JAPAN ELECTRONIC MATERIALS CORPORATION

Probe cards, which account for the majority of sales, are consumable products used for semiconductor testing. If a global economic downturn triggered by U.S. trade policy or fluctuations in financial and capital markets spreads to the semiconductor market, it will directly affect the Group's operating results and financial condition. Although the Group has established sales and production bases both domestically and overseas (the U.S., Taiwan, etc.) to respond to market trends, the risk of sudden changes in the external environment cannot be eliminated.

With the progress of consolidation and oligopolization among semiconductor manufacturers, the proportion of the Group's sales attributable to specific customers has been increasing. This structure means that changes in the capital expenditure trends or production plans of such customers directly affect the Group's business performance, embedding a customer base concentration risk.

To respond to the miniaturization and speed-up of semiconductor circuits, the Group is promoting improvements in probe performance using MEMS technology and the development of probe cards for next-generation semiconductors. However, delays in development or insufficient response to technological innovation may lead to a decline in competitiveness, potentially affecting operating results and financial condition. Continuous investment in technology development and rapid commercialization are required.

If heightened political tensions cause supply constraints across the entire supply chain, this will affect the semiconductor market, customers' production plans, and the Group's production activities. In addition, if sales and production overseas (the U.S., Taiwan, etc.) become difficult, this may also affect operating results and financial condition. The Group is working to strengthen and stabilize its supply chain.

Against the backdrop of cost-reduction pressure from semiconductor manufacturers, there are continuous requests for price reductions on probe cards. If selling prices decline due to intensifying price competition, profitability may deteriorate, affecting operating results and financial condition. The Group is responding through cost reduction and added-value enhancement via technological innovation and VA (value analysis) activities.

The Group plans capital expenditures by comprehensively taking into account market trends, demand forecasts, and production plans. However, if sufficient profitability can no longer be expected due to a decline in customer demand or a fall in unit prices, recovery of the invested amount may become difficult, potentially requiring recognition of impairment losses. While the Group seeks to make effective use of assets by improving utilization rates and production efficiency, there are situations in which it is difficult to respond to sudden changes in the market environment.

Under the policy of strengthening overseas sales, foreign currency-denominated transactions are increasing, and fluctuations in exchange rates may affect operating results and financial condition. Although the Group implements risk management measures such as forward exchange contracts, there are limits to hedging against sharp exchange rate fluctuations.

Some of the suppliers of equipment and materials required for probe card manufacturing, as well as some outsourcing partners, are difficult to replace. If supply delays, processing delivery delays, or quality issues occur at such business partners, this may cause production interruptions or quality deterioration, affecting operating results and financial condition. The Group seeks to ensure stable supply by maintaining good relationships with business partners and diversifying its supplier base.

While the Group is strengthening its monitoring systems for networks, servers, and personal computers with advice from external experts, if held information assets are leaked, destroyed, or tampered with due to unauthorized communications by third parties, this may affect operating results and financial condition. Maintaining a high level of information security remains an ongoing challenge.

Securing and developing excellent talent, including engineers with specialized knowledge in electrical engineering, mechanical engineering, chemistry, and other fields, is recognized as an important issue for growth, and the Group is working to strengthen its recruitment activities. If the necessary talent cannot be secured, the efficiency of development, production, sales, and other operations may deteriorate, potentially affecting operating results and financial condition.