SEIKO EPSON CORPORATION

Revenue from the Printing Solutions business segment accounts for approximately 70% of consolidated revenue, meaning fluctuations in sales of printer units and consumables have a material impact on Epson's overall business performance. In particular, consumables such as ink cartridges are a major source of revenue and profit, resulting in a structure where declining demand or price reductions directly impact performance. Epson intends to address this through the provision of high-value-added products and services and cost reductions, but the success of these measures is not guaranteed.

Competition at the technology level continues, including between Micro Piezo and thermal inkjet methods in inkjet printers, and between 3LCD, DLP, and FPD in projectors. Changes in consumer evaluation of technologies or the emergence of innovative alternative technologies could undermine Epson's technological competitive advantage. While Epson currently believes it holds a competitive advantage, continuous R&D investment is essential in a market environment characterized by rapid technological innovation and short product life cycles.

Consumables such as ink cartridges are a key component of revenue and profit, but low-cost third-party compatible products are circulating in the market, with particularly notable penetration in emerging markets. If the decline in genuine product share leads to reduced sales volume or downward pressure on prices, there is a risk of a significant decline in revenue from the consumables business. Epson counters this through quality appeals, deployment of large-capacity ink tank models, and legal protection of patent and trademark rights, but the effectiveness of these measures is not guaranteed.

With overseas sales accounting for more than 80% of consolidated revenue, Epson, which has extensive production and sales bases across Asia, the Americas, and Europe, is constantly exposed to changes in laws and regulations in various countries, changes in social, political, and economic conditions, protectionist trade regulations, geopolitical risks, and other factors. Overseas employees account for more than 70% of the total workforce, and changes in local labor conditions and shortages of skilled labor could also affect business continuity. These risks are wide-ranging in nature and cannot be fully avoided through individual countermeasures alone.

A substantial portion of revenue is denominated in foreign currencies such as the US dollar and euro. Revenue denominated in euros and other foreign currencies significantly exceeds related expenses, while for US dollar-denominated transactions, expenses exceed revenue, creating an asymmetric structure. Although hedging is conducted through forward exchange contracts and other means, a yen appreciation phase could adversely affect earnings and financial condition. Given the scale of global operations, the impact of exchange rate fluctuations remains a structural and ongoing risk factor for business performance.

With the expansion of network usage, risks such as computer virus infections, leakage of customer personal information, core system failures, cyberattacks, information leaks due to misuse of AI, and reputational damage on social media are increasing. Through its global business activities, Epson handles customers' personal information and confidential data of business partners, and the impact on management and credibility in the event of a security incident would be significant. Epson is working on information security education for all employees, formulation and implementation of a cybersecurity grand design, and establishment of a global incident response framework.

In connection with its global operations, Epson is required to comply with a wide range of laws and regulations, including antitrust law, anti-corruption law, personal information protection law, and security trade control regulations. In France, a regulatory investigation into inkjet printer products based on consumer protection law has been ongoing since 2017. Depending on the outcome of legal violations or regulatory investigations, there is a possibility of significant fines, restrictions on sales activities, and damage to social credibility. Epson positions compliance as an important management policy and conducts preventive and control activities, including RBA membership, but there remains a risk of the introduction of stricter regulations.

The central Nagano Prefecture area, where major business sites are concentrated, has an active fault zone along the Itoigawa-Shizuoka Tectonic Line and is a region with relatively high earthquake risk; the impact of a large-scale earthquake could be significant. In addition, if natural disasters, emerging infectious diseases, war, terrorism, or other events occur at sites around the world, this could affect business continuity, including disruption to the supply chain. Epson has implemented measures such as strengthening seismic structures, formulating BCPs, promoting supply chain BCM, and taking out earthquake insurance, but the scope of coverage is limited.

Intellectual property rights such as patents and trademarks are essential to maintaining Epson's competitiveness, but various risks exist, including objections to and invalidation claims against Epson's intellectual property rights, changes in licensing relationships due to M&A by third parties, and infringement claims against Epson or its customers. If an infringement claim is upheld, damages such as significant compensation payments, royalty payments, and injunctions against the use of the relevant technology could occur. Epson has focused personnel on intellectual property rights management to strengthen its rights, but maintaining a competitive advantage is not always guaranteed.

Securing talented personnel both domestically and internationally is essential for the development and manufacture of advanced new technologies and products, but competition for talent is intensifying. If sufficient personnel cannot be recruited and retained, or if technology transfer is not carried out appropriately, this could hinder the execution of business plans. Epson is working to create an environment where diverse personnel can demonstrate their abilities through role-based compensation systems, talent development, promotion of diversity, work-style reforms, and active appointment of local personnel.