Socionext Inc.

The Group depends on a limited number of outsourced manufacturers, including TSMC, for semiconductor manufacturing, creating a risk that product supply could be delayed or interrupted due to manufacturing capacity constraints, delayed responses to technological innovation, or surging raw material prices. Although the Group is pursuing diversification measures to secure multiple manufacturing partners, alternative sources are difficult to secure for leading-edge technology products and automotive products where outsourced manufacturers are limited, which could lead to decreased product sales or claims for damages from customers.

If geopolitical risks such as US-China tensions, Russia's invasion of Ukraine, or Middle East conflicts materialize, there is a risk that strengthened export control regulations, tariffs, or sanctions could reduce demand for the Company's products or weaken its competitiveness. In particular, since sales in China account for a certain scale and the Company has a high dependence on outsourced manufacturing to TSMC (Taiwan), a contingency involving Taiwan could have a material adverse effect on the Group's business, financial condition, and operating results. The Group regularly reports risks to the Board of Directors and considers countermeasures, but complete elimination of such risks is difficult.

For long-term projects that take two years or more from design and development through completion of customer evaluation, there is a risk that projects may be extended or discontinued due to changes in market conditions, shifts in customer strategy, or specification changes during that period. In the event of discontinuation, the Company would be unable to collect the remaining NRE (Design & Development Services) revenue, and in cases where NRE (Design & Development Services) revenue does not cover the full development costs, a loss would occur; since the scale tends to be larger particularly in focus areas, discontinuation of multiple key projects could have a material adverse effect on operating results.

While the Company's Solution SoC (Single Segment) is a unique business model, there is a risk of intensifying competition from traditional ASIC and general-purpose ASSP vendors, expanded in-house SoC development by major tech companies, and new entrants from other industries. Although the Company recognizes that it currently holds an advantageous position in the automotive field, there is a possibility it may not be able to maintain this position due to technological innovation or aggressive moves by competitors, and in existing markets such as data centers and networking, competition is already fierce. The Company is pursuing differentiation through co-development with customers, but there is no guarantee that these measures will succeed.

The Company's key management indicators, "design win value" and "design win backlog," incorporate substantial subjective judgments and assumptions regarding future sales volumes, product unit prices, and NRE (Design & Development Services) revenue, and do not take manufacturing capacity constraints into account. Because the calculation methodology is unique to the Company, comparison with other companies' indicators is not appropriate, and there is a risk that these figures could diverge significantly from actual sales, potentially misleading investors' performance forecasts. Internal procedures including review by the monitoring department and approval by management have been established, but there is no guarantee of their effectiveness.

The Group earns much of its revenue from overseas, and fluctuations in exchange rates, primarily the US dollar, directly affect foreign-currency-denominated sales, design and development costs, and manufacturing and sales costs. Although the Group takes measures to mitigate the impact of exchange rate fluctuations, complete elimination is not possible, and sharp yen appreciation or depreciation could adversely affect operating results and financial condition.

Cybersecurity risk is increasing due to the expansion of remote work and the sophistication of attack methods such as ransomware and phishing scams, creating a risk that a system failure could halt business activities and product supply or result in the loss of important data. In addition, if customer confidential information or personal information is leaked, this could result in significant impacts such as reduced competitiveness, loss of customer trust, and claims for damages. The Company continues to enhance its IT security systems and provide employee training under the management of the Risk and Compliance Committee, but complete prevention is difficult.

Engineers play a central role in the design and development of Custom SoC (Product Sales), but competition for hiring highly specialized, talented personnel is intensifying, and an inability to secure sufficient talent could hinder design and development activities. In addition, if specialized personnel move to competitors, there is a risk that the Company's knowledge and know-how could leak out, undermining its competitive advantage. The Company is working to strengthen new graduate and year-round hiring and engineer development, but there is no guarantee that sufficient talent can be secured.

If defects are discovered in the Company's products after shipment, there is a risk of incurring substantial costs related to product recalls, replacements, or discontinuation of adoption, as well as claims for damages from customers and loss of future orders. If a problem is discovered after a product has been incorporated into a customer's end product, the Company could also become subject to claims for damages from end users. The Company carries product liability insurance and recall insurance, but there is no guarantee that these will fully cover such costs.

The Group operates globally and is subject to a wide range of laws and regulations, including those related to national security, foreign trade control, competition policy, taxation, tariff policy, and anti-corruption. The introduction of new policies such as US government tariff policies and export control regulations, as well as the establishment or revision of regulations in various countries, could make legal compliance difficult; violations could result in civil claims for damages or criminal and regulatory penalties, potentially adversely affecting the Group's business, financial condition, operating results, and social credibility. The Company is advancing the development of its compliance framework and internal systems, but there is no guarantee that these will function appropriately.