Nintendo Co., Ltd.

As the overseas sales ratio exceeds 70% and most transactions are conducted in local currencies, significant fluctuations in exchange rates directly affect the Group's financial position, business performance, and cash flows. The Group holds substantial foreign currency-denominated assets and is affected not only when converting these to yen-denominated assets but also in translation when preparing financial statements. As a countermeasure, the Group seeks to mitigate the impact of fluctuations by continuing foreign currency-denominated procurement.

The game business is one segment within a broad range of entertainment, and there is a risk that the game market may shrink due to changes in customer preferences toward other forms of entertainment. Profitability may become difficult to secure due to the emergence of new entrants through technological innovation and intensifying competition with large industry peers and other entertainment industries. The Group addresses this by deepening affinity for its unique characters and worlds, becoming a presence chosen across generations.

Developing game software, smart device applications, and video content requires substantial time and expense, but there is no guarantee that all new products will be accepted given changing customer preferences. Hardware development requires a long period of time, yet technological advancement continues unabated, creating risks of being unable to equip necessary technology or losing market share due to delayed launches. Interruption or discontinuation of development could also cause significant deviation from plans, and the Group continuously strives to develop innovative and appealing new products.

Because game products have relatively short life cycles and strong preference-driven and seasonal characteristics, excess inventory or obsolescence of inventory assets may adversely affect the financial position and business performance. On the other hand, since accurate sales forecasting is difficult, there is also a risk of missing business opportunities due to an inability to supply the necessary quantity to the market. The Group strives to secure supply commensurate with demand through build-to-forecast production and by promoting sales of downloadable software.

The Group outsources the manufacturing and assembly of key components to companies outside the Group, and there is a possibility that bankruptcy of an outsourcing partner or supply delays could disrupt the procurement and manufacturing of important components. Many of the outsourced manufacturing partners' production sites are located overseas, and there is a risk that production could be hindered—adversely affecting business performance—in the event of deteriorating security conditions, natural disasters, the spread of infectious diseases, or similar events. The Group maintains multiple suppliers and production subcontractors for most materials and, for key components, has established a management system that grasps the entire process, production locations, and responsible personnel so that alternative measures can be taken.

Demand for the Group's products is concentrated during the year-end shopping season and the New Year period, and business performance may be adversely affected if the Group fails to launch appealing new products or cannot supply products in time during this period. Instability of earnings due to seasonal concentration also affects the accuracy of financial planning forecasts. The Group aims for stable performance throughout the year by developing games that can be enjoyed over a long period and by offering paid services in its digital business.

If cyberattacks, natural disasters, accidents, or similar events cause system outages, data leaks, or unauthorized use affecting the operating systems for online play, download sales, and various internet services, this could lead to suspension of business activities, damage to the Group's brand reputation, and deterioration of financial condition. As the importance of network functionality increases, the impact of such risks tends to expand. The Group strives to strengthen its response capabilities by enhancing internal resources, hiring necessary personnel, and collaborating with external specialist firms.

The Group has accumulated diverse intellectual property that serves as a source of differentiation; however, there are regions where it is difficult to effectively address illegal uploading via the internet and counterfeit products, which could adversely affect future business performance and financial condition. Infringement of intellectual property also carries a risk directly linked to damage to brand value. The Group responds by continuously taking necessary measures.

The Group holds customer information as well as confidential development and business information, and if these are leaked, disclosed, or misused due to unauthorized access to systems or similar causes, this could adversely affect business performance, brand reputation, stock price, and financial condition. With the expansion of digital services, the volume and importance of personal information held by the Group are increasing. The Group continuously implements necessary information security measures.

Unexpected enactment or amendment of laws and regulations, or the introduction or revision of accounting standards and tax systems, could adversely affect business performance and financial condition, and there is also a risk of additional tax burdens arising from differences in views with tax authorities. In addition, being subject to litigation, disputes, or other legal proceedings related to business activities both domestically and internationally could adversely affect business performance and financial condition. The Group gathers information through external organizations, seminar participation, and reading specialized publications, while also implementing various measures to mitigate litigation risk.