SUMCO CORPORATION

Demand for silicon wafers is heavily dependent on the semiconductor device market. In addition to rapid technological innovation, product obsolescence, and price declines, economic downturns caused by infectious diseases and geopolitical risks (such as U.S.-China friction) may affect demand. Although medium- to long-term demand expansion is expected due to the spread of data centers, generative AI, and EVs, if actual market conditions fall short of expectations, this could have a material impact on business results. As countermeasures, the Group is working to build a system for rapid response to market trends and to strengthen its financial position, but there is no guarantee that these measures will be effective.

Semiconductor products tend to decline in price after market introduction, and a rapid deterioration in supply and demand may spread price decline pressure to silicon wafers as well, potentially affecting business results. In addition, there are risks of decreased sales volume due to credit impairment, and loss or decline of production capacity due to manufacturing interruptions or yield declines caused by large-scale equipment accidents, system failures, or logistics disruptions. The Group has implemented measures such as productivity improvement and yield improvement through AI utilization, preventive maintenance, and the establishment of a CSIRT, but there is a possibility that these measures may not be effective.

The silicon wafer market requires substantial capital investment, and capacity expansion by competitors may worsen the supply-demand balance. Many competitors are large enterprises that may have advantages over the Group in terms of financial strength, technology, and price competitiveness, and there is also a risk that integration or mergers among competitors could dramatically increase their competitiveness. If the Group's relative competitiveness declines, this could lead to price reductions or decreased sales, potentially affecting business development and business results.

Due to the volatility of the semiconductor industry, it is difficult to accurately forecast future market conditions. In times of excess demand, there is a risk of lost opportunities and deteriorating customer relationships due to insufficient production capacity, while in times of sluggish demand, there is a risk of excess production capacity. In addition, if the expected quality or yield is not achieved, this may result in a failure to reach planned production volumes or the recognition of impairment losses, and it may also become impossible to sell products in accordance with long-term sales contracts. As the Group holds substantial fixed assets, deterioration of the business environment or a significant decline in future cash flows may necessitate impairment of fixed assets.

The Group operates production and sales sites in North America, Europe, and Asia, and there is a risk that plant operations may decline due to economic and political conditions in each country, conflicts, terrorism, infectious diseases, transportation delays, changes in labor conditions, and other factors. In particular, significant tariff increases, sanctions on specific companies, and expanded import/export restrictions arising from U.S.-China friction could have serious impacts, such as loss of major customers or disruption of the supply chain. In addition, policies in various countries encouraging domestic semiconductor manufacturing may reduce the competitiveness of the Group's products. The Group strives to hedge these risks through flexible production allocation across multiple sites, but complete avoidance cannot be guaranteed.

With respect to high-purity polycrystalline silicon, a key raw material, the Group holds excess inventory due to discrepancies between demand forecasts at the time long-term purchase contracts were concluded and actual consumption forecasts, which constrains opportunities for reducing raw material costs until inventory levels return to appropriate levels. In addition, if consumption volumes fluctuate due to significant changes in the business environment or if accounting adjustments become necessary, this could affect business results. The Group is working to optimize raw material inventory levels, but there is no guarantee that these efforts will be effective.

For key manufacturing equipment such as polishing machines, it is difficult to switch equipment manufacturers in a short period of time, and extended delivery times, insufficient supply capacity, or price increases may delay the contribution of capital investment to manufacturing. In particular, highly specialized and customized equipment has few equipment suppliers with limited production capacity, creating a risk of delays in commencing operations for new capital investments aimed at meeting cutting-edge quality requirements. Export restrictions resulting from natural disasters, infectious diseases, and geopolitical changes may also make procurement more difficult.

As semiconductors become more highly integrated, miniaturized, and diversified in application, quality requirements from customers are becoming more sophisticated. If the expected effects of R&D activities are not achieved, or if technological development lags behind other companies, it may become difficult to meet customer requirements, potentially affecting business development and business results. In particular, the 300mm cutting-edge high-precision wafers for semiconductors, on which the Group is focusing, are not easy to develop and mass produce, and cost burdens may increase if R&D expenses exceed expectations or if productivity improvements take longer than anticipated. The Group has implemented measures such as strengthening its system for monitoring technological trends, joint research with universities, and engineer training programs, but there is no guarantee that these measures will be effective.

If confidential technical or business information or customers' personal information is lost or leaked due to cyberattacks, computer virus infections, or unauthorized removal by related parties, this could lead to a decline in competitiveness, loss of social credibility, and pursuit of liability, potentially affecting business results. In addition, given the high dependence on information systems in each process of material procurement, manufacturing, sales, and delivery, network failures caused by system failures or cyberattacks could delay customer service, reduce operational efficiency, and require substantial capital investment. The Group has implemented measures such as establishing a CSIRT, firewalls, duplicating core systems, and installing backup servers, but complete protection cannot be guaranteed.

Foreign currency-denominated transactions such as product exports and the yen conversion of the financial statements of overseas consolidated subsidiaries mean that exchange rate fluctuations may affect business results. The Group hedges this risk through forward exchange contracts, but sufficient avoidance cannot be guaranteed. In addition, if the Group breaches financial covenants in loan agreements and loses the benefit of time, or if it becomes difficult to raise funds at the desired timing or on the desired terms due to a decline in credit rating, rising interest rates, or deteriorating market conditions, this could affect business results. Some overseas consolidated subsidiaries have long-term loans with floating interest rates, which also entails interest rate risk.