AOI ELECTRONICS CO.,LTD.

The IC and other assembly business and the Functional Components segment, which together account for approximately 80% of net sales, are significantly affected by the sales conditions and market environment of approximately 50 customers. There is a risk that a customer's sales downturn or market contraction could directly impact the Group's business performance. Although the Company is working to diversify its customer base as an independent assembly plant, reducing dependence on specific customers remains an ongoing challenge.

In the electronic components industry, product obsolescence due to technological innovation is severe, and tight supply-demand conditions and oversupply repeat cyclically, causing fluctuations in the semiconductor market that significantly affect the Group's business results. There is a risk that profitability could deteriorate substantially during periods of oversupply following major capital investment. The Group is addressing this through continued efficient capital investment and R&D investment, as well as the introduction of high-value-added products.

Due to the overseas expansion of production bases and intensifying international competition, selling prices are expected to continue to decline, increasing pressure on profitability across the industry. Although the export ratio remains low at 8.3% (FY2026 (ending March 2026)), as the export ratio of set products incorporating the Company's products increases, the impact of foreign exchange fluctuations on business results and financial condition may expand. The Group strives to maintain a stable business foundation through appropriate risk management and flexible responses.

Precious and rare metals such as gold, silver, copper, palladium, and ruthenium are subject to significant price fluctuations due to geopolitical risks and supply-demand changes; if price increases cannot be passed on to selling prices, gross profit margin may decline. If procurement cannot be carried out as planned due to supply chain disruptions, there is a risk of production delays, delivery delays, lost business opportunities, and reduced social credibility. The Group addresses this through diversification of supply sources, holding strategic safety stock, research into alternative materials, and discussions with major customers on introducing price-sliding mechanisms.

Although a quality control system based on ISO9001 has been established, defects in design or manufacturing, or unforeseen failures, may lead to product recalls or claims for damages. If the scope of impact from a defect is large, substantial response costs, litigation risk, and loss of social credibility may arise, potentially having a material impact on business performance and financial condition. The Group works to prevent such issues and expedite corrective measures through strict design reviews, introduction of automated inspection systems, supplier quality audits, and a system for rapidly aggregating market information.

Although the Company files patent applications for its proprietary technologies, there are cases where rights cannot be obtained or where the manufacture of similar products by third parties cannot be prevented. On the other hand, there is a risk that the Group could be accused of infringing third-party intellectual property rights of which it is unaware, resulting in prohibitions on use, royalty payments, or litigation, which could constrain the manufacture and sale of products. The Group conducts third-party patent searches when developing new products, but complete elimination of this risk remains difficult.

Due to the declining working population and accelerating technological innovation, competition to acquire highly specialized personnel is intensifying. If the Group is unable to secure, retain, and develop the necessary personnel as planned, it may hinder technology development, productivity improvement, and new business development, adversely affecting the execution of its medium- to long-term growth strategy. The Group is addressing this through planned recruitment of new graduates and mid-career hires, expansion of education and training systems, and the introduction of flexible working arrangements, but changes in the employment environment and diversifying job seeker values remain ongoing risk factors.

There is a risk that confidential information related to management, technology, and transactions, as well as personal information, could be leaked, misused, or tampered with due to increasingly sophisticated and elaborate cyberattacks, the emergence of new vulnerabilities, internal misconduct, or human error. This could result in loss of trust from customers and business partners, claims for damages, guidance or sanctions from administrative authorities, and suspension of business activities, potentially having a material impact on business performance and financial condition. The Group strives to continuously strengthen its management system through thorough access control, introduction of multi-layered system defenses, and internal education and awareness activities.

If manufacturing or sales bases are damaged by large-scale earthquakes or other natural disasters, or by pandemics, this could halt production activities and disrupt the supply chain, affecting business performance and financial condition. Even if the Group itself is not directly affected, there is a risk that production, logistics, and sales could not proceed as planned due to damage sustained by customers or business partners. The Group has established alternative production capable manufacturing bases within the Group and is working to minimize impact through thorough implementation of internal manuals as infectious disease countermeasures.

In the electronic components industry, product obsolescence due to technological innovation is severe, with frequent generational shifts in products, creating a risk that competitiveness could decline if the Group fails to keep pace with technology trends. This is particularly critical in the assembly business and Functional Components segment, where maintaining and improving development and design capabilities to meet customers' technical requirements for final products is essential. The Group continuously implements efficient capital investment and R&D investment, and has established a system to respond to market changes through new product development and the introduction of high-value-added products.