SONOCOM CO.,LTD.

The Company's primary market is domestic Japan, and its sales are heavily dependent on the business conditions and production trends of the electronic components industry. If the domestic economy deteriorates or demand in the electronic components industry declines, this could directly impact the Company's business performance. Due to the high degree of dependence on a specific industry, the Company's structure is susceptible to the effects of the overall business cycle of that industry.

In the electronic components industry, the pace of technological innovation is rapid and products are becoming increasingly precise, creating a risk that customer companies may switch from processes using the Company's products, such as Screen Mask (Product Sales), to alternative manufacturing methods. Where the proportion of sales to a specific customer is large, a change in manufacturing method by that customer would have a significant impact on the Company's business performance. Although the Company continues to respond to the demand for higher product precision, it is difficult to completely eliminate the risk of technological substitution.

Screen Masks, photomasks, and metal masks are all manufactured to order, with each plate produced based on customer specifications, so the impact of any defective products is directly borne by the individual customer. The Company strives to eliminate defects through reviewing production processes, standardizing work efficiency, and thoroughly implementing quality checks at each production stage; however, the occurrence of defective products could lead to a loss of customer trust and a deterioration in business performance. Given the made-to-order nature of the products, quality control for each product is particularly important.

If a manufacturing plant is forced to suspend operations due to an earthquake or other natural disaster, it may become difficult to manufacture products, which could have a material impact on the Company's business performance. If the Company's manufacturing bases are concentrated, there is a risk that damage at a single site could spread to affect the entire business. At present, no specific details of a BCP (Business Continuity Plan) are disclosed in the Annual Securities Report.

The Company holds financial instruments that are affected by stock prices, and if share prices decline due to a stock market crash, valuation losses may arise on held assets, which could impact business performance. Since market conditions are influenced by external factors, there are limits to the Company's ability to independently control this risk. Depending on the scale and composition of the financial instruments held, the impact on business performance could be correspondingly significant.

The Company invests a portion of its funds in foreign currency (US dollars) in consideration of capital efficiency, and therefore fluctuations in exchange rates, such as yen appreciation or depreciation, may affect the valuation of invested assets and business performance. There is no explicit disclosure in the Annual Securities Report regarding the implementation status of foreign exchange hedging, and the details of measures to address foreign exchange risk are unclear. There is a risk that as the proportion of foreign currency-denominated investments increases, the impact of exchange rate fluctuations on business performance will also increase.