or all of our operations. For example, we implemented a work-from-home policy during the COVID-19 pandemic to protect our employees and transitioned our employees to work remotely. Any outbreak may also restrict the extent of economic activity in affected regions. For example, during the COVID-19 pandemic, many governments over the world adopted measures such as travel restrictions and quarantine policies. Although the outbreak of the COVID-19 has subsided, its effects may last for a long time. The resurgence or occurrence of any contagious diseases and the adoption of similar measures may have a material adverse effect on our business, financial condition and results of operations.

Natural and Human Disruptions - Risk 2

Added

Effects of climate change may result in potential adverse impacts on our business, financial conditions and results of operations.

Climate change presents a multifaceted risk landscape for our company. The escalating frequency and severity of extreme weather events, such as typhoons, floods, high temperatures and wildfires, pose a direct threat to our physical infrastructures, such as Internet Data Centers, or IDCs, and base stations, potentially leading to service disruptions and heightened operational costs associated with maintenance, repairs and replacements. Moreover, the global shift towards stringent climate change-related policies amplifies regulatory risks. Compliance with evolving international and industry standards as well as additional disclosure requirements incur costs and potentially strain financial resources. For example, the imposition of carbon fees or other regulatory fees in a jurisdiction where we operate could result in substantially higher compliance costs. In particular, in response to global climate change, Taiwan adopted the Climate Change Response Act (formerly known as the Greenhouse Gas Reduction and Management Act) in February 2023, which establishes the goal of achieving net-zero emissions by 2050 and introduced the carbon pricing system. We cannot predict what effect of the implementation of the Climate Change Response Act may have on our business. In addition, in March 2024, the SEC announced its final Climate-Related Disclosure Rule, which requires issuers to provide information regarding material Scope 1 and Scope 2 greenhouse gas emissions, or GHG emissions, severe weather-related financial statement disclosures and climate-related governance, risks and targets disclosures. We, as a large accelerated filer, will be required to comply with certain of the Climate-Related Disclosure Rule as of the date of our annual report for the fiscal year ended December 31, 2025. As a result, we will need to take proactive measures to comply with the rule, which would incur additional costs and efforts. The imposition of any other regulatory fees and further legislative developments may increase our compliance costs or subject us to additional restrictions in our operations, which may adversely affect our financial condition. Furthermore, beyond immediate operational and financial impacts, there also exists higher market expectation for large enterprises like us to take more initiatives and responsibility. Failure to meet these expectations may result in reputational damage and a potential loss of customer trust. We always commit to the adaptation and mitigation of climate change and reducing operational risks of our business. For example, we adopted the Task Force on Climate-related Financial Disclosure, or TCFD, in 2020. Since then, we have continuously disclosed information on governance, strategy, risk management as well as metrics and goals regarding climate-related risks and opportunities in our sustainability report and on our official website. We also set detailed carbon emission management targets to achieve the goal of 2050 net-zero emissions. Our carbon emission management targets include achieving a 50% reduction of scope 1 and 2 carbon emissions by 2030 compared with the level in 2020, and using 100% renewable energy for IDCs by 2030 and for the Company by 2040. For further initiatives and measures we adopt in response to climate-related challenges, please refer to "Item 4. Information on the Company - B. Business Overview - Corporate Responsibilities: Environmental, Social and Governance (ESG) Initiatives." However, we cannot assure you that we will be successful in achieving these goals or transitioning to low-carbon operations as we have committed. If we fail to do so, our business, financial conditions, results of operations and reputation may be adversely affected.

Capital Markets2 | 6.3%

Capital Markets - Risk 1

Changes in exchange controls that restrict your ability to convert proceeds received from your ownership of ADSs may have an adverse effect on the value of your investment.

