TDC SOFT Inc.

There is a risk that customers' IT investment may decline during a downturn in the Japanese economy. Competition in the domestic information services industry is intense, and new technologies and products introduced by competitors may create downward pricing pressure or cause the Group's services to become obsolete. While underlying DX demand continues to trend upward, the structure is such that the impact on business performance tends to become apparent during economic downturns.

Acquiring and developing new talent is fundamental to business operations, and insufficient acquisition or development would directly affect future growth and operating results. Amid continued tightness in the supply-demand balance for IT personnel, intensifying competition for recruitment is a concern. While the company positions investment in human capital as an important priority, details of specific countermeasures are not disclosed in the securities report.

The proportion of revenue derived from major customers such as the NTT DATA Group, IBM Japan Group, and Fujitsu Group is high, and changes in these customers' business policies would directly affect operating results. Because of the high degree of dependence on specific customers, shifts in customer strategy or fluctuations in order volume could become a major factor causing significant variability in performance. Details of initiatives aimed at diversifying the customer base are not disclosed in the securities report.

Shortened development periods and increasing complexity of functions create a risk that costs will exceed initial estimates, resulting in low profitability or losses. In the event of delivery delays, penalties for late delivery may be incurred, and in the event of non-delivery, liability for damages may arise. As customer requirements continue to become more sophisticated, improving the precision of project management is a challenge.

Given the nature of the business, which involves handling customers' confidential information and personal data, an information leak could have a material impact on operating results through claims for damages or loss of trust. Although the Group has established a rigorous management framework through ISO27001 certification and PrivacyMark certification, risks such as cyberattacks and internal misconduct cannot be entirely eliminated.

If a system defect attributable to the Group's negligence causes damage to a customer after delivery and acceptance, there is a risk of claims for damages or loss of trust. The Group is working to improve quality through ISO9001 certification, and to date has not faced any lawsuits or significant claims for damages; however, as the social importance of systems increases, this risk continues to exist.

If computer equipment is damaged by cyberattacks such as unauthorized access or computer viruses, or by disasters or power outages, delays or interruptions in system development or services may occur, potentially affecting operating results. As digitalization progresses, cyber threats are becoming more sophisticated and diverse, requiring continuous strengthening of security measures.

In investment activities such as capital alliances, acquisitions, and establishment of subsidiaries, if changes in the business environment prevent an investee's business from achieving expected results, investment losses may arise or additional funding may be required, potentially affecting business performance and financial condition. Although profitability and recoverability are investigated and examined in advance, the risk of changes in the external environment remains.

In business areas such as cloud services, there is a risk of being subject to service injunctions or claims for damages on the grounds of infringing third-party patent rights (including business model patents). There is also a possibility of being accused of copyright infringement in connection with third-party programs used in system development. Although measures such as confirming licensing rights are undertaken, the existence of business model patents with unclear scope of rights heightens this risk.

The occurrence of natural disasters such as earthquakes and typhoons, or events such as fires or pandemics, could halt all or part of operations, potentially affecting business performance. Although countermeasures for business continuity are being implemented and examined, large-scale disasters may present situations in which an effective response is difficult. As an IT company that supports the stable operation of customers' systems, the effectiveness of its business continuity plan (BCP) is of significant importance.