Business Risks

We recognize the following key risks that may significantly impact the financial condition, business performance, and cash flow of our group, as of the submission date of this securities report (June 24, 2025). Matters concerning the future mentioned in this document are based on judgments made by our group.

Due to the difficulty in reasonably foreseeing the degree, timing, and impact of the potential manifestation of these risks on our business performance, we have not detailed such information.

1.Risks Due to Economic Environment Fluctuations

Our group focuses and specializes its management resources in the field of power electronics under our management philosophy. Particularly, we aim to ultimately reduce environmental impact through the fusion of power semiconductor technology and power equipment technology, developing products that promote energy efficiency, resource conservation, and clean energy utilization. We are committed to expanding our business foundation.

While our sales strategy avoids bias towards specific regions or industries, factors such as trade regulations, fluctuation in tariffs, pandemics caused by infectious diseases, economic conditions, trends in private sector investment, and infrastructure development significantly influence us. Economic downturns in the global economy and reduced demand could potentially affect our group's order volume and prices. Such economic fluctuations are beyond our manageable scope and are difficult to avoid. However, we strive to promptly gather information from sales outlets, suppliers, and financial institutions, thoroughly share this information among management executives, and implement appropriate internal responses.

2.Business and Strategic Risks

1. Quality (Product Liability)

   In the event of product defects, significant costs may arise, potentially impacting our group's evaluation and adversely affecting our performance, such as reduced sales. To prevent such risks, our group closely collaborates across manufacturing, sales, and technical departments under the leadership of the Quality Environment Planning Office, focusing on improving and stabilizing product quality from development to shipment stages.

2. Product Development

   While enhancing activities to accurately capture customer needs and deliver attractive products timely, delays in development or timely supply could potentially affect our performance. To mitigate such risks, we regularly discuss progress in product development and commercialization, share challenges with management, and strive to optimize the allocation of management resources, thereby reducing risks.

3. Partnerships with Other Companies

   For sales expansion, our group engages in joint business activities with other companies in certain business areas through OEM supply and contract manufacturing for advantageous products. However, changes in the business environment may lead to the discontinuation of collaboration due to the circumstances of partner companies, potentially affecting our performance. To address such risks, we continue to focus on technological development and quality improvement, regularly review situations by collaboration theme, and engage in discussions to maintain collaboration relationships as needed, aiming to minimize risks.

4. Fluctuations in Material Prices

   In our power equipment business, we extensively use components including copper, steel, and resin. Sudden fluctuations in these material prices may delay the transfer of costs to our customers due to the time required from quotation to delivery. To address such risks, alongside efforts to reduce costs, increase productivity, and cut expenses, we negotiate prices with customers in a timely manner based on fluctuations in material prices, aiming to secure appropriate profits.

5. Parts Procurement

   Our products incorporate numerous electronic components sourced externally. Increased demand, particularly for automotive parts, may extend procurement lead times, potentially delaying the timely procurement of necessary parts. Additionally, some materials are procured from overseas and are susceptible to the impact of customs policies in various countries. Furthermore, risks due to external factors such as terrorism, regional conflicts, deteriorating international relations, transportation risks due to rising oil prices, and congested container supply may occur. To address such risks, we continually explore alternative sourcing for key components, select multiple suppliers, develop new sourcing options domestically and abroad, and remain vigilant regarding changes in lead times for each component, ensuring minimal disruption to our supply chain.

6. Facility Investments

   While investing in facilities for new product development, capacity expansion, and maintaining product competitiveness, excessive depreciation costs may burden us if product demand falls significantly below expectations. To mitigate such risks, we clarify the prerequisites for investment effectiveness, continuously review the validity of investment amounts and scales, and strive for appropriate deliberation and approval procedures to avoid risks.

7. Business Situation Changes in Outsourcing Partners

   While outsourcing the assembly of semiconductor products and production of power equipment products to subcontractors, changes in the business situation of subcontractors may increase outsourcing costs and affect the production quantity necessary for sales. In cases where risks manifest or unexpected incidents such as subcontractor bankruptcy occur, this may impact our performance. To address such risks, we collaborate with subcontractors to promptly monitor changes in their business situation, and as necessary, review subcontractors to minimize risks.

