YAMAICHI ELECTRONICS CO.,LTD.

An increase in the value of currencies at production sites outside Japan (Philippines, South Korea, Germany) pushes up manufacturing and procurement costs, while a decline in sales currencies (US dollar, euro, Singapore dollar, etc.) leads to reduced revenue. Although the Group addresses this in the short term through foreign exchange hedging transactions, it may become unable to respond to medium- to long-term currency fluctuations, which could adversely affect business performance and financial condition.

Test Solutions is significantly affected by global semiconductor supply and demand, while Connector Solutions is affected by US-China trade friction. Factors beyond the Group's control—such as changes in the global economic environment, geopolitical risk, epidemics, and the loss of major customers due to strategic changes, bankruptcy, or M&A—may adversely affect business performance and financial condition.

Accelerating technological innovation in smartphones and automotive electronic devices, among others, is hastening the transition to new products, intensifying inventory adjustments in the market and price competition with competitors. Further price declines are expected going forward due to customer demands for cost reductions and aggressive market entry by competitors, and if price competition, declines in selling prices, or inventory adjustments occur beyond expectations, this may affect business performance and financial condition. The Group is responding by promoting global revenue and cost structure reforms.

With some exceptions, production of Test Solutions and Connector Solutions products is concentrated in the Philippines, while production for the Optics-Related Business is concentrated in Hadano City, Kanagawa Prefecture. Should some unforeseen event limit or make impossible the operation of these production sites for any reason, business performance may be adversely affected. The Group is working to reduce this risk by expanding domestic production over the medium to long term.

The increasing complexity and diversification of cyberattacks may result in unauthorized access, system destruction from computer virus infection, and the theft, leakage, or falsification of personal information or confidential information. Although the Group addresses this through the development of information security policies, the establishment of management systems, and regular training, should such an event occur, it may adversely affect business activities, performance, and financial condition, and could deal a major blow to management.

The Group conducts a significant portion of its production and sales activities in Southeast Asia, China, the United States, Europe, and elsewhere, and is exposed to risks such as unpredictable changes to tax systems and laws, wage increases due to minimum wage revisions, difficulty in business continuity due to infectious diseases, war, terrorism, or natural disasters, infrastructure uncertainty, and difficulty securing excellent talent. Should these risks materialize, business performance and financial condition may be adversely affected.

Amid growing demands for miniaturization and higher quality in products, there is no guarantee that quality problems or recalls will not occur. In particular, since connectors are used in mass-produced products such as smartphones and automotive electronic devices, the number of affected products can be large. Although the Group works to hedge this risk through product liability insurance and other means, depending on the scale of damages, business performance and financial condition may be adversely affected.

The Group secures business performance through the development of new products incorporating innovative technology and dedicated resources, but if it misjudges trends in new technology or market needs, it may be unable to recoup the resources invested. Against the backdrop of accelerating technological innovation in the electronics industry, misdirected technology development investment may adversely affect business performance.

The prices of metal materials such as gold and copper, as well as petrochemical raw materials, can fluctuate significantly. If price increases cannot be sufficiently passed on to product prices, or if product costs cannot be contained through product conversion, business performance may be adversely affected. Combined with dependence on outsourced parts suppliers, shortages or delayed supply of raw materials and parts risk leading to increased costs and reduced competitiveness.

The Group recognizes issues related to climate change as one of the key risks with a significant impact on management, and its effects have already partially materialized. Physical risks and transition risks arising from climate change may adversely affect business performance and financial condition, and the Group provides detailed disclosure of the impact of these risks on management within its sustainability strategy.