Risks such as those described below could have important effects on the MJC Group's business, financial position, and investor decisions.
The risks included here are those identified as important by the MJC Group as of the end of the current consolidated fiscal year and do not represent a comprehensive list of all risks faced by the Group.
Effect of Fluctuations in the Semiconductor and FPD Markets
The MJC Group operates a global business founded on the manufacture and sale of semiconductor and FPD testing systems and measurement equipment. While semiconductors and FPDs can see market growth and stimulation of demand as a result of technical innovation, changes in needs and the economic climate can disrupt the balance of supply and demand. Associated freezes on capital investment, reduction in production, and changes in plans on the part of MJC's customers could affect the MJC Group's business performance.
Effect of Reliance on Specific Customers
Major semiconductor and FPD manufactures in and outside Japan are the customers for the MJC Group's products. The weeding out and reorganization of players in the semiconductor and FPD industries has resulted in specific customers accounting for a higher percentage of net sales, making MJC more susceptible to the effects of this tendency. Hence, changes in the capital investment, production plans, and business strategies of specific customers could affect the MJC Group's business performance.
Effect of Price Decline
The semiconductor and FPD manufacturers that are the MJC Group's main customers face circumstances that require them to lower their product prices due to price trends for the digital products that are the end products. That is why the MJC Group is striving to develop and release products that help customers to reduce capital investment and improve production efficiency. Nevertheless, customers are increasingly asking for the MJC Group to reduce the prices of its products, and we are striving to absorb the price through cost reduction initiatives. However, further requests for price reductions in the future and intensification of price competition could affect the MJC Group's business performance.
Effect of Technical Innovation
The MJC Group invests aggressively into and continuously engages in R&D. It also always maintains the latest equipment. Furthermore, by building and drawing fully upon production equipment manufactured in-house, it strives for the timely provision of products that meet customer needs. However, situations where the initially envisioned results are not forthcoming due to situations such as development delays for new products, mismatched timing in the release of new products, or the creation of testing technologies that replace testing based on direct probing could affect the MJC Group's business performance.
Effect of R&D into New Fields
Aiming to be a company that continues to grow sustainably, the MJC Group is actively attempting the new business development. However, R&D into and the commercialization of new technology depends largely on complex and numerous uncertainties including the presence and extent of results in new technology R&D, the relationship with intellectual property rights of third parties, the situation with rival products, and changes in the market environment.Consequentially, situations where the initially envisioned results are not forthcoming could affect the MJC Group's business development and business performance.
Effect Related to Quality
Based on its habitual QDCCSS efforts, the MJC Group strives to improve processes from product development to manufacturing, materials procurement, management, services, and more. It also strives to continuously maintain quality assurance systems, such as through acquisition of ISO 9001 certification. However, since the MJC Group's products make use of cutting-edge technology, we also make heavy use of technologies in fields awaiting further exploration in the future. As a result, the occurrence of unexpected defects sometimes causes delivery delays, suspension of production, and additional expenses such as product recalls from the market. Situations such as this could affect the MJC Group's business performance.
Effect of Parts Procurement and Outsourced Processing
The MJC Group always develops products, procures parts, and outsources processing with alternatives and second sources in mind. However, since the parts and processing needed for the MJC Group's products involve cutting-edge technology, there are some parts and types of processing for which it is difficult to find alternative suppliers or outsourcing contractors. That is why situations in which these suppliers or outsourcing contractors encounter issues, such as supply delays, processing delays, or quality problems, could result in suspension of manufacturing of the MJC Group's products or a decline in the quality of the MJC Group's products, which could affect the MJC Group's business performance.
Effect of Business Partnerships with Other Companies and Joint R&D
The MJC Group conducts activities together with other companies, such as business partnerships and joint R&D, with such purposes as acquisition of new technology, business expansion into new fields, and strengthening of business competitiveness. However, situations where these kinds of cooperative relationships cannot be established or maintained, due to changes in the market environment, conflicting interests between the parties, the loss of personnel from the collaborator, or other factors, or situations where adequate results are not obtained from these cooperative relationships could affect the MJC Group's business performance.
