Naigai Tec Corporation

The Group's core business is Various Components Sales and Contract Manufacturing for semiconductor and FPD manufacturing equipment, and its performance is strongly linked to demand and pricing trends in the semiconductor manufacturing equipment market. A slowdown in growth of AI-related demand, the silicon cycle exceeding expectations, decreased demand due to changes in trade policy, and increased procurement costs or intensified cost-reduction demands stemming from exchange rate fluctuations could become factors in deteriorating business performance. Under the medium-term management plan "MIRAI 2030," the Group is promoting a business model transformation centered on the AI business to diversify risk.

Sales dependence on the Tokyo Electron Group remains at a high level: 75.3% in FY2024 (ended March 2024), 72.5% in FY2025 (ended March 2025), and 69.4% in FY2026 (ending March 2026). If transactions with the group decrease significantly, or if there are changes to production plans or major products handled, this would have a material impact on net sales and inventory valuation. The Group strives to maintain and expand transactions by anticipating needs and pursuing broad-based business development, but the pace of reducing dependence remains gradual.

Dependence on SMC Corporation, a major supplier, for merchandise procurement remains at a high level: 40.6% in FY2024 (ended March 2024), 40.8% in FY2025 (ended March 2025), and 36.6% in FY2026 (ending March 2026). If the distributor agreement in effect since November 1965 cannot be renewed, or if SMC's distributor policy changes significantly, this would have a direct impact on the Group's business performance. While the Group maintains its policy of preserving its long-standing close relationship while seeking to expand transactions, the risk of concentration on a single supplier continues.

U.S. government export restrictions on semiconductors to China, strengthened tariff policies, and trends in export control regulations in various countries could affect the business activities of major customers and the semiconductor manufacturing equipment market as a whole. In business operations conducted through the local subsidiary in China, there is also a risk that changes in local political and social conditions or unexpected changes in laws and regulations could make it difficult to continue business. Such regulatory changes and tightening could have a direct impact on the Group's net sales and profitability.

Under the medium-term management plan "MIRAI 2030," the Group is pursuing three growth strategies: the Physical AI strategy, the AI/SCM system strategy, and the AI human capital development strategy. However, rapid advances in AI technology could lead to technological obsolescence and intensified competition from new entrants. If new or revised laws and regulations concerning AI are introduced, or if data quality or bias issues arise, or if malfunctions or accidents caused by AI decision-making occur, this could affect the Group's social credibility and business performance. This risk lies at the core of the business model transformation and is directly linked to the feasibility of the strategy.

Based on "MIRAI 2030," the Group is pursuing M&A strategies including acquisitions of shares in other companies, business transfers, and business alliances. However, there is a risk that potential liabilities, legal issues, technical challenges, or labor-related problems may be discovered despite due diligence. Differences in management policy or corporate culture could hinder smooth PMI (post-merger integration), potentially preventing the Group from fully realizing expected synergies. If an acquired company's earning power falls short of expectations, goodwill impairment could occur, affecting the Group's business performance.

Strengthening development capabilities for high-vacuum and control technologies is a pillar of the Group's growth strategy, and based on its four development sites, the Group aims to transform from a "Contract Manufacturing Business" to a "manufacturer" that handles design, development, and manufacturing in an integrated manner. If the recruitment and training of engineers does not proceed as planned, or if the fields targeted for R&D do not match customer requirements, this could affect business performance. Continued securing of technical talent is essential to realizing the transformation into a manufacturer, and intensifying competition for talent acquisition heightens this risk.

Against the backdrop of a declining working population and intensifying competition for talent, securing excellent human resources and quickly developing new hires into productive contributors are important challenges. The Group is pursuing an AI human capital development strategy, including shortening training periods through remote training systems utilizing AI and VR, but if this does not proceed as planned, it could affect business activities and performance. Enhancing human capital is essential to realizing the "MIRAI 2030" strategy, and human capital risk is directly linked to the execution capability of the strategy as a whole.

The Group holds important technical information, corporate information, and personal information, and while it strives to establish management rules and strengthen the management of important information, an unexpected information leak could result in loss of social credibility and substantial financial burden. Methods of cyberattack such as unauthorized access, ransomware, and targeted attacks are becoming increasingly sophisticated and elaborate, and despite strengthening the information security system and conducting security education, the risk of business suspension or leakage of important information remains. Cyber incidents could affect not only business performance but also trust relationships with business partners.

As the Group advances the development of its own products in pursuit of transformation into a "manufacturer," the importance of intellectual property such as technical know-how and design information is increasing. If intellectual property protection is inadequate, or if the Group unintentionally infringes on a third party's intellectual property rights, this could affect business performance through litigation costs or restrictions on business activities. Establishing an intellectual property management system is required in parallel with business expansion, and delays in this response could heighten the risk.