Shindengen Electric Manufacturing Co, Ltd.

The majority of operating revenue is derived from customized products for specific customers, meaning that fluctuations in customer demand directly affect business performance. In addition, the Company has a high degree of dependence on the automobile market, including motorcycles, and is strongly affected by economic trends both in Japan and overseas. As a countermeasure, the Company is working to diversify risk through expansion into markets such as industrial equipment, home appliances, and information and communications.

In the electronic components industry, downward pressure on prices is intensifying daily due to price reduction requests from customer companies and aggressive actions by competitors, with competition, both in Japan and overseas, becoming particularly fierce in the Power Devices Business and Power Units Business. There is a risk that profitability will decline due to being caught between this pressure and rising costs such as material and transportation costs. The Company is addressing this through the development of differentiated new products and cost reduction activities conducted jointly with suppliers.

The growing demand from customer companies for shorter delivery times has made advance procurement of certain materials unavoidable, and there is a risk that subsequent demand fluctuations may result in the Company having to dispose of inventory assets at its own responsibility, thereby reducing profit margins. Changes in industrial structure and the competitive environment may also affect business performance and financial condition. The Company is addressing this through shortening lead times and regular information sharing among related departments.

Raw materials for semiconductors and key components depend on supply from multiple companies outside the Group, and there is a risk that the Company may be unable to fulfill its supply obligations to customers if sudden changes in supply and demand or sharp price increases occur due to economic trends or supplier-specific circumstances. There are also concerns about adverse effects on business performance and financial condition resulting from rising costs. The Company seeks to reduce this risk through regular information sharing with each supplier and by promoting multiple sourcing.

As the Company expands production and sales activities across Asia, North America, and Europe and increases its overseas weighting, there is a risk that unpredictable regulatory changes, political and economic upheaval, labor disputes, natural disasters, wars, terrorism, epidemics, and the like could disrupt the supply chain and restrict business activities. The Company is strengthening its systems to address supply chain disruption risks and is working to build alternative production systems across multiple sites.

The Company conducts sales and procurement activities in US dollars, euros, Asian currencies, and other currencies, and exchange rate fluctuations affect business performance and financial condition, including through the yen conversion of overseas affiliated companies' financial statements. In general, yen appreciation has an adverse effect on business performance, while yen depreciation has a favorable effect. The Company strives to minimize adverse effects through the use of forward exchange contracts and currency option transactions, as well as by promoting local procurement of materials at overseas locations.

As the electrification and automation of automobiles require increasingly sophisticated and complex technologies, there is a risk of lost sales opportunities and difficulty recovering R&D investment if the Company fails to timely provide products matching customer and market needs, or if competitors gain an advantage. There is also a risk of losing business opportunities if the outcome of standardization competition is unfavorable or if the Company's core technologies fail to become mainstream. The Company is working to strengthen development speed and expand its business domains by leveraging external expertise, including through industry-academia collaboration.

In certain countries and regions, complete protection through intellectual property rights is not possible, and there is a possibility that the Company cannot prevent third parties from manufacturing similar products. In addition, if technologies used by the Company Group infringe on the patents of other companies, there is a risk that business performance and financial condition could deteriorate. The Company strives to avoid this through thorough patent investigations during the development stage and by entering into licensing agreements as necessary.

The Company is subject to a wide range of laws and regulations in each country, including business licensing, import/export controls, trade regulations, antitrust laws, environmental regulations (such as the RoHS Directive), and human rights-related regulations, and there is a risk that failure to comply could result in restrictions on activities and increased costs due to penalties. There are also concerns that, if regulatory compliance cannot be achieved due to technical constraints, business opportunities could be lost due to sales restrictions. The Company has established a dedicated department to research the latest laws and regulations and has built a company-wide system to ensure thorough awareness and compliance.

The Company holds confidential information related to research and development and intellectual property, confidential information of customers and suppliers, and personal information of employees, and there is a risk that an unforeseen information breach could adversely affect business performance and financial condition through loss of trust and liability for damages. The Company has established an Information Security Committee and is implementing security enhancement, review of regulations, and educational activities for all employees in anticipation of potential data breaches.