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 significantly affect the MJC Group's business performance.
To minimize the impact of such changes, the MJC Group diversifies its product mix and business portfolio.
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 significantly affect the MJC Group's business performance.
To minimize the impact on performance, the MJC Group monitors market trends and diversifies its client base as much as possible.
Effect Related to Quality
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 significantly affect the MJC Group's business performance.
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.
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. 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 significantly affected.
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. The MJC Group subscribes to cyber insurance to mitigate the financial and opportunity cost of any data incidents.
Effect of Disasters and Other Incidents
The MJC Group is headquartered in Tokyo and has domestic production sites in Aomori and Oita prefectures as well as in South Korea, China and Taiwan. If these regions were to experience a natural disaster such as a large-scale typhoon or earthquake, a terrorist act, a large-scale power outage, or a largescale fire, it could affect headquarters' functions and product manufacturing. In these events, the MJC Group's business performance could be significantly affected.
To mitigate the damage of such incidents, the MJC Group engages in business continuity planning to ensure that business operations can continue or be resumed as early as possible.
Effect Related to Infectious Disease
The MJC Group operates globally, focusing on manufacturing and selling testing and measuring equipment for semiconductors and FPDs. If an epidemic or pandemic spreads in regions where the MJC Group operates, it may lead to economic changes or lifestyle changes, which could in turn destabilize demand for final products. Additionally, the spread of infections might force customers or suppliers to suspend operations, or force the MJC Group to suspend its own operations. Such eventualities could significantly affect the MJC Group’s business performance.
During an epidemic or pandemic, the MJC Group, while continuing to fulfill its role as a provider of products and services, complies with local and national authorities and takes anti-infection measures, such as limiting business travel and promoting remote work.
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. However, situations such as the recruitment of the necessary human resources not going as supposed or the loss of important human resources could significantly affect the MJC Group's business development and business performance.
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.
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. As compliance matters grow increasingly complex, 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 significantly affect the MJC Group's reputation among stakeholders and business performance.
In addition to providing internal controls, the MJC Group takes steps to inculcate a compliance culture throughout the workplace. These steps include establishing a code of conduct, distributing a handbook on compliance, and providing regular training to verify compliance awareness.
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 to some extent 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 to some extent 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 to some extent.
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 significantly affect the MJC Group's business development and business performance.
To avoid violating a third party’s IP, the MJC Group carefully investigates potential issues from the development process onward, with the advice of external experts. To protect its own IP, the MJC Group offers employees a monetary incentive to obtain patents related to development, design, and production.
Effect of Price Decline
The MJC Group operates globally, focusing on manufacturing and selling testing and measuring equipment for semiconductors and FPDs. As such, its business performance could affect to some extent if it faces downward pressure on sales prices as a result of price trends for final products that use semiconductors or FPDs, rising competition, or pricing demands from customers.
To mitigate price pressures, the MJC Group works to cut sales costs by making production more efficient and diversifying suppliers. Alongside this, the MJC Group keeps using cutting-edge technology to add value to its products and services and thus maintain favorable sales prices.
Effect of Technical Innovation
The MJC Group uses cutting-edge technology to deliver value and benefits to customers. This approach gives the MJC Group a competitive edge in the market. However, it also creates a risk that the MJC Group will fail to deliver expected results because of delays in developing a new product, a mistimed product investment, or the advent of testing technology that supersedes direct probing. Such eventualities could affect to some extent the MJC Group's business performance.
While continuing to actively invest in R&D and maintain its technological edge, the MJC Group works to provide the products the market needs at the right times and to accurately gauge the extent to which it matches with market needs and technological trends.
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 to some extent the MJC Group's business development and business performance.
To ensure its investments are well-timed and effective, the MJC Group identifies the ongoing viability of its investments by regularly monitoring their progress and market/business viability.
Effect of Parts Procurement and Outsourced Processing
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 to some extent the MJC Group's business performance.
To ensure the quality and timely delivery of its products, the MJC Group cultivates strong relations with its supply chain and always keeps an eye open for alternative suppliers and second sourcing.
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 to some extent the MJC Group's business performance.
To minimize the risk to business performance, the MJC Group undertakes a due diligence investigation of potential partners, focusing on their competence, business performance, and other factors, and evaluates the outcomes of existing partnerships.
Effect of Exchange Rate Fluctuations
As an organization that operates globally, the MJC Group engages in many cross-border transactions denominated in foreign currency. As such, exchange rate volatility could damage the MJC Group’s business performance to some extent. 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 to some extent 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.
The MJC Group mitigates exchange rate risk to some extent by using forward contracts.
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.