Shikino High-Tech CO.,LTD.

Due to the silicon cycle characteristic of the semiconductor industry, if fluctuations in demand for electronics products lead to oversupply and price declines, there is a risk that semiconductor manufacturers will curtail capital expenditures, resulting in a decrease in orders received by the Company. While there are growth expectations for AI data centers and automotive applications, short-term supply-demand fluctuations may affect the Company's financial position and operating results. The Company strives to avoid such risks, but structural fluctuations inherent to the industry cannot be completely eliminated.

Due to increasing geopolitical risks such as US-China decoupling, the wars in Ukraine and the Middle East, and US tariffs, there is a risk of extended lead times and price increases for materials and components required for production activities, as well as rising utility costs. If similar effects extend to customers' product development and production plans, the Company may be forced to change its plans, which could affect its financial position and operating results. Geopolitical conditions are beyond the Company's control, and continuous monitoring is required.

The Company has a high degree of sales dependence on specific customers, and if there is a change in the relationship with such customers, it could have a material impact on the Company's financial position and operating results. The Company is working to reduce this dependence through the development of new businesses and new customers, but there is no guarantee of continued order acquisition. Combined with the tendency of customers' budget execution to be weighted toward the second half of the fiscal year, this creates a structure with heightened risk of performance fluctuation.

The Company, whose main products are inspection systems for semiconductor back-end processes, is exposed to the risk that customers' capital expenditure trends can change significantly in the short term in line with market supply-demand fluctuations. There is bidirectional risk in that the Company may be unable to fully respond to and thus miss order opportunities during rapid demand increases, while during rapid demand decreases, obtaining orders becomes difficult. Such fluctuations may directly affect the Company's financial position and operating results.

The semiconductor industry is subject to significant technological advancement and intense cost competition, and if the Company fails to respond to customer needs ahead of competitors, it could affect the Company's financial position and operating results. The Company seeks to respond proactively to technological change by strengthening its sales network and promoting R&D activities, but there remains a risk that the pace of technological innovation may outstrip the Company's ability to respond. Delays in developing new products and technologies directly lead to a decline in competitiveness.

In overseas import and export activities, the risk of unintentional violations arising from differences in legal interpretation with administrative authorities cannot be completely eliminated. If a violation is determined to have occurred, it could result in significant costs and damage to the Company's corporate image, affecting its financial position and operating results. Additionally, if new regulations are imposed on the indefinite-term employment-type engineer staffing business due to amendments to the Worker Dispatching Act or similar laws, the Company's business activities could be restricted.

The Company's business requires securing and retaining excellent engineers with broad knowledge ranging from basic electronic circuit knowledge to applied technology, and if there is a shortage of personnel or a significant number of skilled engineers leave, it could affect the Company's financial position and operating results. Competition for hiring engineers in the semiconductor and electronic equipment fields is intense, and there is a risk that the Company may not be able to secure the necessary personnel. Securing human resources is a fundamental challenge in maintaining the Company's competitiveness.

The Company has established internal regulations and conducted employee training to prevent leakage of confidential information from business partners and others, and has introduced ransomware and antivirus software as well as taken out insurance; however, should an information leak occur, it could result in significant costs and damage to the Company's corporate image, affecting its financial position and operating results. With the increasing sophistication and diversification of cyberattacks, technical countermeasures alone make complete defense difficult.

The Company also operates businesses overseas, and large fluctuations in foreign exchange rates may affect foreign-currency-denominated sales and purchases, thereby affecting the Company's financial position and operating results. A weaker yen has a positive effect on export sales, while also being a factor in rising costs for imported materials, meaning the impact of exchange rate fluctuations works in both directions. There is no explicit description in the securities report regarding specific countermeasures such as foreign exchange hedging.

Due to the impact of the Bank of Japan's monetary policy, a rise in domestic interest rates is anticipated, and in the event of a significant increase, interest payments on borrowings would increase substantially, potentially affecting the Company's financial position and operating results. Combined with the risk of impairment of fixed assets and the risk of valuation losses on held listed shares, there exists a compound financial risk. Interest rate trends are beyond the Company's control, and continuous attention to changes in the financial environment is required.