TESEC Corporation

Demand for semiconductor test equipment, the core business of the Group, is directly affected by fluctuations in semiconductor market conditions and capital investment trends among semiconductor manufacturers. The semiconductor market is unstable and unpredictable, and increased market volatility could impact business performance. Although efforts to improve the cost structure are underway, complete protective measures against sudden changes in the market environment have not been established.

The Group's major customers are leading global semiconductor manufacturers, and while activities are underway to expand the number of customers, significant fluctuations in transaction volume with major customers could have a material impact on business performance. Customer concentration risk could materialize through reductions in capital investment by specific customers or changes in business relationships.

The overseas sales ratio for the current period stood at a high level of 77.0% (65.7% in the previous period), exposing the Group to a combination of risks including reduced product price competitiveness due to exchange rate fluctuations, export obstacles due to political and economic instability or economic sanctions, reduced price competitiveness due to tariffs and trade barriers, and inadequate intellectual property protection in certain countries. As dependence on overseas markets increases, the impact of these risks on business performance is tending to expand.

In the semiconductor test equipment industry, there is a wide range of competitors, including emerging companies from countries such as China that have advantages in cost structure, and the competitive environment is constantly changing. Demands for product price reductions have become routine, and if the Group is unable to maintain important customer relationships or technological advantages, it may be forced to lower prices more than anticipated, which could impact business performance. It has also been pointed out that the Group may not be able to make investments comparable to those of its competitors.

In the semiconductor industry, where technological innovation is intense, the Group continues to develop new products with an eye toward cutting-edge markets, but technology development requires time and cost with no guarantee of success. If orders are not secured or the timing of new product launches is delayed, business performance could be affected. The risk of failing to recover development investment is increasing as the industry's technology cycles shorten.

The Group transacts with numerous suppliers and outsourcing partners for parts procurement and assembly/wiring processes, but depends on certain partners for the procurement of specific parts and certain outsourcing arrangements. If issues arise in parts procurement or manufacturing processes due to circumstances at business partners, this could lead to delays in product supply or production stoppages, impacting business performance.

To respond to demands for short delivery times, the Group sometimes arranges parts procurement and plans production based on demand forecasts and market trends rather than formal orders, and if demand forecasts prove inaccurate, the risk of excess inventory and obsolescence increases. Although efforts are being made to improve inventory versatility through commonization of parts and product platforms, sudden changes in semiconductor market conditions could impact business performance through the occurrence of inventory valuation losses and similar effects.

IT systems are utilized across the entire business, and preventive measures such as antivirus protection and data backups have been implemented; however, unforeseen circumstances such as natural disasters, cyberattacks, or network failures could make it difficult to maintain stable business continuity. Damage to core systems could spread throughout the entire operation and impact business performance.

The Group is subject to various laws and regulations concerning import/export, the environment, competition, labor, and taxation, among others, and violations of such laws and regulations could result in a decline in social credibility, the imposition of fines or damages, or restrictions on business operations. While the Group is working on measures to ensure legal compliance and reduce environmental impact, business performance could also be affected if the expected results are not achieved.

Acquiring and developing next-generation talent is important for maintaining competitiveness and achieving sustainable growth, and the Group is working to improve the working environment and establish personnel systems. If the Group is unable to continuously recruit and develop the necessary talent, or if key personnel leave the company, product development capabilities and the quality of customer support could decline, impacting business performance.