SHIBAURA MECHATRONICS CORPORATION

Demand for the Group's manufacturing equipment is linked to the supply-demand conditions of electronics products such as semiconductors and FPDs, and economic downturns or demand contraction in North America, Europe, Asia, Japan, and elsewhere directly affects business performance. Due to the high cyclicality of the electronics market, there is a risk that orders could decline sharply during periods of market deterioration. The Group states that it strives to prevent risks from arising and to take countermeasures when they occur, but specific details of diversification measures have not been disclosed.

The overseas sales ratio has reached approximately 76%, with Taiwan and China accounting for the majority, while the ratio in Europe, the US, and Southeast Asia is also expanding. If sudden changes in political conditions in each country, changes in laws, regulations, or tax systems, sharp foreign exchange fluctuations or inflation, or social disruptions such as natural disasters, terrorism, or war materialize, this could adversely affect business performance and financial condition. In particular, the concentration in Taiwan and China is high, creating a structure that is susceptible to geopolitical risk.

In the electronics industry, the main customer base, there is a strong tendency to curb investment costs in manufacturing equipment, and depending on trends among competitors and new market entrants, competition could intensify, causing a divergence from plans. In addition, there is a risk of rising product costs due to soaring prices of purchased components and materials. The Group is addressing this through the early market launch of high-value-added products, centered on global niche-top products in the SPE field, but excessive price competition could adversely affect business performance and financial condition.

Because the Group's products utilize cutting-edge technology, there are many unknown technical areas, and unexpected defects could occur, potentially leading to accidents. Although a quality assurance system based on ISO9001 has been established, it is difficult to completely eliminate quality risk given the nature of advanced technology. Should a defect or accident occur, compensation to customers and loss of trust could adversely affect business performance and financial condition.

In the procurement of components and materials necessary for product manufacturing and maintenance services, if supply chain disruptions occur, such as supply-demand tightness, delivery delays, supply stoppages, or price surges, there is a risk that manufacturing activities and maintenance service operations could stagnate. Dependence on specific suppliers for semiconductor-related materials may be high in some cases, and if procurement disruptions become prolonged, this could have a material impact on business performance and financial position. The Group states that it strives to prevent risks from arising and to take countermeasures, but the specific status of securing alternative procurement sources has not been disclosed.

The Group, which holds technical information, customer information, and personal information, is exposed to risks of unauthorized access due to computer virus infection, cyberattacks, and other threats, as well as information leakage due to employee error. Although an information security policy has been established and management has been strengthened through an information security committee, the risk is on an increasing trend as IT adoption progresses. Should an information leak occur, it could adversely affect business performance and financial condition due to loss of competitiveness, damage to customer trust, and legal liability.

The continuous launch of competitive new products to the market requires securing and developing highly skilled technical personnel, but intensifying competition in the labor market could make it difficult to continue securing and developing such personnel. If a shortage of personnel occurs, it could lead to a decline in development capability, technical support capability, and maintenance support capability, resulting in a risk of reduced competitiveness. A decline in competitiveness could affect business performance and financial condition, and competition for talent is particularly fierce in advanced technology fields.

Domestic manufacturing sites are concentrated in Kanagawa Prefecture and the Obama area of Fukui Prefecture, and if a large-scale disaster occurs in these areas, manufacturing capacity could be significantly affected due to equipment damage, disruption of logistics functions, and operational stoppages. In addition, if business activities such as product manufacturing, parts procurement, and sales activities stagnate due to the spread of infectious disease, this could also affect business performance and financial condition. The geographic concentration of manufacturing sites is a structural factor that increases this risk.

Launching new products in response to changes in market and technology trends is essential for securing stable earnings, but the presence of competitors, increases in development investment, development delays, and rapid changes in the market could cause a divergence from management plans. In some cases, the Group undertakes businesses with risk in anticipation of growth, creating a risk that investment recovery may not proceed as planned. Although the Group conducts ongoing surveys of market and technology trends, in the semiconductor equipment industry, where the pace of technological innovation is rapid, delays in response directly affect competitiveness.

Multiple accounting estimate risks exist, including changes in actuarial assumptions for retirement benefit obligations, declines in pension asset investment returns, reassessment of the recoverability of deferred tax assets, write-downs of inventory book value due to declining profitability, and discrepancies between estimated total costs and actual results for construction contracts. In addition, some borrowing agreements include financial covenants, but as of the end of the current consolidated fiscal year, there is no outstanding balance of borrowings subject to such covenants. If future changes in economic conditions or deterioration of the business environment necessitate a revision of estimates, this could affect business performance and financial position.