Sanken Electric Co., Ltd.

Multiple geopolitical risks have become apparent, including the prolongation of Russia's invasion of Ukraine, conflicts in the Middle East, semiconductor export controls and tariff measures between the U.S. and China, and military tensions in the Taiwan Strait. These may affect procurement, manufacturing, and sales activities through sustained high energy and raw material prices, disruptions in international logistics, and fragmentation of supply chains. As countermeasures, the Group is securing multiple procurement sources and diversifying risk through reviews of sales regions and production systems.

There is an increasing possibility of the political use or weaponization of specific resources necessary for energy and semiconductor manufacturing, which may also affect the securing of open procurement routes. The Group continuously monitors export control regulations and economic security-related policies in each country and has established a system whereby relevant departments cooperate to conduct risk assessments; however, responses reflecting the intent of Japan's Economic Security Promotion Act are also required.

The Group holds tangible fixed assets such as production facilities and intangible fixed assets such as goodwill arising from corporate acquisitions. If profitability declines due to changes in economic conditions, changes in the market environment, or failure to achieve business plans, an impairment loss may need to be recognized, which could have a material impact on business performance. The Group strives for early detection through multiple scenario verification at the time of investment execution and continuous monitoring after investment.

As the Group operates globally in Japan, Asia, North America, and Europe, and conducts transactions denominated in foreign currencies such as the U.S. dollar, euro, and Chinese yuan, exchange rate fluctuations affect business performance. In particular, a fluctuation of 1 yen in the USD/JPY exchange rate is estimated to have an impact of approximately ¥100 million or more on operating profit. The Group implements hedging through foreign exchange forward transactions and natural hedging by balancing revenues and expenditures within the same currency zone.

The Group raises funds through corporate bonds, commercial paper, and borrowings from financial institutions, but a deterioration in business performance, a downgrade of credit ratings, or changes in market conditions may increase funding costs or restrict fundraising methods. In addition to diversifying fundraising methods, spreading maturities, and securing a liquidity buffer, the Group strives to build good relationships with financial institutions and rating agencies through maintaining financial discipline and timely disclosure.

Intensifying competition in the semiconductor market and increasing customer demands for cost reduction may lead to a decline in selling prices and sales volumes, which could adversely affect business performance and financial condition through reduced profitability. The Group is working to develop and differentiate high-value-added products, reduce costs through productivity improvement and procurement optimization, and optimize selling prices through discussions with customers.

While the Group strives to improve its quality management system through ISO9001 and IATF16949 certification, if unexpected quality issues occur, this could lead to large-scale product recalls, repairs, and liability for damages, resulting in a decline in social credibility and significant costs that could adversely affect business performance and financial condition. The Group works to avoid risk by building in quality from the design stage in addition to enrolling in product liability insurance and recall insurance.

The Group holds confidential information and personal information of customers and business partners. If information leakage or system failure occurs due to internal misconduct, negligence, or external cyberattacks, this may result in legal violations, a decline in social reputation, and impacts on business activities. The Group implements unauthorized intrusion prevention and detection, access restrictions and enhanced authentication, vulnerability countermeasures, and the development of incident response procedures, along with education and training for all employees, and also conducts periodic internal evaluations and improvements.

Advancing the power semiconductor business strategy set forth in the medium-term management plan requires securing and developing personnel with a high degree of specialized expertise; if this does not proceed as planned, it may hinder business growth and the maintenance and strengthening of competitiveness. The Group works to secure and develop specialized personnel by utilizing diverse recruitment channels, including new graduate, mid-career, and referral hiring, leveraging senior personnel, and enhancing internal education programs.

If the Group fails to bring products to market in a timely manner in response to continuously changing market needs, or if such products are not accepted by the market, profitability may decline, adversely affecting business performance and financial condition. The Group monitors quality, cost, and schedule through strengthened development gate management, while promoting development reforms centered on the Manufacturing Development Center, and works to accelerate product development that anticipates customers' latent needs.