DTS CORPORATION

While there is a solid outlook for IT investment driven by the expansion of digital business, if customer IT investment trends change due to shifts in social and economic conditions or the rapid evolution of generative AI, this may affect business performance. In particular, the spread of generative AI carries the risk of promoting customers' in-house development and changing their investment priorities.

Intensifying price competition in the information services industry is expected due to new entrants from other industries, entry of foreign companies into the domestic market, and the expansion of software packages. As customer demands regarding IT investment become increasingly stringent, if the Group faces price decline pressure exceeding expectations, this may directly affect the Group's profitability.

In the information services industry, where technological progress is remarkable, securing IT talent that can respond to changes in demand structure is required. However, there is a risk that talent acquisition, including business partners, may not proceed as planned due to talent attrition caused by deteriorating working conditions or intensifying competition for talent. Talent shortages directly lead to delays in business development and lost order opportunities, making the impact on business performance significant.

As customer demands for shorter system development periods (shorter delivery times) become more stringent, the importance of project management and quality control is increasing. If unforeseen circumstances occur, projects with deteriorating profitability may arise, potentially affecting business performance through additional costs and liability for damages.

Due to the nature of the information services business, there are many opportunities to access important information of numerous customers, making security management a key management issue. If unauthorized access results in information leakage or similar incidents, this may have a significant impact on both credibility and business performance through loss of customer trust, claims for damages, and sanctions from regulatory authorities.

If the Group is slow to adapt to rapidly changing customer needs and technological innovation (particularly the evolution of digital technologies including generative AI), there is a risk of declining competitiveness and obsolescence of existing business models. The environment surrounding the Group is expected to change significantly, making continuous technology investment and human resource development essential.

The Group invests in domestic and overseas companies to acquire new technologies and solutions and expand into new business areas. However, there is a risk that business operations may become difficult due to unrecoverable capital investments, the emergence of previously unrecognized issues after investment, or a lack of adequate control. In addition to financial losses such as goodwill impairment, investment failures may also affect governance across the entire Group.

As the Group promotes the expansion of overseas transactions, establishment of local subsidiaries, and capital alliances, there is a risk that troubles arising from differences between domestic laws such as export control laws and local laws and business customs, as well as inadequate handling of local legal, accounting, labor, and project management matters, may lead to various litigation risks and liability for damages. Strengthening governance and management control infrastructure is recognized as an important management issue.

Although the Group strives to appropriately manage confidential data related to employees, customers, and business operations, there is a risk that insufficient protection of access to IT systems and applications could result in unauthorized third parties obtaining information. Amid tightening regulations such as the Personal Information Protection Act, if a violation occurs, there are concerns about the combined impact of legal sanctions, loss of credibility, and deteriorating business performance.

Since many of the Group's locations, including its head office, are concentrated in major domestic metropolitan areas, there is a risk that events exceeding expectations, such as large-scale natural disasters or infectious disease outbreaks, could cause delays in service provision or business suspension. The geographic vulnerability due to location concentration is an issue for business continuity planning (BCP), and delayed recovery may also lead to the risk of contractual non-performance with customers.