Trend Micro Incorporated

There is a risk that cyberattacks, information leaks by insiders, or product misdetections/vulnerabilities could significantly damage the company's credibility as a security firm. Such reputational damage could directly lead to setbacks in product adoption, lawsuits and claims for damages, and business stagnation, potentially having a material impact on the financial position and operating results. While countermeasures such as establishing a CISO, operating a CSIRT, obtaining ISO27001 certification, and establishing a SWAT structure have been implemented, these measures may not be sufficient to prevent such incidents.

The cybersecurity industry undergoes rapid technological innovation with new threats constantly emerging, and if competitors develop superior products or users shift to lower-priced products, the competitiveness of the Group may decline. If new computing and security technologies emerge and change the business environment and the Group is unable to respond promptly, this could have a material impact on the business, financial position, and operating results. Frequent product updates and substantial ongoing development investment are required.

Since the Group derives nearly all of its consolidated net sales from the cybersecurity business, there is a risk that intensified market competition or technological change could reduce sales and market share, including in the Japan market. With limited diversification, the structure is such that a deterioration in industry conditions could directly impact overall performance. While the Group is expanding its business areas through strategic alliances and acquisitions, there is also a risk that the expected revenue may not be achieved and that integration risks may arise.

While the reporting currency for consolidated results is the Japanese yen, a large portion of consolidated net sales and expenses are denominated in US dollars, euros, and various Asian currencies, and the impact of exchange rate fluctuations may become greater as overseas sales expand. In addition, securities and investment securities (including those denominated in foreign currencies) held for the purpose of efficient fund management carry the risk of valuation losses in the event of significant fluctuations in financial markets. These factors could have a material impact on the Group's operating results.

Intensifying competition in the cybersecurity industry has made it difficult to secure excellent engineers and talent, and there is a risk that the departure of key personnel or failure to achieve planned recruitment could stall business operations. As 54.1% of employees are concentrated in the Asia region, there is also a risk that inflation and rising wages in that region could rapidly increase personnel costs. While measures such as confidentiality and non-compete agreements and enhanced education and training have been implemented, these may not completely prevent the leakage of technical and strategic information.

The expanded use of AI may increase power and water consumption at data centers and elsewhere, potentially leading to higher environmental compliance costs due to increased GHG emissions, a greater burden of responding to environmental regulations, and a decline in social reputation. Securing and developing AI specialist talent is an important issue for competitors as well, and intensified competition in recruitment and talent attrition could lead to a medium- to long-term decline in the Group's competitiveness. On the other hand, the Group is also promoting sales growth of products and solutions through the use of machine learning and AI.

The Group is subject to regulation under the laws of various countries, and non-compliance could result in administrative guidance or penalties that affect operating results. If amendments to laws and regulations strengthen restrictions on products and services, compliance costs could increase, potentially having a material impact on operating results. In addition, if officers, employees, or related parties violate laws or regulations, this could damage the Group's credibility and affect its operating results.

The Group's business relies heavily on its own intellectual property rights, and there is a risk that it may not be able to prevent unauthorized use of its technology or the development of similar technology by competitors. On the other hand, if the Group infringes on the intellectual property rights of third parties, this could result in injunctions against the sale of products and services, payment of damages, or royalty payments. While measures such as licensing agreements and access restrictions have been implemented, complete protection cannot be guaranteed.

Natural disasters such as earthquakes, heavy rain, floods, and wildfires, disasters caused by climate change, the spread of infectious disease viruses, terrorism, and geopolitical risks could damage the Group's facilities and equipment, forcing a suspension of operations. These events are difficult to predict, and even with thorough countermeasures in place, the resulting damage may not be limited. While recovery measures and regular drills are conducted based on Business Continuity Management (BCM), the impact on the financial position and operating results cannot be ruled out.

Many of the Group's products and services are sold through intermediary distributors that also handle competing products, and there is a risk that these distributors may focus more on competing products or that product returns may occur. If the financial condition of an intermediary distributor deteriorates, the actual amount of bad debt may exceed the recorded allowance for doubtful accounts, adversely affecting the collection of accounts receivable. While the Group addresses this through regular reviews of financial condition and provisioning of allowances for doubtful accounts, this could have a material impact on the Group's financial position and operating results.