Effect Related to Information Security or other IT matters
The MJC Group manages a variety of confidential information in the course of doing business. That includes a lot of information related to technologies, sales information related to customers, and personal information related to employees. To prevent this information from being leaked, falsified, lost or destroyed, the Group attempts to strengthen the operations of its internal information systems in accordance with its information security policy, which is periodically reviewed in an Information Security Committee. However, unexpected attacks by third-party hackers or computer viruses, unauthorized or careless use of its IT resources by the officers and employees, and glitches of IT resources caused by natural disasters, large-scale power outages or fires among other accidents would result in legal claim, litigation, damages liability and an obligation to pay fines as well as disruption in business continuity. In these events, the MJC Group's reputation and business performance could be affected.
Effect of Disasters and Other Incidents
The MJC Group is headquartered in Tokyo and has domestic production sites in Aomori and Oita prefectures. If these regions were to experience a natural disaster such as a large-scale typhoon or earthquake, an outbreak of infectious disease such as a new strain of influenza, a terrorist act, a large-scale power outage, or a large-scale fire, it could affect headquarters' functions and product manufacturing. In these events, the MJC Group's business performance could be affected despite its thorough BCP (business continuity plan) established for the purpose of minimizing the damage in its business assets and recovering its operations rapidly to continue the business.
Effect of Exchange Rate Fluctuations
Since the MJC Group conducts business globally, its business operations, including the manufacture and sale of products, are greatly affected by fluctuations in exchange rates. When the Group conducts transactions denominated in foreign currency, it takes a certain level of measures to mitigate risk by, for example, using forward exchange contracts.
Nevertheless, sharp exchange rate fluctuations could affect the MJC Group's business performance. With respect to transactions denominated in Japanese yen, requests for a reduction in price or a decline in the number of items sold in an environment marked by a strong yen could affect the MJC Group's business performance.
Furthermore, when preparing consolidated financial statements, the Group converts the financial statements of overseas subsidiaries into yen. Consequentially, business performance could fluctuate depending on the exchange rate at the time of conversion.
Effect Related to Intellectual Property Rights
The MJC Group actively conducts R&D to differentiate and strengthen its products and endeavors to obtain intellectual property rights. However, intellectual property could be leaked if employees change jobs or information is leaked. Situations where this leaked intellectual property is exploited or imitated by a third party could affect the MJC Group's business performance.
Situations where intellectual property rights have become invalid because the Group failed to obtain or protect them and situations in which adequate protection of intellectual property rights cannot be secured in certain regions where the Group does business could affect the MJC Group's business performance. Situations where litigation is brought against the Group on the accusation that its products or technology have infringed upon the intellectual property rights of another company could also affect the MJC Group's business performance.
Additionally, situations where the MJC Group's commercialization of a product is constrained based on a third party's technology, patents, or other intellectual property rights, or where the necessary licenses are not granted, and situations in which an unforeseen patent infringement suit is brought against the Group could affect the MJC Group's business development and business performance.
Effect Related to Human Resources
The MJC Group regards the securing and development of capable human resources, especially in development and technology departments, as essential for achieving sustainable growth as an R&D-driven company. For this reason, we have put in place a personnel evaluation system, actively recruit and develop talented people, and enhance training and education programs to provide comfortable working environment suitable for the society where the diversity and globalization extend. However, situations such as the recruitment of the necessary human resources not going as supposed or the loss of important human resources could affect the MJC Group's business development and business performance.
Effect of Compliance
The MJC group is required to comply with any laws and regulations both domestic and overseas, related to safety of products, security trade control between nations, commercial activities, patents, product liabilities, environment issues, and taxation. To make sure that all employees are familiar with compliance, we develop the internal control system and create "Compliance Handbook", which summarize essentially important topics from company rules and public laws to encourage them to act in accordance with criteria based on human morals and ethics. However, despite these measures, it might not always be avoided that the Company infringes increasingly complicated laws and regulations and that the officers or employees commit some wrong-doings, which could affect the MJC Group's reputation among stakeholders and business performance.
The laws and regulations in Japan and other countries where the MJC Group sells its products as well as government regulations could affect the MJC Group's business performance.