SUNCORPORATION

The Entertainment-related Business is subject to regulations such as the "Act on Control and Improvement of Amusement Business, etc.," and there is a risk that changes in laws and regulations or self-regulation resulting from administrative guidance could cause a sudden shift in the operating environment for gaming machine manufacturers and pachinko halls. Gaming machine control boards are required to comply with type testing by testing institutions designated by the National Public Safety Commission and type verification by prefectural public safety commissions for each model, and any significant regulatory change could force a fundamental review of the development, manufacturing, and sales systems. The Group strives to respond appropriately, but the impact on sales plans and business results cannot be ruled out.

Gaming machines tend to experience a surge in demand immediately after the launch of new models, but demand rapidly declines thereafter except for hit models, and demand fluctuates significantly due to changes in player preferences, competitive conditions, and regulatory changes. Amid the continuing decline in the number of gaming participants and pachinko halls, the introduction of new models is concentrated on highly engaging models that attract customers, and demand trends for the Group's gaming machine control boards are similarly exposed to fluctuation risk. The Group has established a production system capable of responding to such fluctuations, but if unexpected increases or decreases in demand occur, business results could be significantly affected.

Sales destinations for gaming machine control boards are limited to a small number of specific gaming machine manufacturers, with a particularly high proportion of sales to Fujishoji Co., Ltd. There is a risk that the current stable trading relationship could not be maintained due to changes in the sales conditions or procurement policies of customers, or intensified competition with other gaming machine control board manufacturers. The Group strives to strengthen relationships through improved planning and proposal capabilities, but changes in trading relationships could directly affect business results.

The Global Data Intelligence Business relies on domestic sales of Digital Intelligence Solutions from Cellebrite, an equity-method affiliate, and the business trends of Cellebrite directly affect the performance of this business. If significant logistics delays occur due to war, pandemics, or similar events, product supply could be disrupted. In addition, fluctuations in exchange rates such as the US dollar, Israeli shekel, and Malaysian ringgit affect the Group's financial position and business results through the yen-translated financial statements of overseas consolidated subsidiaries and equity-method affiliates.

The IoT communication equipment market is expanding rapidly against the backdrop of higher-speed, larger-capacity mobile communications and the spread of cloud environments, but competition is intensifying due to a succession of new entrants from other industries. The Group focuses on the industrial IoT market and pursues a strategy of avoiding price competition through the early development of new products that capture customer needs, but if it falls behind in responding or if unexpected new technologies spread, it could lose its competitive advantage over rivals. Changes in the competitive landscape could affect the business results of this business.

Communication equipment for IoT developed, manufactured, and sold by the Group is required to comply with technical standards set by the Ministry of Internal Affairs and Communications under the Telecommunications Business Act, and each model must undergo review and certification by JATE and TELEC. If these laws and standards are revised or abolished in the future, the Group may be forced to obtain new certifications or make changes to product design. The risk exists that such response costs and impacts on the development schedule could affect business results.

The Company and its domestic consolidated subsidiaries have established internal regulations concerning information system security, formulated personal information protection policies, strengthened IT security, and conducted employee training, but there remains a risk of information leakage or tampering due to negligence or external cyberattacks. If an information security incident occurs, the resulting costs such as damages and the decline in credibility could affect the financial position and business results. Protecting management information, business partner information, and personal information has become a critical issue for business continuity.

The Group's Legal and Intellectual Property Department manages patent applications in cooperation with retained attorneys and patent attorneys, but it may not be able to effectively prevent other companies from manufacturing and selling similar products or services. On the other hand, if a court determines that the Group has infringed on the intellectual property rights of another company, there is a risk of being subject to claims for royalties or damages. Such disputes over intellectual property rights could affect the financial position and business results.

The Group actively pursues capital and business alliances with business partners expected to generate synergies centered on its own technology, but there is a possibility that the initially anticipated synergies may not be achieved, or that recovering the invested amount may become difficult. Such failed business investments could directly and adversely affect the financial position and business results. The high degree of dependence on Cellebrite, an equity-method affiliate, also represents a concentration risk in the Group's overall revenue structure.

The Group is actively pursuing business expansion overseas and strives to continuously monitor the political, social, and economic conditions and related legal and regulatory trends in the countries and regions where it operates. However, if unforeseen events such as conflicts, natural disasters, or disease outbreaks occur, or if there are changes in the social environment or legal regulations, it may become difficult to carry out business expansion as planned. The materialization of such overseas risks could affect the financial position and business results.