8. International Situations

   As a theme in our medium-term management plan, our group actively promotes global expansion, operating sales and production bases overseas. This necessitates responding to geopolitical and country risks. Particularly, social disruptions due to wars, riots, terrorism, pandemics, earthquakes, typhoons, and natural disasters may affect our performance significantly. Moreover, fluctuations in tariff rates in various countries may affect the price competitiveness of our products, potentially leading to decreased sales performance. To address such risks, we collect information on political, economic conditions, social situations, culture, religion, legal systems, and regulations in each country and region through our overseas sales headquarters and subsidiaries. We implement risk mitigation measures tailored to each project, such as responding to changes in tariffs by adjusting prices and reconfiguring our supply chain.

9. Competition and Price Trends

   Our group's products face competition domestically and internationally. Despite continuous efforts in technological innovation and cost reduction, intensified price competition may lead to lower sales prices and potentially affect our performance. To mitigate such risks, we focus on continuous investment in development, quality improvement, enhancing local procurement rates of raw materials, reducing production costs, strengthening maintenance service capabilities, constantly reviewing our product portfolio, and concentrating our management resources in areas where our strengths can be leveraged, aiming to secure profits without falling into price competition.

10. Intellectual Property

    Our group regards intellectual property as a source of competitiveness and one of the most crucial management resources, aiming to maintain and enhance corporate and brand values through its protection, appropriate management, and utilization. While expanding our business globally, there is a possibility of infringement on our group's intellectual property rights. In such cases, this may impact our management performance and financial condition. To address such risks, we continuously collect information on counterfeit products and take appropriate measures, such as filing lawsuits to demand injunctions on manufacturing and sales.

    Furthermore, if our group infringes on the intellectual property rights of third parties, it may result in claims for damages or payments, potentially impacting our performance and financial condition. To prevent such risks, we conduct preliminary investigations during product development stages, paying meticulous attention to avoiding infringement on third-party intellectual property rights.

3.Risks Related to Management Foundation

1. Compliance Risks

   Operating businesses domestically and internationally, our group must comply with a wide range of laws and regulations, including export trade controls, anti-unfair competition laws, anti-bribery laws, and construction industry laws. Violations or suspected violations of these laws may lead to fines, claims for damages, suspension of business activities, decreased social credibility, and decline in stock prices, seriously affecting our business operations and financial condition. To address such risks, our group implements and operates internal regulations in compliance with laws, establishes and regularly evaluates internal control systems, communicates compliance through management, raises employee awareness through e-learning and training, and establishes and operates internal reporting systems to ensure appropriate operations and enhance compliance with legal compliance systems.

2. Information Security Risks

   Our group may obtain personal and confidential information of customers and business partners through its operations, which are exposed to risks such as unauthorized access, tampering, destruction, loss, and leakage due to cyber-attacks. In the event of unexpected cyber-attacks, human errors, theft, etc., information leakage, destruction, tampering, or suspension of information systems may affect our performance. To address such risks, our group strengthens security throughout the entire group, appropriately manages subcontractors, and educates employees, enhancing information management systems' establishment and reinforcement.

3. Talent Acquisition

   To maintain competitiveness and ensure sustainable development, it is essential for our group to continuously secure talented individuals. However, against the backdrop of a declining working-age population in Japan in recent years, competition for competent personnel has intensified further. Failure to secure necessary personnel may hinder business expansion and potentially impact our group's performance. To address such risks, our group enhances employment systems and education and training systems, continues efforts to secure and develop human resources, and through education opportunities, nurtures value-added human resources while improving productivity per capita through the acceleration of digital transformation (DX), aiming to minimize the impact on business expansion and performance.

4.Environmental Risks

1. Legal Regulations

   Our group sells products overseas through our company, subsidiaries, and agents. Consequently, we are affected by various laws and regulations in each country and region, such as the EU's RoHS Directive (Restriction of Hazardous Substances) and the China RoHS Directive. Failure to comply with these regulations or an increase in compliance costs due to future legal amendments may impact our performance. To prevent such risks, our group implements quality management based on compliance with legal quality management standards, collaborates with relevant departments under the Quality Environment Planning Office to continuously collect information on domestic and international legal regulations, and strives to establish a system capable of responding promptly and appropriately.

