TAZMO Co.,LTD.

The Process Equipment Business, whose mainstay products are semiconductor manufacturing equipment and LCD manufacturing equipment, is subject to significant cyclical market fluctuations, and its performance is heavily influenced by changes in demand trends, technological innovation, and the competitive landscape. While there is a risk of market contraction in the short term due to supply-demand imbalances, expanding demand for power semiconductors and advanced packaging related to generative AI is expected over the medium to long term. As a countermeasure, the Company regularly gathers user information and monitors market trends through external research organizations.

Semiconductor manufacturing equipment and Surface Treatment Equipment are produced on a build-to-order basis, and depending on the project, the period from delivery to customer acceptance inspection and revenue recognition can exceed one year. If the acceptance inspection period becomes longer than originally planned due to customer circumstances or other factors, the impact on business performance may be significant, particularly for large-scale projects. While a system has been established for the sales department to share information with customers to prevent process delays, the risk of delay due to external factors remains.

In the build-to-order semiconductor manufacturing equipment and Surface Treatment Equipment businesses, which involve a high degree of new development, there may be cases where work hours exceed the initial estimate, or where additional costs arising from changes in terms or specifications with a customer cannot be billed to the customer. If such additional costs are incurred, they may adversely affect business performance through deterioration in profitability. As a countermeasure, the Company has established a system in which sales personnel are accompanied by engineers to finalize specifications at an early stage.

In the semiconductor and LCD industries, where technological innovation is rapid, continuous investment in R&D is necessary to maintain competitiveness; however, it is difficult to accurately predict technological innovation and changes in user needs, and there is a possibility that sufficient results may not be obtained even when management resources are invested. Insufficient results could lead to a decline in product competitiveness and adversely affect business performance. The Company has established a system to review development plans when there is a divergence between actual demand or development timing and the initial plan.

Sources of materials and semi-finished products are highly specialized, and some suppliers, subcontractors, or items cannot be easily switched. If a supply shortage occurs due to market fluctuations or other factors, procurement costs may rise and delivery delays may occur, potentially affecting business performance. While the Company strives for stable procurement by securing multiple suppliers, the risk of dependence on specific suppliers cannot be completely eliminated.

There is a risk that securing the personnel necessary for business expansion will become difficult due to the declining working-age population resulting from the falling birthrate and aging society, particularly the rapid aging in regional areas such as Okayama Prefecture, where the head office is located. In addition, an average of more than ten employees will turn 60 years old each year over the next 15 years, making the transfer of technology and experience an urgent priority. As countermeasures, the Company is expanding its recruitment regions, establishing systems to hire diverse personnel, and enhancing in-house training and HR systems through its human resource development project.

If confidential information or personal information held in the course of business activities is leaked due to unauthorized access, cyberattacks, or other causes, it could affect business performance through substantial cost burdens and damage to the Company's image. The Company has established internal information management regulations and personal information management regulations, and the ITS Section conducts regular security training; however, complete protection is difficult given the increasing sophistication of cyber threats.

The Company's main factories are concentrated in Ibara City, Okayama Prefecture, and if a natural disaster such as an earthquake or an unforeseen accident such as a fire or explosion occurs, production activities could be suspended, resulting in shipment delays and cost burdens associated with repair or alternative production, potentially having a material impact on business performance. The geographic concentration of production sites is a structural factor that heightens this risk. The Company has formulated a business continuity plan (BCP) to minimize business interruption.

The Company has production and sales sites in the Asian region and sales sites in North America, and if exchange rates fluctuate beyond expectations, this could affect the capital expenditure budgets of overseas users, leading to significant fluctuations in order prices and other factors, which could impact business performance. While the Company strives to avoid the impact of exchange rate fluctuations by primarily conducting transactions in yen, exposure will continue as overseas business expands.

If the fair value of fixed assets declines significantly or profitability deteriorates, the application of impairment accounting for fixed assets could result in impairment losses, which could have a material impact on the Company's financial position and business performance. In addition, there is a risk that deferred tax assets could be reduced if changes occur in estimates of taxable income due to a deteriorating business environment or changes in tax regulations. The Company strives to identify early signs of impairment through business performance monitoring via business plans and budget-to-actual management.