HIROSE ELECTRIC CO.,LTD.

The electronic components business has a relatively high degree of dependence on the smartphone market, and fluctuations in demand in that market directly affect business performance. Combined with sales concentration toward a specific group of major customers, changes in order trends can have a significant impact on performance. As a countermeasure, the Group is strengthening its customer base by expanding smartphone-related products into other applications and proposing new technologies.

The connector industry is extremely competitive, with numerous domestic and overseas competitors. There is a risk that profitability could decline if the Group becomes embroiled in price-cutting competition. The Group seeks to differentiate itself by providing products that are difficult for other companies to easily imitate, through its proprietary production technology, mold development, and introduction of new products.

Demand for connectors used in electronics products fluctuates significantly, and demand for parts that diverges from actual conditions can create a risk of excess inventory. Conversely, if demand surges sharply, the production system may not be able to keep pace, potentially leading to damages claims due to delivery delays or lost sales opportunities. The Group works to reduce this risk through proactive information exchange with customers, adoption of a made-to-order production system, capital investment, and outsourcing of production to partner companies.

With the ratio of overseas sales revenue exceeding approximately 80% and a high weighting of foreign-currency-denominated sales, a sharp appreciation of the yen could have a material impact on business performance and financial condition. The Group strives to mitigate this impact through the use of foreign exchange forward contracts and by balancing the ratio of overseas sales to overseas production, but a risk remains that it may not be able to fully respond to sudden fluctuations.

At overseas production and sales sites, a wide range of risks—including geopolitical risk, trade friction, labor issues, infectious diseases, and natural disasters—may arise beyond the Group's expectations. In particular, since certain products can only be produced at specific sites, there are cases where alternative production at other sites is difficult if operations are suspended in a particular region. While the Group seeks to diversify risk through the deployment of multiple sites, improving the flexibility of the production system is recognized as an ongoing challenge.

Domestic production sites are concentrated in the Tohoku region, and if a large-scale disaster on the scale of the Great East Japan Earthquake were to occur, the destruction of production facilities and paralysis of logistics functions could significantly affect production capacity. Although the Group has formulated a business continuity plan (BCP) and taken out insurance, not all events are covered, and insurance proceeds may not be sufficient. The risk of regional concentration remains a structural issue.

A cyberattack could affect business activities across the board. The Group implements measures such as monitoring its network environment and providing information security education to employees, but it is difficult to completely prevent increasingly sophisticated cyberattacks. If information leakage or business suspension occurs, there is a risk of loss of customer trust and potential liability for damages.

There is a risk that the Group may not be able to effectively prevent other companies from using its intellectual property without authorization to manufacture similar products, which could undermine its competitive advantage. In addition, if the Group's products or the technologies it uses are alleged to infringe on the intellectual property rights of other companies, litigation risk and cost burdens may arise. The Group aims to protect itself through patents and other intellectual property rights, and to take legal action as necessary.

If the Group is unable to secure and develop employees and leadership talent with the expertise needed to respond to a rapidly changing external environment, or if an outflow of human capital occurs, business performance may be affected. The Group aims to offer salaries and bonuses at a level higher than that of peer companies, while also developing systems that support continued employment and enhancing capabilities through practical training.

Because the Group operates its business globally, there is a risk of additional tax assessments arising from differences in views with tax authorities in various countries, and the Group itself recognizes that the risk related to transfer pricing taxation is particularly high. The Group strives to file appropriate returns and pay taxes in accordance with the tax systems of each country, while also seeking to avoid risk through advice from external tax specialists.