Your ability to convert proceeds received from your ownership of ADSs depends on existing and future exchange control regulations of the ROC. Under the current laws and regulations of the ROC, an ADS holder or the depositary, without obtaining further approvals from the Central Bank of the ROC (Taiwan) or any other governmental authority or agency of the ROC, may convert NT dollars into other currencies, including U.S. dollars, in respect of: - the proceeds of the sale of common shares represented by ADSs or received as share dividends with respect to the common shares and deposited into the depositary receipt facility; and - any cash dividends or distributions received from the common shares represented by ADSs. In addition, the depositary may also convert into NT dollars incoming payments for purchases of common shares for deposit in the depositary receipt facility against the creation of additional ADSs. If you withdraw the common shares underlying your ADSs and become a holder of our common shares, you may convert them into NT dollars subscription payments for rights offerings. The depositary may be required to obtain foreign exchange approval from the Central Bank of the ROC (Taiwan) on a payment-by-payment basis for conversion from NT dollars into foreign currencies of the proceeds from the sale of subscription rights of new common shares. Although it is expected that the Central Bank of the ROC (Taiwan) will grant approval as a routine matter, required approvals may not be obtained in a timely manner, or at all. Under the ROC Foreign Exchange Control Law, the Executive Yuan of the ROC may, without prior notice but subject to subsequent legislative approval rendered within ten days from such imposition, impose foreign exchange controls or other restrictions in the event of, among other things, a material change in domestic or international economic conditions which might threaten the stability of the domestic economy in Taiwan.

Capital Markets - Risk 2

Changed

Market landscape may adversely affect our growth and profitability by causing us to lose customers, charge lower tariffs, spend more on marketing or lose market share.

The market landscape of the telecommunications industry in Taiwan is constantly changing. In December 2023, two mergers were completed. As a result, the number of mobile network operators in Taiwan decreased from five to three, including us, and the degree of concentration of the telecommunication industry in Taiwan has been increasing. The completion of these two mergers may bring a more competitive market landscape. Our competitors have additional spectrum as a result of the mergers, and able to enhance customer experience and introduce new services. We will be dedicated to enhancing our network quality and services to respond to competitors' challenge. However, we cannot assure you that we can successfully manage these risks or develop effectively to maintain our market share and customer base, achieve economies of scale or sustain our profit margin under the increased market concentration. If we fail to do so, our business, results of operation and financial conditions may be adversely affected. Our primary advantages lie in our leading 5G service and the design of effective tariffs. In 2023, the strategy of our mobile business was to focus on promoting the highest quality of 5G service to our customers. More customers upgrading to 5G plans will increase the possibility of raising our mobile services revenues. However, mobile network operators might offer aggressive programs to attract consumers, such as unlimited low-priced data plans. We cannot assure you that we will be able to constantly raise our revenues from mobile broadband services in light of the current market landscape, which could have a material adverse effect on our business prospects and our future results of operations. Cable operators mainly promote high-speed internet access and TV converging solutions, and the bundled price is about 10% to 20% off ours. Furthermore, they offer low-price promotions of about 40% to 60% off ours for competitors' users and expand sales channels through cross-industry alliances. Competitors may also roll out aggressive marketing plans such as bundling broadband internet and 4G/5G mobile services to stir the market. Although we have rolled out Multiple-Play Package of mobile service, broadband service and Wi-Fi bundled plans, we still face intensified low-price strategies from other cable operators for our broadband access and IPTV services. If we are unable to achieve a favorable position compared with the cable operators for broadband access and multimedia-on-demand, or MOD, services, our results of operations could be impacted. As mobile data access speeds have increased with the advancement of technologies, many of our customers have replaced fixed broadband services with high-speed mobile broadband services, especially those who used lower-speed fixed broadband services. Any of these developments could adversely affect our business, financial condition and results of operations.

Legal & Regulatory

Total Risks: 5/32 (16%)Below Sector Average

Regulation4 | 12.5%

Regulation - Risk 1

If we do not or are unable to obtain and maintain necessary approvals to operate our business, our business prospects and future results of operations would be adversely affected.

We operate our businesses with approvals (including licenses) granted by the government and we have obtained necessary approvals to provide our services. If these approvals are revoked or suspended or are not renewed, or if we are unable to obtain any necessary approvals that we may need to operate or expand our business in the manner we desire, our financial condition and results of operations, as well as our prospects, will suffer and we may lose our customers and market share and become less profitable. If we are unable to successfully acquire and maintain the rights to use the frequency spectrums or other approvals that we may need for our future business operations, our business prospects and future results of operations may be materially and adversely affected.

Regulation - Risk 2

If we fail to comply with the regulations of the ROC Fair Trade Act, we may be investigated and fined.

