Investor Relations

Business and other Risks

Among the business risks relating to business conditions, financial status, and other factors described in the securities report, the major risks that management recognizes could have significant impact on the financial position, business performance, and cash flows of consolidated Group companies are described below. In addition, matters relating to the future set forth in the text below have been determined by the Group as of the submission date of the securities report (June 23, 2022).

Variable Factors of Business Performance

A. Effects of demand trends or product prices
The Group engages in sales of semiconductor products with a focus on integrated circuits, boards and electronic components, and software services; manufacture and sales of private brand (PB) products; sales of network-related products, storage-related products, and security-related products; and provision of maintenance and monitoring services, primarily for major electronics manufacturers. The Electronic Components Business could be impacted by demand and capital investment trends of the semiconductor industry, as our customers are major electronics manufacturers and the like. The Computer Networks Business could be impacted by trends of capital investment including IT investment, as our customers are corporations and other organizations involved in the establishment and maintenance of networks and systems. In particular, there is a high risk that large market fluctuations in the Group's main markets—Japan, Asia, and North American—could have an impact on business performance. As countermeasures against these risks, the Group has taken a course to avoid impacts on business performance by increasing products with high added value and whose prices fluctuate in a relatively narrow ranges and by reducing the book value of long-term idle stock in anticipation of lower merchantability in the future.

B. Impacts of changes in the business environment and securing human resources
In the electronics industry, to which the Group belongs, high levels of development capabilities, technological capabilities, and supporting capabilities are needed due to rapid technical innovation and a fast-changing business environment. To respond to these environmental changes, the Group strives to enhance competitiveness by improving in-house technical capabilities and added value in sales activities, technical support, design & development business, and maintenance services. However, difficulty in recruiting the human resources needed by the Group and outflows of human resources beyond assumptions may lead to difficulty in providing products and services according to business plans, which could have an impact on the Group's business performance. To address this, the Group strives to enhance recruiting activities, such as utilization of internships for new-graduate recruiting and utilization of manpower referral services for mid-career recruiting, and to create an environment where the motivation of each employee is increased, which includes introduction of a fair remuneration system that corresponds to individual roles and achievement, and enhancement of training systems.

C. Impact of overseas transfer of production by customers
In conjunction with the overseas transfer of production bases by customers, the Group undertakes marketing and sales promotion activities in overseas areas by establishing sales bases mainly in Asia and North America. Difficulty in conducting sales activities due to the transfer of production to areas where we do not have sales bases and due to restrictions on production and sales in overseas areas could have an impact on the Group's business performance. In response, the Group strives to enhance customer-oriented sales structures while closely monitoring the latest trends in production and requirements through information exchanges with customers and assessing whether new sales bases need to be established (or eliminating existing sales bases) according to the circumstances.

Impact of Fluctuations in Exchange Rates and Interest Rates

The Group is exposed to exchange fluctuation risks in export and import transactions of electronics products and foreign currency transactions with some customers in Japan. There is a high risk that sharp fluctuations in the U.S. dollar/yen exchange rate in the short-term will have an impact on the Group's business performance, as most foreign currency transactions are conducted in U.S. dollars. The Group builds operational structures to minimize the impacts of foreign exchange fluctuations on business performance by taking measures including establishment of exchange reserves based on certain policies and sales price revisions according to purchase price fluctuations resulting from foreign exchange fluctuations. In addition, the Group is exposed to interest rate fluctuation risks as a result of borrowing a portion of working capital from financial institutions. There is a high risk that sharp fluctuations in yen or U.S. dollar interest rates will have an impact on the Group's business performance. The Group strives to reduce interest rate fluctuation risks by diversifying fund-raising means such as converting some loans to long-term fixed rates.

Dependency on Suppliers

The Group's major suppliers are Texas Instruments and NXP Semiconductors, from which purchasing amounts were 39.5% and 12.7% of the Group's total purchasing amount, respectively, in the fiscal year ended in March 2022. Given that the sales agency agreements with both companies are non-exclusive, there is a possibility that they will replace the Group for other strong sales agencies and that the demand trends of suppliers' products or consolidation or reorganization of suppliers could have an impact on the Group's business performance. Accordingly, the Group strives to build good and stable business relationships with them while seeking to ensure diversified revenue sources by expanding suppliers and the line-up of products including enhancement of marketing activities related to cutting-edge products.

Impact of Uncollectable Accounts Receivable

Given that in most cases, charges are collected after the Group provides products and services to customers in and outside Japan, losses on uncollectable receivables due to customer credit concerns could have an impact on the Group's business performance. In addition, more serious impacts from COVID-19 could increase the risk of uncollectable receivables in the future. The Group strives to reduce these risks by ensuring credit management using information from external credit agencies, utilizing debt guarantee services, and accepting deposits as security.

Impacts of Impairment Losses on Investment Securities

The Group reported investment securities and so on with the aim of cross-shareholdings that enhance business partnerships. If the value of these assets is impaired due to lower profitability or other factors, the Group's business performance could be impacted by the impairment of such investment securities and other assets.

Other Items

A. Impact of legal regulations
The Group's business in and outside Japan is subject to various laws and regulations including regulations on import and export and antimonopoly laws in Japan and overseas countries where the Group conduct business. Restrictions on our activities resulting from violations of these laws and regulations could have an impact on the Group's business performance. The Group strives to comply with laws and so on by taking measures including obtaining the latest information on laws and regulations, and informing employees, and conducting employee training.

B. Impact of taxation by individual countries
The Group pays proper amounts of tax in accordance with the tax laws of each country. Additional tax burdens resulting from differences in interpretation with tax authorities relating to tax returns could have an impact on business performance. To address these risks, the Group monitors international taxation risks including transfer pricing taxation in particular and prepares transfer pricing-related documents based on advice from external specialists.

C. Impact of leaks and outflow of information
The Group holds the confidential information and personal information of customers and business partners. Information leaks could result in the imposition of significant expense burdens due to diminished public confidence and liability for damages, which may have an impact on the Group's business performance. The Group strives ensure proper handling, control, protection, and maintenance of such information while recognizing the protection of information as a significant social responsibility.

D. Impact of natural disasters, etc.
The Group takes measures including formulation of business continuity plans and implementation of disaster prevention drills in preparation for natural disasters including earthquakes. Natural disasters such as large-scale earthquakes and floods in excess of expectations could result in suspension of all or part of operations or interruption of production and logistics of suppliers and customers, which may have an impact on the Group's business performance. The effects of COVID-19 on the Group appear to be limited at present. However, if the situation deteriorates and becomes protracted in the future, it could have an impact on the Group's business performance. Accordingly, the Group strives to take measures including encouraging telework and focusing on sanitation management, while collecting information on customer production and requirements trends and interruption of logistics at all times.