2. Chemical Substance Management

   Our group uses numerous chemical substances in its production activities. In the event of an accident leading to the leakage of these substances to the outside world, this may lead to social credibility damage, compensation and mitigation costs, production activity suspension, and potential impact on performance. To prevent such risks, our group, with the Quality Environment Planning Office at the forefront, continuously collects information on domestic and international legal regulations, coordinates with internal departments and subcontractors, and implements comprehensive measures based on standard manuals and procedures to minimize risks.

3. Other Environmental Regulations and Climate Change

   Our group is subject to environmental regulations such as waste reduction, air pollution prevention, and water pollution control. In addition, global efforts to reduce greenhouse gas emissions are being intensified. As such, our group views environmental conservation as a "responsibility to future generations" and considers reducing environmental impact as one of its top management priorities. We devote substantial management resources to environmental improvement initiatives.
   However, if unexpected environmental pollution occurs due to accidents or natural disasters, or if unforeseen regulations are introduced and our response is delayed, our group’s business performance may be affected.

5.Financial Risks

1. Exchange Rate Fluctuations

   Our group conducts production, sales, and procurement activities globally. To mitigate currency risk, we strive for local production for local consumption wherever possible. For foreign currency-denominated receivables and payables arising from currency gaps, we take measures such as forward exchange contracts to hedge against exchange rate fluctuations.
   While these hedging measures can reduce the impact of currency fluctuations, it is impossible to eliminate all risks, and our business performance may be affected to some extent.
   Additionally, as we have established sales subsidiaries in major markets, our consolidated financial statements require conversion of local currency-based items—such as revenue, expenses, and assets—into Japanese yen. As a result, even if the value of local currencies remains stable, fluctuations in exchange rates during conversion may impact our performance.

2. Interest Rate Fluctuations

   Although our group implements measures to avoid interest rate risk, changes in interest rates may still affect our business performance.
   To mitigate this risk, we strive to minimize financing through interest-bearing debt.

6.Accounting and Financial Risks

1. Impairment of Long-term Assets

   Our group holds a significant amount of long-term assets, such as tangible fixed assets. We continuously monitor for signs that the carrying amount of these assets on the consolidated balance sheet may not be recoverable through future cash flows generated by the assets.
   If it is determined that these future cash flows are not recoverable, we may be required to recognize impairment losses.
   In such cases, we discuss and implement appropriate measures to improve the cash flow generated from these assets.

2. Retirement Benefit Obligations

   Our group accounts for retirement benefit obligations in accordance with Japanese accounting standards. However, if actual results differ from assumptions used in actuarial calculations—such as discount rates or long-term expected return on plan assets—or if those assumptions change, or if future investment conditions for pension assets worsen, actuarial differences may arise.
   Such cases may impact retirement benefit expenses and liabilities, and consequently affect our group’s business performance.

3. Deferred Tax Assets

   Our group recognizes deferred tax assets based on careful assessment of their recoverability.
   However, if management conditions deteriorate in the future and it is determined that the timing differences cannot be recovered through future taxable income, income tax expense may increase and adversely affect our performance.
   To address this, our group prioritizes improving growth and profitability, and works collectively to stabilize business results and achieve planned earnings.

4. Changes in Accounting Standards or Tax Systems

   Unexpected changes or introductions of accounting standards or tax systems may impact our group’s performance.
   Additionally, differences in interpretation with tax authorities during tax filings could result in higher-than-anticipated tax burdens.
   To respond appropriately, our group continuously obtains timely information on regulatory changes from experts and takes necessary measures.

7.Natural Disasters and Pandemics

If our group’s manufacturing or sales bases suffer significant damage due to earthquakes or other natural disasters, or if normal business operations are hindered by pandemics caused by infectious diseases, factory shutdowns and delivery delays may occur.
Even if our group is not directly affected, if our customers or business partners suffer damage, it may prevent us from executing production, logistics, or sales activities as planned.
To ensure a prompt initial response and early recovery in the event of an earthquake, our group has implemented an employee safety confirmation system, conducts disaster drills, and has established a Business Continuity Plan (BCP).
However, in the event of an actual disaster, the suspension of operations at production sites, damage to facilities, and significant recovery costs may occur, potentially affecting our business performance.

Please refer to this section for "Risk Management"