As a provider of telecommunication products and services, our business operations are subject to the regulations of the ROC Fair Trade Act, or the FTA, which is administered and enforced by the ROC Fair Trade Commission, or the FTC. The FTA requires, among other things, that the marketing and promotional materials of a business to be true and not misleading. The FTA also prohibits a business from participating or engaging in a cartel or other anti-competitive conduct. The FTC has the authority under the FTA to investigate and, where appropriate, impose fines and penalties on a business that violates any regulations promulgated by the FTA. The consequences of any such violations could have a material adverse effect on our business and results of operations. See "Item 4. Information on the Company-B. Business Overview-Regulation" for a discussion of the FTA applicable to us. We have been investigated and penalized by the FTC in the past and may continue to be investigated or penalized by the FTC if we fail to comply with the relevant regulations. As the FTA provides the FTC broad discretion to interpret cartel or other anti-competition actions and enforce the relevant clauses under the FTA and FTC might take a different view of our existing business operation in the wake of advancement of global regulatory trend, we are unable to predict whether or when the FTC would initiate investigations on any of our daily business activities or find us liable for violating the FTA in the future. The investigations of any penalties imposed by the FTC could interrupt our provision of products or services and have a negative impact on our reputation, business operations and results of operations.

Regulation - Risk 3

Changed

Extensive regulation of our industry may limit our flexibility to respond to market conditions and landscape, and our business and revenues may suffer.

As a telecommunications service provider in Taiwan, we are subject to extensive regulation. According to the ROC Telecommunications Management Act, or the TMA, telecommunications enterprises shall register themselves with the NCC and become subject to the TMA. We applied for registration on July 31, 2020, and received approval from the NCC on September 30, 2020. Since then, we have become subject to the TMA. On April 15, 2022, the NCC announced that two retail service markets (i.e., the fixed-line voice market and the fixed-line broadband market) and three wholesale service markets (i.e., the fixed-line wholesale market, fixed-line voice access market and the mobile voice access market) are designated as specific telecommunications service markets; on June 5, 2023, we were officially determined to be the telecommunications enterprise with significant market power in the aforementioned five specific telecommunications service markets subject to special control measures, including fee control, accounting separation, information transparency and non-discrimination treatment. See "Item 4. Information on the Company-B. Business Overview-Regulation" for more information on the regulatory environment. With respect to the special control measures relating to fee control, the NCC announced the promulgation of the "Upper Limits on the Termination Rate for Voice Service over Mobile Network Provided by Significant Market Powers" on May 26, 2023, the promulgation of the "Primary Fees, Adjustment Coefficients and Years of Implementation for Price Cap Control Enforced on Significant Market Power in the Fixed Communication Network Voice Retail Service Market, Fixed Communication Network Broadband Retail Service Market and Fixed Communication Network Wholesale Service Market" on June 2, 2023, and the promulgation of the "Upper Limits on the Termination Rates for Voice Service over Fixed Network Provided by Significant Market Powers" on June 5, 2023, which constrain our ability to raise prices. On March 15, 2024, the NCC announced that, effective from April 1, 2024, the "monthly rental fee of broadband network circuit" were enforced to be reduced by "3.32% minus annual growth rate of the Consumer Price Index (CPI)," excluding the circuits of ADSL, that with download speed at and below 12 Mbps and that with download speed at 300 Mbps and above. For the fixed-line wholesale services, including the private circuits, broadband network wholesale circuits and internet interconnection bandwidth, the fees were enforced to be reduced by "5.09% minus annual growth rate of CPI," excluding the circuits with download speed at and under 2 Mbps. See "Item 4. Information on the Company-B. Business Overview-Regulation" and "Item 5. Operating and Financial Review and Prospects-Overview-Tariff adjustments." We cannot assure you that we will not be required to further reduce our tariffs again in the future. Any mandatory tariff reductions could have a material adverse effect on our revenues. Furthermore, in August 2022, the Ministry of Digital Affairs was launched to partly take over the administrative authorities formerly held by the NCC, the Ministry of Transportation and Communications and the Executive Yuan, respectively, including (1) telecommunications popularization, telecommunication enterprises cyber security management, number portability and equal accessibility, critical telecommunications infrastructure, radio frequencies allocation, as well as management of telecommunications numbers, websites and domain names, formerly held by the NCC; (2) comprehensive communications resources allocation and telecommunication industry counseling and incentives, formerly held by the Ministry of Transportation and Communications; and (3) the cyber security management, formerly held by the Executive Yuan. We are closely monitoring these regulatory changes and related policy development and we cannot assure you that these changes and development will not affect our business.

