TOREX SEMICONDUCTOR LTD.

Overseas sales account for approximately 70% of net sales, making the Company susceptible to foreign exchange fluctuations. Although hedging measures such as forward exchange contracts are employed, sudden exchange rate movements exceeding expectations may affect business performance and financial condition. The Company explicitly states that complete elimination of this risk is difficult.

Due to industry characteristics, selling prices are subject to significant fluctuation, and price competition with competitors as well as price reduction requests from customers are intensifying. In recent years, competition has become even more severe due to industry maturation and the emergence of new entrants, and failure to meet customers' cost reduction demands could lead to lost sales opportunities. The Company addresses this through speedy new product development and thorough cost management, but adverse effects on business performance and financial condition cannot be ruled out.

Rising resource prices, including gold and crude oil, are creating strong upward pressure on raw material costs and related expenses associated with product manufacturing. There is a risk that business performance could deteriorate if increases in purchase prices of raw materials cannot be sufficiently passed on to selling prices, or if selling price reductions cannot be reflected in procurement prices. The Company addresses this through diversified procurement from multiple domestic and overseas suppliers and continuous cost efficiency improvements.

The Company's products are widely used in digital devices and other applications, and if demand for final products sharply declines due to economic conditions or if manufacturers undertake inventory adjustments, net sales would correspondingly decline. The Company seeks to diversify risk through multiple product groups and coverage of a wide range of markets and applications, but sales concentration due to seasonal fluctuations may also occur. If these factors coincide, business performance and financial condition could be adversely affected.

For wafer manufacturing of analog power semiconductors, the Company's main products, a large proportion is outsourced to Phenitec Semiconductor Corporation, a wholly owned subsidiary, resulting in high dependence on that company. Since changing manufacturing processes takes approximately two years and requires customer re-qualification, altering production lines is not easy, creating a risk that product supply could be halted in the event of a natural disaster or similar event. The Company strives for stable supply through securing multiple outsourcing partners and strengthening investment in Phenitec Semiconductor, but the risk cannot be completely eliminated.

Phenitec Semiconductor Corporation manages capacity utilization based on customer demand forecasts, but there is a possibility of reduced utilization rates due to sudden order decreases, or lost opportunities due to insufficient production capacity in the face of sudden order increases. The Company addresses this through inventory management based on order forecasts at its two plants in Okayama and Kagoshima and expansion of the cleanroom at the Kagoshima plant, but if manufacturing lines are halted due to unforeseen natural disasters, epidemics, or serious equipment failures, this could result in decreased sales and damages claims from customers.

The Company's products operate in a globally competitive environment, and rapid technological innovation in digital-related devices tends to shorten product life cycles. There is a risk of losing market share if competitors possess advanced technology, supply capacity, or close customer relationships in specific fields, or if the Company fails to respond to the diversifying and increasingly sophisticated needs of customers. The Company addresses this through new technology development, adoption of new methods, and product development aligned with market needs, but adverse effects on business performance cannot be ruled out.

The Company is promoting M&A and capital/business alliances based on its medium-term management plan, but there is a possibility that expected synergies may not be achieved due to sudden changes in the market environment after implementation, increased integration burdens, or loss of customer base and personnel. There is a risk that inability to recover invested funds or the incurrence of additional expenses could adversely affect business performance and financial condition. The Company carefully examines target companies' market trends, financial condition, and potential synergies in advance, and strives for early integration and maximization of synergies after implementation.

The development and design of Analog Power ICs involves high technical difficulty associated with miniaturization and lower voltage requirements, and cultivating engineers with broad fundamental knowledge and extensive experience requires a long period of time. Failure to secure and develop excellent personnel could adversely affect business performance and financial condition through a decline in product development capability. The Company addresses this through continuous education, training, and focus on human resource development, but the risk remains in an increasingly competitive talent market.

The Company holds tangible and intangible fixed assets used for research and development, manufacturing, and other purposes, and may recognize impairment losses if impairment is deemed to have occurred due to changes in the market environment, technological innovation, or declines in market prices. While the Company carefully assesses profitability and other factors at the time of asset acquisition, the risk of asset value impairment is inherent in the semiconductor industry, which undergoes rapid technological innovation. Recognition of impairment losses would directly and adversely affect business performance and financial condition.