TDK CORPORATION

China accounts for 55% of consolidated net sales, and Chinese sites account for approximately 62% of the Group's total production value. Should political factors (regulatory trends, etc.), economic factors (sustainability of growth, infrastructure development) or social/environmental issues arise, this could have a significant impact on business performance. Although optimization of site strategy is being pursued, the ratio of tangible fixed assets held in China to consolidated total tangible fixed assets increased by 6 percentage points, from 38% in FY2025 (ending March 2025) to 44% in FY2026 (ending March 2026), indicating growing dependence.

In global business operations where the overseas sales ratio reaches 93%, there is potential for geopolitical risks including US-China relations, as well as international political risks such as tariff increases, import/export restrictions, war, and terrorism to materialize. In particular, escalating tensions in the Middle East raise concerns over difficulties in procuring crude oil, energy resources, and raw materials. The Company has established a government relations function at headquarters and a risk information gathering and analysis structure at each regional headquarters, and is strengthening its response by establishing a new Asia-Pacific headquarters in April 2026.

In global operations where the overseas sales ratio is 93%, a sharp appreciation of the yen would lead to decreases in net sales and profit. It is estimated that a ¥1 appreciation of the yen against the US dollar would reduce operating profit by approximately ¥2,000 million, while a similar appreciation against the euro would reduce operating profit by approximately ¥300 million. The Company works to reduce foreign exchange fluctuation risk through local currency-denominated transactions between overseas subsidiaries and headquarters, comprehensive forward exchange contracts by headquarters, and promotion of dollar-denominated purchasing and yen-denominated sales transactions.

As of March 31, 2026, the total amount of tangible fixed assets, right-of-use assets, goodwill, and intangible assets reached ¥1,536,500 million, of which tangible fixed assets of ¥17,900 million in the RF Components, Piezoelectric Material Components & Circuit Protection Components business and goodwill of ¥98,700 million allocated to the MEMS Sensors (Microphones, Motion Sensors) business are of particular note. If a significant change in the business environment causes the recoverable amount to fall below the book value, a substantial impairment loss may be recognized, which could have a significant impact on financial condition and business performance. The Company works to avoid impairment risk through selection and concentration via business portfolio management and monitoring of challenged businesses from the beginning of the fiscal year.

In FY2026 (ending March 2026), there was one customer group accounting for more than 10% of consolidated net sales, with sales to this customer group amounting to ¥466,400 million (19% of consolidated net sales), primarily from Energy Application Products. Should this customer experience a business downturn, change its procurement policy, or undergo corporate restructuring through M&A, a significant decrease in orders or loss of business could have a significant impact on business performance. The Company works to reduce this risk by concluding minimum purchase commitment agreements at the time of dedicated capital investment, and by considering multiple scenarios including active involvement in industry restructuring.

In the fast-changing electronics industry, there is no guarantee that the Company can accurately forecast future demand and continue to timely develop and supply attractive new products; if development management does not function effectively, there is a risk of losing even existing markets. In addition, failure to effectively utilize data obtained through diverse business activities in development, sales, and marketing could also have a significant impact on business performance and growth outlook. The Company is working to detect new technologies early and reinforce its technology roadmap through cross-organizational market trend monitoring by the Sales & Marketing Headquarters and CTO Office, and through collaboration with venture companies via TDK Ventures.

While holding confidential and personal information of customers and business partners as well as internal technical information, there is potential for information leakage, destruction, tampering, or system outages due to external cyberattacks or internal negligence or intentional actions. Should such incidents occur, they could impact business performance through loss of credibility, damage compensation costs, reduced product competitiveness, and business disruption. The Company has implemented measures including strengthening its information security framework based on the NIST framework, AI-based detection of suspicious data, Group-wide cyber insurance coverage, and support for suppliers to improve their information security management.

There is dependence on specific regions and suppliers for hard-to-substitute raw materials, such as reliance on China for heavy rare earth elements used in Magnets (e.g., dysprosium) and on the Democratic Republic of the Congo for cobalt used in rechargeable batteries. If procurement difficulties arising from import/export restrictions, supplier disasters, supply shortages due to increased demand, or geopolitical risks become prolonged, this could affect the production system and impede the Company's ability to fulfill its supply responsibilities to customers. In addition to efforts toward multi-sourcing, long-term supply contracts, and reducing usage, the Company conducts smelter investigations based on its responsible minerals sourcing policy.

The Company is required to comply with a wide range of regulations in the countries where it operates, including investment, security, import/export, antitrust, product liability, environmental, and tax regulations, and it cannot completely rule out the possibility of regulatory violations or misconduct by officers or employees. Should such events occur, they could have a significant impact on business performance through loss of public trust, suspension of transactions, substantial fines, and damage claims. The Company addresses this through a global compliance framework led by the GCCO and RCCOs in four global regions, formulation and operation of global common regulations, and establishment of internal rules based on U.S. Department of Justice standards.

Operating in more than 30 countries and regions, with employees outside Japan accounting for approximately 89% of the total, the continuous acquisition and development of specialized technical talent and management talent is key to business development. Given Japan's declining birthrate and aging population, shrinking working population, and rapidly changing employment conditions at overseas sites such as China, if talent acquisition and development do not proceed as planned, this could have a significant long-term impact on business development, performance, and growth. The Company addresses this through year-round recruitment of new graduates and experienced personnel, fair evaluation and treatment systems based on goal management, and enhanced tiered education programs including for global key talent and management candidates.