SK-Electronics CO.,LTD.

Demand for large photomasks, the Group's core product, is heavily dependent on the capital expenditure, production, and development trends of panel manufacturer customers. If demand fluctuates significantly due to deterioration in domestic and overseas economic conditions, a downturn in market conditions, or changes in customers' management policies or business environment, this could have a material impact on business performance. The Group formulates capital expenditure plans based on demand forecasts, but limitations in forecast accuracy present a challenge.

Overseas sales for the fiscal year under review (including indirect exports) amounted to ¥26,164 million, accounting for 89.6% of total consolidated net sales. Political and economic risks exist in major markets such as China, South Korea, and Taiwan, and relations could deteriorate rapidly. There is also an inherent risk of changes in interpretation regarding international taxation matters such as transfer pricing taxation, and changes in the local social and economic environment could affect business performance.

In the large photomask market, intense day-to-day competition with competitors arises against a backdrop of technological competition and cost-reduction pressure among panel manufacturers. The Group is pursuing management efforts such as improving productivity, shortening delivery times, reducing material procurement costs, and cutting fixed costs, but if the competitive environment becomes more severe than expected, this could affect business performance.

In the Large Photomask Business, dependence on a small number of top customers is high, and major suppliers are also limited to manufacturers producing high-quality primary materials and production equipment manufacturers. If orders from major customers decrease more than expected, or if it becomes difficult to purchase from major suppliers, this could have a material impact on business performance. While favorable business relationships are currently maintained, their continuity is not guaranteed.

Continuous capital expenditure is essential for the growth of the Large Photomask Business, and the Group makes investments to increase production capacity based on future demand forecasts. However, if the forecasted increase in demand is not achieved, it may become difficult to recover the amount invested, which could affect business performance. In addition, if a decline in profitability leads to recognition of impairment losses on fixed assets, this would also affect business performance.

The Group's production and development sites are concentrated in Japan (Kyoto Prefecture and Shiga Prefecture) and Taiwan (Tainan), both of which are located in regions with a high risk of disasters such as earthquakes. While the Group has installed seismic isolation devices at major production facilities and undertakes regular maintenance and measures against aging equipment, if a large-scale earthquake or other disaster exceeding expectations, or an unexpected serious equipment malfunction or industrial accident occurs, this could disrupt the production and development system and affect business performance.

The main material for large photomasks is mask blanks made from synthetic quartz, and the Group strives for stable procurement by concluding contracts with multiple suppliers. However, if rapid market fluctuations or changes in transaction volume or procurement prices cause delays in material procurement, quantity shortages, or increased procurement costs, this could affect business performance. The limited number of suppliers increases this risk due to the difficulty of securing alternative procurement sources.

The Group is working to expand its earnings base by launching new businesses (such as in the healthcare field) that will follow the photomask business. A certain period of time and investment is required before new businesses generate stable earnings, and if rapid changes in the business environment prevent progress as planned, the investment may not be recovered, which could affect business performance. In the healthcare field, the Group sells controlled medical devices, and the cost of voluntary recalls in the event of product issues represents an additional risk.

The Group has built a robust information security management system through the development of internal regulations based on its information security policy, education and training, and internal audits. However, if customer information, technical information, or other data is leaked due to unforeseen circumstances such as computer virus infection or unauthorized access, this could lead to a decline in social credibility and the burden of significant compensation costs, affecting business performance. Protecting information assets, which are the source of technological competitiveness, is a critical issue for business continuity.

Securing excellent human resources is essential for the Group's sustainable growth, and the Group is strengthening the development of next-generation core personnel through continuous education and training. If securing and developing capable personnel does not progress as expected, or if personnel leave the company, this could affect business performance through a decline in technical capabilities and competitiveness. In the Large Photomask Business, which requires advanced technology and know-how, maintaining the quality and quantity of human resources forms the foundation of competitive advantage.