Ferrotec Holdings Corporation

Semiconductor equipment-related products such as vacuum seals, quartz products, and ceramics are strongly affected by product supply-demand trends and capital expenditure trends in the electronics industry. If this risk materializes, sales of the Semiconductor Equipment-Related Business could decrease by 15% or more year on year. As countermeasures, the company is diversifying risk between manufacturing equipment parts and consumable products, providing cleaning and maintenance services, and focusing on power semiconductors, clean energy, and EV applications.

Electronic Devices segment products such as Thermo Modules, Power Semiconductor Substrates, and Sensors are linked to new vehicle sales volume in the automotive industry, and if this risk materializes, sales of automotive-use products could decrease by around 10% year on year. There is also a risk that delayed response to the shift to EVs could lead to a decrease in sales through declining sales of older vehicle models. As countermeasures, the company is promoting expansion of applications (autonomous driving, cup holders, etc.), expanding adoption of power semiconductor substrates for EVs, and expanding into other industries such as medical and biotechnology.

Most of the Group's products are manufactured by Chinese subsidiaries, and changes in Chinese laws and regulations regarding investment, taxation, currency control, trade, environment, and labor, as well as tariff increases and stricter trade regulations due to US-China friction, may affect the financial position and business results. There has also been a trend of business partners preferring products manufactured outside China, and it is considered difficult to estimate the impact amount with a single figure. As countermeasures, the company holds regular monthly Risk Management Committee meetings and is establishing production bases outside China, such as in Malaysia.

Exchange rate fluctuations affect the financial position and business results through multi-currency transactions denominated in US dollars, Chinese yuan, and other currencies, and through the yen conversion of overseas subsidiaries' financial statements. It is estimated that a 1 yen fluctuation in the USD/JPY exchange rate would have an impact of approximately ¥1,200 million on sales and approximately ¥200 million on operating income. As countermeasures, the company implements appropriate pricing for import/export transactions and restrains foreign currency borrowing.

A decline in the price of held securities and an increase in interest burden on borrowings due to rising market interest rates may affect business results. Some borrowings are subject to financial covenants, and if these are breached, there is a risk of increased borrowing interest rates and loss of the benefit of the term. Interest expenses amount to ¥3,700 million annually, and held shares have been reduced to 7 issues, so the impact is recognized as limited.

Political instability in the countries of origin of raw materials, changes in export policy, and fluctuations in supply-demand balance may cause procurement difficulties and price surges, and if this risk materializes, material costs within cost of sales are expected to increase by around 5% year on year. Price fluctuations accompanying corporate acquisitions and organizational restructuring could also be a triggering factor. As countermeasures, the company is diversifying procurement sources across multiple countries and maintaining good relationships through regular information exchange.

Products such as Magnetic Fluid application products, Thermo Modules, and quartz products require advanced technology, but the emergence of innovative or alternative technologies in the electronics industry could cause loss of technological advantage, resulting in effects ranging from minor to the end of a product's life cycle. The degree of impact differs by product and is considered difficult to quantify. As countermeasures, the company is pursuing continuous technology development, acquiring secondary usage rights through license agreements, and considering business alliances and M&A with other companies.

With production bases in China, Japan, and Southeast Asia, large-scale earthquakes, floods, infectious disease pandemics, and international conflicts could damage facilities, equipment, and employees, potentially causing manufacturing disruptions and supply chain disruptions. The impact on the Russian base due to economic sanctions against Russia following Russia's invasion of Ukraine also continues. As countermeasures, the company has established BCP regulations, major earthquake manuals, and safety confirmation systems, and diversifies risk by manufacturing the same products at multiple production bases.

If stricter environmental regulations in countries where production bases are located, including China, require new capital investment, exhaust/wastewater countermeasures, or changes in waste disposal methods, this could lead to increased costs and operational restrictions. Business suspension orders from regulatory authorities, equipment renovation costs, and damage claims could affect business results. As countermeasures, the company has established a dedicated environmental countermeasures department at its Chinese manufacturing subsidiaries, and has implemented online monitoring connections with environmental regulatory authorities and contracts with external consultants.

In globally operating businesses, executives and department heads at overseas locations are often locally hired, and in an environment where headhunting and job hopping have become commonplace, there is a risk of losing key personnel. Since multiple assistant personnel exist, the impact is recognized as temporary and limited, but if it becomes difficult to hire the personnel necessary for business expansion, this could affect business expansion. As countermeasures, the company is promoting employee retention through incentive measures such as granting stock options and improving the working environment.