Busines and other risks which may materially affect to the DISCO Group's
business, financial positions and the decisions of our investors are as follows:
| Cyclical Nature of the Semiconductor Market |
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The Group manufactures precision equipment along with precision processing tooling used in this
equipment, and sells these products to semiconductor manufacturers worldwide. The semiconductor market is characterized
by extreme volatility and large fluctuations in the balance between supply and demand. Consequently, the business performance
of semiconductor manufacturers is strongly affected by this, the so-called "silicon cycle." Besides global macroeconomics
trends, this cycle is influenced by such factors as: (1) supply and demand conditions and technology trends in consumer
and industrial electronics markets; and (2) the number of semiconductors used in each end-user product and the processing
capacity of those semiconductors. As a result, it is very difficult to produce reliable forecasts concerning the semiconductor
market.
The Group has made considerable efforts to structure its business in such a way that it remains profitable even
during the downward phase of the cycle. Nonetheless, the business performance of the Group may be unavoidably affected
by cyclical fluctuations in the semiconductor market that lead to slumps in the plant and equipment investment trends
of semiconductor manufacturers.
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| International Division of Labor in the Semiconductor Manufacturing Industry |
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In recent years, semiconductor manufacturers have increasingly shifted away from the traditional
system of carrying out the entire production process in-house toward an outsourcing-based model. Under this new system,
certain parts of the production process are outsourced to silicon foundries and assembly subcontractors-mainly in Asia-leading
to progressively greater horizontal division of labor across countries and regions. Reflecting this change, the proportion
of The Group’s sales generated in the Asia region has risen substantially over recent years. To a certain extent, by
shifting to such a production system, semiconductor manufacturers are passing on some of the cyclical business risk
associated with market fluctuations to the foundries and subcontractors, which, in turn, tend to adopt a plant and
equipment investment stance that is more highly sensitive to fluctuations in the semiconductor market than traditional
semiconductor manufacturers.
Consequently, the market-driven plant and equipment investment conditions at foundries
and subcontractors may affect the Group’s business performance.
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| Concentration of Business among Certain Customers |
The Group maintains business relationships with all of the world’s major semiconductor manufacturers.
Within the semiconductor sector, there is a continuing trend toward mergers and acquisitions aimed at securing competitive
advantage, as well as toward a very select group of leading firms becoming ever more dominant in terms of market share.
These types of trends may be a factor in limiting the pool of potential customers for the Group’s products.
The Group’s
business performance may also be affected by the concentration of its business, at certain times, among a limited number
of specific customers, who may use this situation as leverage during price negotiations. This could lead to volatility
in the prices and profitability of the Group’s products.
| Emergence of New Technologies |
The Group’s main products at present are precision equipment and precision processing tooling,
for the processing of semiconductor silicon wafers. The current method of cutting wafers using diamond blades became
established in the past as the optimal method for this task as a result of semiconductor and electronic component manufacturers
conducting extensive technical evaluations of various possible methods. However, in the future, alternative technology
may emerge, which may affect the Group’s business performance.
In recent years, laser cutting technology has received
much attention; The Group has developed and now markets laser saws for cutting materials that are difficult to cut
efficiently using precision diamond blades.
| Product Development Capabilities |
In fields where the pace of technical innovation is particularly rapid, such as that of semiconductors and electronic components, maintaining a competitive advantage in technology requires ongoing investment in
research and development regardless of short-term market fluctuations. To precisely meet customer needs, which are becoming more diverse and sophisticated each day, the Group allocates the maximum level of resources possible to R&D activities as one of management’s highest priority tasks. However, by its very nature, product development is very complex and involves an extremely high level of uncertainty. If the Group were not able to adequately adapt to market conditions, and, therefore, were not able to introduce attractive products to the market in a timely manner, the Group’s business performance may be negatively affected.
| Acquiring and Cultivating Key Human Resources |
As the Group’s future growth is greatly dependent on having talented engineers and other key human resources, the task of acquiring and cultivating these human resources is an extremely important issue for management. If the Group were not able to either acquire or cultivate key human resources, this may affect the Group’s future growth and business performance.
| Exchange Rate Fluctuations |
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The Group conducts its business not only with customers in Japan but also with semiconductor
and electronic component manufacturers in the United States, Europe and Asia. For this reason, to enable the Group
to rapidly and effectively market its products and provide after-sales service to semiconductor and electronic component
manufacturers, it has established a network of sales and service subsidiaries in the United States, Europe and Asia.
When the Group exports products from Japan, depending on the region or customer in question, currencies other than
the Japanese yen, including the U.S. dollar, the euro and the Singapore dollar, may be used for the settlement of transactions.
As the Group’s products are, for the most part, manufactured in Japan, manufacturing costs are incurred in Japanese
yen.
Consequently, as a general rule, appreciation of the yen has a negative effect on the Group’s business performance
and a depreciation of the yen has a positive effect. In this way, fluctuations in exchange rates may affect the Group’s
operating results.
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Many of the Group's production facilities are located in Hiroshima prefecture and its
corporate headquarter is located in Tokyo, Japan, where a severe eqrthquake could
strike anywhere at any time. If a severe earthquake were to hit the Group's production
facilities, it would cause a halt in production, and in the case of the Group's headquarters,
this would adversely affect the Group's management.
Further, depending on conditions, it would also adversely affect the Group's
business performance.
In the conduct of its business, in addition to the aforementioned risk factors, the Group’s business performance may also be affected by economic crises, natural disasters, war and terrorist actions, epidemics, financial and capital markets, laws and government regulations, product defects, supply systems, intellectual property rights, and other factors, both global and regional.
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