SAMCO INC.

While demand for compound semiconductor manufacturing equipment is expected to remain high due to the spread of 5G, R&D for 6G, and expanding AI-related investment, sudden changes in the economic environment or supply-demand balance could cause customers to freeze capital expenditure, reduce production, or change plans, which could adversely affect the Company's business performance. Conversely, there is also a risk of lost opportunities if the Company fails to respond promptly to a rapid increase in demand. The Company works to grasp the latest market trends through its direct sales system and collaboration with universities and research institutions, and to optimize product development, production, and personnel planning.

The Company conducts business in North America, Europe, China, Taiwan, South Korea, Southeast Asia, India, and other regions, and if it fails to adequately address differences in laws and regulations, political and social conditions, and business practices in each country, it may not achieve the expected results. If changes in U.S. tariff policy, the situation in Ukraine, or the prolonged U.S.-China conflict spill over into the compound semiconductor manufacturing equipment market, this could adversely affect business performance. The Company strives for timely awareness of local information and early risk detection through an overseas base structure principally staffed with local hires, supported remotely by the head office.

Some raw materials and components are sourced from limited suppliers and subcontractors and are difficult to substitute; amid expanding global demand for semiconductor manufacturing equipment, stable procurement may not be secured due to disasters, accidents, business closures, or bankruptcies of suppliers or subcontractors. If procurement disruptions occur, delayed product shipments could result in lost opportunities and other effects, adversely affecting business performance. The Company is working to establish a stable supply system and optimize inventory through measures such as purchasing from multiple suppliers, advance ordering of critical components, and standardizing specifications.

Securing and developing highly skilled personnel such as managers, engineers, sales staff, and maintenance personnel is essential for sustainable growth, and if such personnel cannot be secured as planned, this could adversely affect future growth and business performance. The Company is promoting direct recruitment from overseas universities, utilization and treatment review of senior employees, and institutionalization of in-house training systems, and has also formulated an action plan targeting a female hiring ratio of 30% or more.

In the semiconductor manufacturing equipment industry, where technological innovation and product development speed are rapid for CVD Equipment, Etching Equipment, and Cleaning Equipment, if the Company fails to launch new products that anticipate future needs in a timely manner and at appropriate prices, or if market technology trends diverge from development content, this could adversely affect business performance. The Company holds monthly Technology Strategy Meetings comprising the Representative Director and Chairman, the President, the General Manager of Technology Development, and the General Manager of Sales, to share cutting-edge technology information and manage development progress.

If the Company fails to adequately respond to climate change policies, environmental laws and regulations, industry codes of conduct, and customer needs in each country associated with the transition to a decarbonized society, this could adversely affect business performance through a decline in social credibility or reduced product competitiveness. In August 2022, the Company established an ESG Committee chaired by the Representative Director and President, and has put in place a system whereby the Board of Directors regularly examines climate change risks and opportunities and their impact on finances and the medium- to long-term management plan.

As the proportion of sales of products for production applications increases, order concentration from specific overseas regions or specific domestic and overseas customers may cause significant fluctuations in sales from period to period. If demand for equipment declines due to a slowdown in capital expenditure in specific regions or by specific customers, this could adversely affect business performance.

While the Company manages the development of proprietary technology and know-how so as not to infringe on the patent rights of third parties, there remains a possibility of being sued by a third party for patent infringement due to differences in interpretation. In addition, if the Company is unable to obtain licenses for technology necessary for its business operations, this could adversely affect its business.

Transactions with customers in Europe and the United States are denominated in principle in U.S. dollars, and if dollar-denominated transactions increase along with future expansion of overseas transactions, the Company may be exposed to foreign exchange risk even when using forward exchange contracts. The Company also holds foreign-currency-denominated assets (unhedged cash and deposits, etc.), which are affected by exchange rate fluctuations both when converted into yen-denominated assets and when translated for the preparation of financial statements.

There is a possibility that important information held in the course of business operations and confidential information of business partners may be subject to unauthorized access, tampering, data destruction, leakage, or other incidents due to cyberattacks or similar causes. If server downtime causes business interruption or information is misused, this could adversely affect business performance.