Business Risks and Other Risks

The consumer electronics industry, the primary user of the Group’s technology and products, remains characterized by trends toward design diversification, smaller lots, shorter delivery periods, an emphasis on quality, and advances in technology. In addition, price wars are becoming exceedingly fierce as customers in all sectors of the consumer electronics industry push harder for lower prices to alleviate pressure on their own profits caused by sluggish business conditions.

Against this backdrop, the Nissha Group prioritizes customer satisfaction above all else and seeks to accurately pinpoint market trends, provide technology, products and services geared to customer needs, and enhance structures within the Group to ensure stable supply. However, if customer needs or market trends were to change considerably in regard to the technologies, products and services provided by Group companies, the business results and financial position of the Group could be adversely affected.

The Group’s mainstay operations are Industrial Materials and Devices. In fiscal 2012, sales by Industrial Materials represented 44.7% of net sales, and sales by Devices accounted for 32.1%. Both segments emphasize business development geared toward demand in industries mainly involved in the production of mobile phones, notebook PCs, home appliances and automobiles, and major changes in demand or pricing trends could impact the business results and financial position of the Group.

In fiscal 2012, overseas sales accounted for 58.8% of consolidated net sales. Overseas transactions are mainly conducted in yen, but in recent years the use of foreign currencies, such as the U.S. dollar, has become more frequent. In fiscal 2012, the Company recorded a net foreign exchange profit of ¥170 million under consolidated nonoperating income. Foreign-currency-denominated transactions may grow in the future and if the currencies used undergo major fluctuations on foreign exchange markets, the business results and financial position of the Group could be adversely affected.

As of March 31, 2012, investment marketable securities held by Group companies were valued at ¥6,661 million. Most of these securities were stocks with market prices. Management strives to identify those factors pertaining to these marketable securities, such as issuer-based financial status, trends in business results and ratings, to ensure a sufficient degree of investment security. However, an unusual event, such as violent stock price fluctuations, could erode the business results and financial position of the Group.

As of March 31, 2012, the Company had notes and accounts receivable (trade notes and accounts) worth ¥17,034 million and inventories worth ¥8,372 million on a consolidated basis. The Group strives to reinforce credit control and ensure appropriate inventory control,
but significant changes in the value of these assets due to uncollectability, for example, could undermine the Group’s business results and financial position.