MegaChips Corporation

As a fabless company, procurement volumes, prices, and delivery times are affected by supply-demand balance in the semiconductor market, and there is a possibility that products cannot be procured on desired terms. The company depends on an overseas foundry network centered on Taiwan, making it highly susceptible to market downturns. The company seeks to minimize this risk by strengthening cooperation with existing foundries and developing new procurement sources.

The company has a high proportion of sales to Nintendo Co., Ltd., particularly for LSIs used to store game software (custom memory), and there is a risk that performance could fluctuate significantly depending on Nintendo's game console/software sales trends and LSI adoption status. This risk is difficult to eliminate entirely; in addition to maintaining a good relationship with Nintendo and enhancing customer satisfaction, the company is pursuing diversification of its business portfolio by fostering new businesses such as the communications and imaging equipment fields.

The company outsources a high proportion of production of its core products, such as LSIs for storing game software, to Macronix International Co., Ltd. (Macronix), and if a production stoppage were to occur at Macronix, this could have a material impact on performance. The company also recognizes geopolitical risk given that production outsourcing is concentrated in Taiwan. The company addresses this through manufacturing outsourcing agreements with Nintendo and Macronix, maintenance of good relationships, and diversification of procurement sources both domestically and overseas.

Because outsourced production foundries are concentrated in Taiwan, there is a risk that production could be halted or restricted due to geopolitical tension or a crisis. Should this materialize, it could seriously disrupt the stable supply of core products and have a significant impact on performance. The company prepares for unforeseen circumstances by seeking foundries broadly both domestically and overseas and building relationships of trust.

Because the business model centers on proprietary analog and digital technology, securing, retaining, and developing excellent engineers is fundamental to competitiveness, and failure to execute this as planned could lead to reduced competitiveness and impact on corporate value. This is set against a backdrop of intensifying competition for talent both domestically and overseas. The company addresses this through establishing personnel treatment systems, investing in human resources based on development plans, and actively working to develop diverse talent.

As of the end of the current consolidated fiscal year, the company held investment securities of ¥21,088 million (8.3% of consolidated total assets), and there is a possibility that synergy effects from strategic investments in startups and other companies may not be realized as expected. There is also a risk that valuation losses could occur due to declines in the market value of investment shares or a significant decline in their substantial value, impacting performance. The Board of Directors and other bodies comprehensively assess synergy creation, business progress, and future potential, and determine the appropriateness of holding such investments after verifying investment effects and risks.

A certain proportion of transactions with customers and production outsourcing partners are denominated in US dollars, and the financial statements of overseas subsidiaries are also translated into yen, creating a risk that performance could be negatively impacted when the yen appreciates. The greater the fluctuation, the greater the likelihood of this risk materializing. The company utilizes forward exchange contracts as necessary to reduce this risk.

As a fabless manufacturer, protection of intellectual property rights is a key issue, but there is a risk of failing to register the company's own patents as well as litigation risk from infringing on the rights of other companies. In addition, in certain countries and regions, inadequate legal frameworks may mean the company's own technology is not sufficiently protected, potentially making it difficult to effectively prevent the sale of counterfeit products by other companies. The company strengthens cooperation between internal systems and patent firms to actively pursue applications and registrations and thoroughly investigate the rights of other companies.

The company holds confidential information related to product development and intellectual property, as well as confidential information of customers and suppliers and personal information of employees, and if information leakage or system outages occur due to cyberattacks, unauthorized access, computer viruses, or other causes, substantial costs could be incurred, impacting performance. In addition to strengthening the security of information systems and providing IT education to employees, the company strives to minimize this risk through early information sharing in cooperation with the government and other companies.

If a large-scale earthquake, natural disaster, infectious disease, terrorism, or similar event occurs, significant damage could be caused to business sites, outsourced foundries, and customers both domestically and overseas, forcing a contraction of business activities and potentially having a material impact on operating results and financial position. While it is extremely difficult to avoid all such risks, the company has established a crisis management manual that defines response methods aimed at ensuring the safety of human life, minimizing damage, and achieving early resumption of operations.