Risk Factors

The following section details potential risk factors that could potentially affect the consolidated business performance, share price, financial standing and otherwise largely with respect to the business of the Group.
Furthermore, forward-looking statements contained in this document are based on conclusions that have been made by the Group as of the end of the fiscal year under review (the fiscal year ended March 31, 2017).

(1) Economic environment

The Group sells semiconductors and other electronics products that are primarily installed in consumer devices and constitute an important part of its operating revenues. Those sales are affected by economic conditions in nations and geographic regions where the Group engages in sales of such products. Accordingly, the Group’s operating results and financial standing could be adversely affected by economic volatility in our major markets such as Japan, North America, Europe, East Asia and Southeast Asia, and also by expanding and contracting demand due to such volatility.

(2) Foreign exchange rate volatility

The Group’s operations involve product sales and manufacturing overseas. Sales, expenses, assets and other amounts denominated in local currencies in respective geographic regions as presented in the consolidated financial statements are converted to Japanese yen. Depending on the exchange rate at the time of conversion, such amounts could be adversely affected upon their conversion by volatility in exchange rates, despite the amounts remaining unchanged in the local currency.
We conduct currency hedging transactions particularly by means of forward exchange contracts in order to reduce risk of exchange rate volatility, and otherwise endeavor to minimize any effects of exchange rate volatility between major currencies such as the USD, EUR, GBP, CNY and JPY. However, the Group’s operating results and financial standing could be adversely affected by the timing of such forward exchange contracts and any sudden fluctuations in exchange rates.

(3) Country risk

We engage in numerous overseas business transactions such as those involving sales of components encompassing electronics manufacturing services (EMS) for developing and producing products under contract. We also have sales and manufacturing sites in respective countries. Accordingly, our operating results and financial standing could be adversely affected by our exposure to country risk, which derives from external factors such as those marked by deteriorating political and economic factors on a local basis, and by changes in laws and regulations.
Meanwhile, the Group outsources some of its productions to external manufacturers in order to achieve greater manufacturing efficiency. Accordingly, our facilities management and manufacturing could be adversely affected by environmental changes, labor shortages, strikes and other unforeseen events occurring at such production sites. Moreover, we could also incur adverse effects with respect to our operating results and financial standing due to the potential emergence of a situation where it would become difficult for us to procure components and manufacture products due to a shortage of labor. Such a situation could materialize should an infectious disease proliferate or an earthquake or other such disaster strike.

(4) Price competition and other forms of rivalry

The market for electronics products handled by the Group (general electronic components, EMS, semiconductors, products related to information devices, etc.) is epitomized by stiff competition, and also marked by technological innovation, changing customer needs and frequent entry of new products. Amidst that market scenario, we compete with many manufacturers and trading companies both in Japan and abroad. Accordingly, the Group’s operating results and financial standing could be adversely affected should it find itself unable to mount opposition by means of competitive pricing, products, technologies or otherwise, against intensifying competition involving low prices or an increase in new market entrants.
Short product life-cycles are prevalent in some markets particularly in our other businesses, due to changing consumer preferences. As such, our operating results and financial standing could be adversely affected should we find ourselves unable to keep pace with intense waves of market expansion or contraction in such markets.

(5) Product procurement strengths

The Group maintains ties with over 2,000 manufacturers spread throughout Japan and overseas, and is able to make purchases for a wide variety of products encompassing everything from electronic components, semiconductors and other electronic devices, to products that include personal computers and related equipment, consumer electronics, communications equipment and toys. However, our operating results and financial standing could be adversely affected should we find ourselves unable to make purchases at optimal times or prices due to changing market trends or consumer needs. Moreover, the following risks could materialize as a consequence of the Group’s distinctive approach to making purchases.

• i.The Group makes purchases both domestically and abroad of electronics products that include commodity memory chips and other semiconductor products and electronic components, and it supplies such products to its customers both in Japan and overseas. However, our operating results and financial standing could be adversely affected under certain situations. For instance, a domestic or overseas manufacturer who acts as one of our suppliers could encounter financial or other business-related problems, or otherwise we could face diminishing competitiveness of products or decreasing demand with respect to products.

• ii.The Group sells products it has purchased from personal computer manufacturers both domestically and abroad. However, our operating results and financial standing could be adversely affected by factors such as changes in the terms and conditions of a manufacturer who acts as a supplier, or by changes in purchase pricing and profit margins.

• iii.The Group sells products such as those involving sports which it has purchased. However, our operating results and financial standing could be adversely affected by factors such as changes in the terms and conditions of a manufacturer who acts as a supplier, or by changes in purchase pricing and profit margins.