Tekscend Photomask Corp.

Exchange rate fluctuations associated with foreign currency-denominated transactions may affect business performance, and there is a risk that competitiveness could decline due to changes in security and industrial policy, such as strengthened U.S. tariff measures and changes in import/export regulations, with the possibility of administrative sanctions or criminal penalties in the event of export control violations. The likelihood of materialization is assessed as medium to high, with a short- to medium-term timeframe for materialization. In response, the company is continuously monitoring trade and security policies, utilizing hedging measures such as forward exchange contracts, and working to minimize tariff costs by reviewing manufacturing locations.

There is a risk that global economic trends and geopolitical risks could reduce demand for semiconductor electronic devices, shrinking the overall merchant photomask market. Changes in the in-house production policies of IDMs and foundries, as well as trade friction, may also affect photomask demand. In response, the company continues to develop next-generation technologies such as EUV masks and Curvilinear technology, and aims to reduce the impact of demand fluctuations by involving technology partners from the R&D phase.

There is a risk that the competitive environment will deteriorate due to strengthened in-house procurement policies by IDMs and foundries, intensifying price competition among merchant vendors, and the emergence of new photomask vendors in China. It cannot be ruled out that in-house divisions of semiconductor manufacturers may expand into merchant business in the future. In response, the company is promoting broad technology development and capital investment ranging from leading-edge to legacy areas, and is building customer collaboration from the R&D stage and trading relationships with diverse sales channels.

If unauthorized access or cyberattacks cause information system failures or the destruction or leakage of important data, this could result in a decline in social credibility, leakage of know-how, substantial recovery costs, and forced suspension of business activities. The impact is assessed as "large." In response, the company has established regulations based on its Basic Information Security Policy, obtained ISMS certification, conducts regular security assessments and improvements, and provides education to all officers and employees.

Raw materials and manufacturing equipment used in photomask production are often designated through customer certification, creating a risk that alternative procurement becomes difficult if a certified supplier suffers a disaster or goes bankrupt. Soaring raw material and energy prices also affect business performance. In response, the company shares information with suppliers based on customer forecast data, proposes expanding the scope of alternative certifications, and has built a system for maintaining appropriate inventory at each site and mutual supply arrangements between sites.

There is a possibility that the company may fail to achieve its established medium-term business targets due to intensifying competition, unexpected changes in the market environment, failure to secure and develop human resources, insufficient response to technological trends, or unfavorable changes in relevant laws and regulations. If responding to these factors requires expenses exceeding expectations, this could also affect business performance and financial condition. In response, the company is building a diverse customer base and global production system to limit dependence on specific customers or sites, and has established a system for flexibly reviewing strategy in response to changes in the environment.

The company holds substantial tangible fixed assets to maintain and expand production capacity. If changes in the business environment or deterioration of business conditions beyond expectations reduce the profitability of these assets, it may become necessary to recognize impairment losses, which could affect business performance and financial condition. In response, the company is working to improve the precision of investment criteria, verify appropriate investment timing and profitability, and continuously monitor market conditions using information from external research organizations.

As semiconductor manufacturer customers demand a high level of quality control, if product quality defects or equipment troubles cause losses to customers, this could affect business performance and financial condition due to the occurrence of damage compensation costs, among other factors. In response, the company has built a system for production and quality control using MES, ensuring uniform quality through high-precision data matching technology between sites, and enabling early corrective action by leveraging knowledge from other sites when quality issues occur.

At the leased factory used by group company Shanghai Xuhui Keshengde Semiconductor Co., Ltd., there are legal issues such as discrepancies in designated land use and deficiencies in administrative procedures related to building construction and expansion. If authorities impose restrictions on production activities, this could necessitate a suspension of operations or relocation of the factory. The risk of eviction is considered to have been reduced following a written statement from the Xuhui District Commerce Commission in February 2024 supporting the continuation of current production; however, the issue has not been fully resolved. In response, the company continues discussions with the lessor and administrative authorities while leveraging the expertise of local law firms.

TOPPAN Holdings Inc. holds 46.55% of voting rights, which may allow it to exert a certain degree of influence over the company's management policies and important decision-making through the exercise of voting rights at shareholders' meetings and the expression of opinions at board meetings. Changes in the relationship with TOPPAN Holdings or a divergence of interests could also raise concerns about impacts on business performance and financial condition. In response, the company has strengthened its governance framework by appointing independent outside officers, and has established mechanisms for verifying the appropriateness of conditions through a special committee and confirmation through internal audits for transactions with the TOPPAN Group.