NITTO DENKO GROUP CSR & Annual Report 2012

CSR & Annual Report 201212Associated Business Risks Listed in the Financial Report as of March 2012Potential risks which may have an effect on our operational results, share price and financial standing are indicated below.(1) Optoelectronics BusinessMaterials produced by our optoelectronics business for LCD-related products constitute the core of the Group’s sales. There are many companies participating in this market and competition continues to be stiff. Our relationships with panel manufacturers (our customers), an imbalance between supply and demand in the industry, declining prices, corporate reorganization and the switching of strategy among panel makers, technical innovation, intensified price competition due to new players entering the market, capacity limitations of material suppliers and sharp increases in material costs could all negatively affect the performance of the Group.(2) Overseas OperationsThe Group conducts business in many countries, actively pursuing possible future global business opportunities. Depending on the country, there are inherent unavoidable risks that can occur. Such risks include: unanticipated changes to or discrepancy in the interpretation of laws and ordinances, taxes and regulations; deteriorating employment relationships; increasing labor costs; transportation delays; power outages; social disorder from political disturbances; and war and terrorism. If such events were to materialize, the performance of the Group could be adversely affected.(3) Global Politics and Economic CurrentsThe Group manufactures and markets its products throughout the world. Therefore, its business is affected by trends in global politics and economics, and financial system instability. Unexpected economic circumstances caused by drastic changes in global politics, fluctuations in exchange rates or a supply deficiency of raw materials such as petroleum oil or rare metals could have adverse effects on the performance of the Group.(4) Mergers and AcquisitionsIt is indispensable for the Group to construct relationships with other companies with superior technology in diverse ways such as through acquisitions and affiliations. If such an acquisition did not prove to be as profitable as expected, the performance of the Group could be adversely affected.(5) Raw Material VendorsFor some key raw materials, the Group depends on specific vendors. Although it does endeavor to find multiple raw material vendors so as to reduce the risk of being unable to procure key materials, for some raw materials we need to depend on specific vendors. Failure to obtain the necessary key raw materials due to a possible disaster, accident or bankruptcy of a vendor, an imbalance between supply and demand, or a cost increase could adversely affect the performance of the Group.(6) Financial Standing of Our CustomersThe Group works with customers worldwide who meet its strict financial criteria. However, some customers are in rapidly changing business environments and serious financial problems could occur with such customers with whom the Group has accounts receivable. In particular, LCD-related products represent a significantly large source of revenue compared with other products of the Group. If a default were to occur, the amount involved would tend to be quite significant.(7) New Product DevelopmentAiming at meeting high market expectations, the Group strives toward technological innovation and competitive power of costing across all areas of its business. The Group continues to pursue the development of new technologies, products, goals and markets, with research and development investment necessary for production process innovation, as well as plant and equipment investment based on its “Area Niche Top” strategy, in which we supply products meeting specific needs in an area, in addition to its “Global Niche Top” strategy. However, it is not easy to accurately forecast changes in an industry in which market changes are so drastic. It is possible that another company could unexpectedly develop a new technology or product that renders a product of the Group obsolete. The occurrence of such an event beyond contingency expectations could affect the management of the company.(8) Intellectual PropertyThe Group owns, maintains and manages valuable intellectual property rights. However, there is a Corporate Governance