Regulation - Risk 4

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

The ability to deposit our common shares into our ADS program is restricted by ROC law, under which no person or entity, including you and us, may deposit our common shares into our ADS program unless the Securities and Futures Bureau has not objected within a prescribed period following the filing with it of an application to do so, except for the deposit of the common shares into our ADS program and for the issuance of additional ADSs in connection with: - distribution of share dividends or free distribution of our common shares;- exercise of preemptive rights of ADS holders applicable to the common shares evidenced by our ADSs in the event of capital increases for cash; or - purchases of our common shares in the TWSE by the investor directly or through the depositary and delivery of such common shares or delivery of our common shares held by such investors to the custodian for deposit into our ADS program, subject to the following conditions: (a) the depositary may accept deposit of those shares and issue the corresponding number of ADSs with regard to such deposits only if the total number of ADSs outstanding after the deposit does not exceed the number of ADSs previously approved by the Securities and Futures Bureau, plus any ADSs issued pursuant to the events described above; and (b) this deposit may only be made to the extent previously issued ADSs have been cancelled. As a result of the limited ability to deposit common shares into our ADS program, the prevailing market price of our ADSs on the New York Stock Exchange, or NYSE, may differ from the prevailing market price of the equivalent number of our common shares on the TWSE.

Litigation & Legal Liabilities1 | 3.1%

Litigation & Legal Liabilities - Risk 1

We are subject to litigation or other legal proceedings that could expose us to substantial liabilities.

We are from time to time involved in various litigation, arbitration or administrative proceedings in the ordinary course of our business. Any such claims, whether with or without merit, asserted or threatened, could be time-consuming and expensive to defend and could divert our management's attention and resources. See "Item 4. Information on the Company-B. Business Overview-Legal Proceedings." We cannot predict the outcome of these proceedings, and we cannot assure you that if a judgment is rendered against us in any or all of these proceedings, our financial condition and results of operations would not be materially and adversely affected.

Production

Total Risks: 3/32 (9%)Below Sector Average

Employment / Personnel2 | 6.3%

Employment / Personnel - Risk 1

Our success depends on our ability to attract and retain quality personnel.

In response to the rapidly evolving industry in which we operate, we need to continuously attract and retain skilled technical personnel, and we also depend on the continued service of our executive officers. Our business could suffer if we fail to attract qualified personnel or adequately replace them, and thus lose the services of any of these personnel. In particular, we could not afford the loss of any of our talents since attracting qualified talents is increasingly difficult. Moreover, any expansion by industry players may intensify the demands for qualified and experienced personnel in the Taiwan telecommunications industry. All the major three telecom operators in Taiwan, including us, are expanding the Information and Communication Technology, or ICT, business in areas such as cybersecurity, cloud, AIoT, IDC and big data analysis and may increase the number of their employees as part of this expansion. In addition to telecom operators, some computer design companies and manufacturers are also expanding their business into these areas and have been recruiting information technology-related employees as well. We may also need to increase employee compensation levels to attract and retain personnel, which in turn could result in an increase in our operating costs. We cannot assure you that the loss of the services of any of these personnel would not disrupt our business and operations and materially and adversely affect the quality of our services and harm our reputation.

Employment / Personnel - Risk 2

If we fail to maintain a good relationship with our labor unions, work stoppages or labor unrest could occur and the quality of our services as well as our reputation could suffer.

In accordance with the articles of association of Chunghwa Telecom Workers' Union, except for the chief manager of each department, most of our employees are members of our principal labor union, the Chunghwa Telecom Workers' Union. Since our incorporation in 1996, we have experienced disputes with our labor unions on issues such as employee benefits and retirement benefits in connection with our privatization as well as the right to protest. In spite of having taken measures to improve relations, increase cooperation and ensure mutual benefit with our labor unions, such as increasing channels of communications by holding periodic labor resource review meetings and guaranteeing our labor unions a seat on our board of directors, we cannot assure you that we will be able to maintain a good relationship with our labor unions. Any deterioration in our relationship with our labor unions could result in work stoppages, strikes or threats to take such an action, which could disrupt our business and operations, materially and adversely affect the quality of our services and harm our reputation.

Costs1 | 3.1%

Costs - Risk 1

Our operation may be interrupted, and our expansion may be limited, by power or utility shortage.

Our operation requires a continuous supply of utilities such as electricity and water. Interruptions of electricity or water supply could result in temporary shutdowns of our operation. We may from time to time suffer power outages or surges in Taiwan caused by difficulties encountered by the public utility or other power consumers on the same power grid. Some of these have resulted in interruptions to our operations. Any major suspension, shortage or termination of electricity supply could significantly harm our business, results of operations and financial condition. If we are unable to secure reliable and uninterrupted supply of electricity in Taiwan, our services may be interrupted. Furthermore, we may suffer from a shortage of water in Taiwan, and we may need to incur additional costs and expenses to respond to such shortages in order to maintain our operations and services. Such incremental costs may affect our profitability and results of operations.

