Tokyo Electron Limited

While medium- to long-term growth is expected against a backdrop of IoT, AI, 5G, and other trends, there is a risk that global economic conditions, trade tariff policies, and geopolitical factors could disrupt the supply-demand balance in the short term, leading to a sharp contraction in customer investment. Excess production could result in inventory increases and bad debt losses, while conversely, a sudden surge in demand could lead to opportunity losses. In response, the Company conducts regular market reviews at the Board of Directors and other meetings, optimizes capital expenditure, personnel, and inventory plans, and works to expand its customer base.

As the Group has a high ratio of overseas sales, it faces the risk that geopolitical conflicts and regional disputes affect the security and industrial policies of various countries, thereby constraining business activities through export/import regulations on products, restrictions on technology development, supply chain disruptions, and macroeconomic deterioration. In particular, if the Company is slow to respond to unforeseen regulatory changes, including those related to economic security, this may result in increased cost burdens or business restrictions. The Company closely monitors international affairs and diplomatic and security-related measures, and strives for early detection and swift response to risks through dialogue with policy authorities, industry associations, and experts.

Continuous R&D investment in cutting-edge technology is a source of competitiveness; however, if the Company fails to timely launch new products that meet customers' technological requirements, or if competitors launch new technologies or products first, the Company risks losing product competitiveness and being unable to recover development costs. Similar concerns regarding impact on business performance arise if there is a divergence from customer needs. The Company has established the Corporate Innovation Division and Corporate Technology Division, and addresses this risk through joint research with global research institutions and by sharing multi-generation technology roadmaps with leading-edge customers.

As the Company concentrates its major production sites domestically, there is a high risk of production stoppage due to natural disasters such as earthquakes and storms, or accidents. In addition, if disruptions occur in parts procurement or logistics networks due to deteriorating supplier finances, geopolitical risk, or a shrinking labor population, the Company may be unable to supply products to customers in a timely manner, affecting business performance. The Corporate Production Division promotes measures such as BCP formulation and regular reviews, establishing alternative production systems, multi-sourcing critical components, and enhancing supply chain visibility.

Amid a global increase in increasingly sophisticated and advanced cyberattacks, including ransomware, unauthorized access to the Group and its suppliers, or information leaks and business disruptions caused by internal misconduct, could damage the Company's technological advantage, lower its social credibility, and result in damages liability. Additionally, security incidents in products and services could affect customers' businesses. The Company addresses this through the establishment of CSIRT and PSIRT, a group-wide monitoring system led by the Information Security Committee, and the deployment of a global security policy.

With its global business expansion, the Company is subject to a wide range of laws and regulations in various countries, including those related to import/export, competition law, anti-bribery and corruption, and economic security. Violations could result in fines, damages liability, business restrictions, and loss of social credibility. Delayed response to unforeseen regulatory changes could also lead to increased cost burdens or business restrictions. Under the Chief Compliance Officer, the Company has built a system to track compliance activities at major domestic and overseas locations, and addresses this risk through the identification and assessment of high-risk legal areas and the operation of an internal reporting system.

There is a risk that sudden foreign exchange fluctuations, driven by economic conditions, international affairs, and interest rate changes in various countries, could affect business performance. Additionally, if differences arise with tax authorities regarding the interpretation of applicable tax laws, such as transfer pricing taxation, additional tax burdens may occur. The Company addresses this through principally denominating transactions in yen, hedging a portion of foreign currency-denominated sales through forward exchange contracts, and establishing a global risk management system under the Finance Division.

If defects occur in products that integrate numerous cutting-edge technologies, this could lead to product recalls, damages liability, and defect countermeasure costs, as well as damage to brand image and trust, affecting business performance. The Company promotes a quality assurance system under a company-wide unified quality policy, including ISO9001 certification, continuous improvement activities, simulation verification from the early design stage, and supplier quality audits.

If the Company is unable to continuously recruit and retain the diverse talent necessary for global innovation, or fails to create an environment where personnel with diverse values and expertise can thrive, this could weaken product development capabilities and the quality of customer support, undermining competitive advantage. The Company is working on initiatives such as CEO-led employee town halls, development of training plans, visualization of career paths, provision of attractive compensation and benefits, and semiconductor talent development through public-private-academic collaboration.

In acquisitions and investments in companies or technologies in existing and new markets, there is a risk that intended outcomes and synergies may not be realized if due diligence or PMI (post-merger integration) is insufficient. Additionally, if a competitor acquires a strategically important target ahead of the Company, this could affect its competitiveness. Centered on the Corporate Strategy Division, the Company conducts regular reviews of response policies at executive meetings including the CEO, and strives to make investment decisions that consider synergies and risks, as well as to formulate and execute post-acquisition plans.