Wacom Co., Ltd.

In the Technology Solutions Business, sales to the Samsung Group accounted for 42.0% of consolidated net sales in the current consolidated fiscal year, an increase in dependency from 39.7% in the previous consolidated fiscal year. There is a risk that changes in the Samsung Group's management strategy or fluctuations in product demand could directly affect the Group's business performance. As a countermeasure, the Group is pursuing customer satisfaction through optimal solution provision and promoting customer diversification, but reducing this dependency in the short term is not easy.

In the creative market, the generalization of generative AI, workflow changes, intensifying competition, media and entertainment investment holds due to the recession in the VFX market, and consumption slowdown caused by shifts in trade policy are progressing simultaneously. In the PC market, dramatic changes in display technology and increased penetration of IoT devices have led to a rise in new competitive entrants, making it increasingly difficult to articulate the value proposition of pens. If the market environment deteriorates significantly, there is a possibility that recording losses on inventory valuation or impairment losses on fixed assets could affect business performance.

The majority of product sales are handled by overseas subsidiaries, and production is outsourced to overseas contract manufacturers, with settlement currencies including the US dollar, euro, Japanese yen, and others. There is a certain degree of foreign exchange rate fluctuation risk against the backdrop of interest rate changes driven by each country's economic environment, tariff regulations, and political circumstances. The Group strives to mitigate this through the use of forward exchange contracts and diversification of foreign currency holding methods, but sharp fluctuations could still affect business performance.

Production is entirely outsourced to contract manufacturers centered in China, and as a measure to mitigate tariff risk from the US-China trade friction, the Group is promoting diversification by transferring production of some product lines to regions outside China. However, production stoppages due to management issues or natural disasters at outsourced manufacturing partners, or the ramp-up period required when changing factories, could affect business performance. Optimization and diversification of production outsourcing partners is ongoing, but concentration risk has not been completely eliminated.

Procurement lead times for electronic components and materials, particularly semiconductors, have lengthened, and there is also a risk of supply disruption for proprietary core components such as ceramic parts for pen switches and custom ICs. If it becomes necessary to respond to rising costs of plastic cases and general-purpose components, or to material usage restrictions arising from changes in regulations in various countries, manufacturing costs and management costs could rise and affect business performance. The Group is responding through early securing of second sources, development of alternative components, and strengthened advance procurement and delivery management, but the risk of increased inventory associated with long-term supply contracts also remains.

There is a risk of data corruption or leakage due to cyberattacks or computer viruses from external sources, and although the Group continues to enhance its IT environment and conduct regular employee training, the risk of unforeseen attacks is recognized as remaining. Depending on the scale of damage, this could have a material impact on business performance. Going forward, the Group intends to continue addressing external cybersecurity evaluations, building an information classification management system, and continuing migration of local servers to the cloud.

When developing and launching new products, there is a risk of infringing on patents, trademarks, or other rights held by other companies or individuals, and complete avoidance is difficult due to differences in legal systems among countries, limitations of database searches, and rights being established after product launch. If the Group receives claims or lawsuits from other companies for patent infringement, or if the scope of the Group's own patent rights is changed or invalidated, this could affect business performance. The Group continues to conduct prior investigations and implement avoidance measures using local patent firms, as well as protective measures for its own intellectual property rights.

As personal information protection laws in various countries, including the GDPR and CCPA, are being strengthened, opportunities for collecting personal information are increasing due to the rise in web seminars and new approaches to the education sector. If an information leak occurs due to unforeseen circumstances, or if fines from authorities or damages from litigation arise, business performance could be affected depending on the scale of the damage. The Group is proceeding with the introduction of cookie management tools, compliance with China's Personal Information Protection Law, handling of cross-border data, and implementation of internal training.

Since production and sales are conducted across borders and regions, if regional conflicts or local labor disputes arise due to geopolitical risk, this could disrupt product manufacturing, logistics, and sales activities. In addition to deteriorating economic conditions and intensifying competition in major overseas markets, international tax risks such as transfer pricing taxation could also affect business performance. In response to the US-China trade friction, the Group is timely implementing measures such as changing production countries to avoid tariff risk.

If it becomes difficult to hire and retain capable personnel due to intensifying competition for talent in the labor market, there is a possibility that a shortage of research and development resources could reduce product competitiveness and hinder the stable supply of products. If capable personnel leave the Group, this could constrain future business development and affect business performance. The Group is responding by developing new recruitment channels, reviewing compensation levels, and encouraging internal reskilling.