SEMITEC Corporation

The proportion of sales of automotive products, mainly for EV/HEV batteries and motors, is high, and business performance is affected by the business conditions of automobile manufacturers. There is also a risk that the Company's products may no longer be adopted due to technological innovation by automobile manufacturers. Efforts to reduce dependence on specific customers and markets remain a challenge.

Price competition for sensors and other products is intensifying due to the emergence of low-priced products from electronic component manufacturers in Taiwan and China. Requests for price reductions from customers also continue, and while the Company is responding through cost reductions and the supply of differentiated products, if it cannot maintain price competitiveness or product superiority, both demand and prices could be adversely affected.

Subsidiaries in China and Southeast Asia account for over 70% of the group's total production, and the ratio of overseas sales exceeds 80%, so fluctuations in exchange rates significantly affect the consolidated financial statements. The Company seeks to minimize adverse effects through price revisions, but in the event of significant exchange rate fluctuations, adverse effects on the financial position and business performance are unavoidable.

There are multiple compounding risks in production and sales activities in China and Southeast Asia, including unfavorable political and economic factors, tightening regulations, changes in laws and tax systems, transfer pricing risk, rapid increases in labor costs, and operational difficulties due to power shortages. While the Company's policy is to monitor local developments on an ongoing basis and respond in a timely manner, if unforeseen circumstances arise, business operations could be seriously hindered.

Production of elements for Thin-Film Thermistors, which account for approximately 20% of consolidated net sales, is entirely concentrated at the domestic Chiba Plant. In the event of a natural disaster such as an earthquake or a fire, the supply of elements would be disrupted, hindering operations at all production plants. The lack of progress in diversifying production sites has manifested as a single-site dependency risk.

Resin and rare metals such as cobalt, manganese, silver, and nickel, which are raw materials for sensors, may rise sharply in price due to market fluctuations. When supply and demand tighten, there is also a risk of production suspension due to procurement shortages, and rising product costs could adversely affect the financial position and business performance.

In certain countries and regions, the legal frameworks and enforcement regarding intellectual property rights are inadequate, making it difficult to fully protect proprietary technology and know-how, and the Company may not be able to effectively prevent third parties from manufacturing similar products. There is also a risk that counterfeit products bearing fake trademarks could damage the Company's quality image, and litigation and other responses could result in substantial costs.

Although the Company manufactures products based on its own quality control standards, it cannot guarantee that all products are completely free of defects. While the Company carries product liability insurance, there is no guarantee that it will sufficiently cover the final amount of damages, and if a serious product defect occurs, it could result in a substantial cost burden and a significant adverse effect on corporate reputation and sales.

Under its policy of production close to consumption markets and production at optimal locations, the Company holds fixed assets such as production equipment at multiple production sites. If deterioration in the business environment or declining profitability in a given region makes investment recovery unlikely, an impairment loss will be incurred. Because the Company has globally dispersed production sites, it is susceptible to the effects of geopolitical risks and economic fluctuations.

If confidential information is leaked, important data is destroyed or falsified, or systems are shut down due to cyberattacks or other causes, the substantial costs of responding to such incidents and the resulting decline in social credibility could adversely affect the financial position and business performance. The threat of cyber risk continues to increase with the progress of digitalization.