See a full breakdown of risk according to category and subcategory. The list starts with the category with the most risk. Click on subcategories to read relevant extracts from the most recent report.

FAQ

What are “Risk Factors”?

Risk factors are any situations or occurrences that could make investing in a company risky.

The Securities and Exchange Commission (SEC) requires that publicly traded companies disclose their most significant risk factors. This is so that potential investors can consider any risks before they make an investment.

They also offer companies protection, as a company can use risk factors as liability protection. This could happen if a company underperforms and investors take legal action as a result.

It is worth noting that smaller companies, that is those with a public float of under $75 million on the last business day, do not have to include risk factors in their 10-K and 10-Q forms, although some may choose to do so.

How do companies disclose their risk factors?

Publicly traded companies initially disclose their risk factors to the SEC through their S-1 filings as part of the IPO process.

Additionally, companies must provide a complete list of risk factors in their Annual Reports (Form 10-K) or (Form 20-F) for “foreign private issuers”.

Quarterly Reports also include a section on risk factors (Form 10-Q) where companies are only required to update any changes since the previous report.

According to the SEC, risk factors should be reported concisely, logically and in “plain English” so investors can understand them.

How can I use TipRanks risk factors in my stock research?

Use the Risk Factors tab to get data about the risk factors of any company in which you are considering investing.

You can easily see the most significant risks a company is facing. Additionally, you can find out which risk factors a company has added, removed or adjusted since its previous disclosure. You can also see how a company’s risk factors compare to others in its sector.

Without reading company reports or participating in conference calls, you would most likely not have access to this sort of information, which is usually not included in press releases or other public announcements.

A simplified analysis of risk factors is unique to TipRanks.

What are all the risk factor categories?

TipRanks has identified 6 major categories of risk factors and a number of subcategories for each. You can see how these categories are broken down in the list below.

1. Financial & Corporate

Accounting & Financial Operations - risks related to accounting loss, value of intangible assets, financial statements, value of intangible assets, financial reporting, estimates, guidance, company profitability, dividends, fluctuating results.
Share Price & Shareholder Rights – risks related to things that impact share prices and the rights of shareholders, including analyst ratings, major shareholder activity, trade volatility, liquidity of shares, anti-takeover provisions, international listing, dual listing.
Debt & Financing – risks related to debt, funding, financing and interest rates, financial investments.
Corporate Activity and Growth – risks related to restructuring, M&As, joint ventures, execution of corporate strategy, strategic alliances.

2. Legal & Regulatory

Litigation and Legal Liabilities – risks related to litigation/ lawsuits against the company.
Regulation – risks related to compliance, GDPR, and new legislation.
Environmental / Social – risks related to environmental regulation and to data privacy.
Taxation & Government Incentives – risks related to taxation and changes in government incentives.

3. Production

Costs – risks related to costs of production including commodity prices, future contracts, inventory.
Supply Chain – risks related to the company’s suppliers.
Manufacturing – risks related to the company’s manufacturing process including product quality and product recalls.
Human Capital – risks related to recruitment, training and retention of key employees, employee relationships & unions labor disputes, pension, and post retirement benefits, medical, health and welfare benefits, employee misconduct, employee litigation.

4. Technology & Innovation

Innovation / R&D – risks related to innovation and new product development.
Technology – risks related to the company’s reliance on technology.
Cyber Security – risks related to securing the company’s digital assets and from cyber attacks.
Trade Secrets & Patents – risks related to the company’s ability to protect its intellectual property and to infringement claims against the company as well as piracy and unlicensed copying.

5. Ability to Sell

Demand – risks related to the demand of the company’s goods and services including seasonality, reliance on key customers.
Competition – risks related to the company’s competition including substitutes.
Sales & Marketing – risks related to sales, marketing, and distribution channels, pricing, and market penetration.
Brand & Reputation – risks related to the company’s brand and reputation.

6. Macro & Political

Economy & Political Environment – risks related to changes in economic and political conditions.
Natural and Human Disruptions – risks related to catastrophes, floods, storms, terror, earthquakes, coronavirus pandemic/COVID-19.
International Operations – risks related to the global nature of the company.
Capital Markets – risks related to exchange rates and trade, cryptocurrency.

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