Risk of fluctuations in semiconductor demand, electronics capital investment and IT investment

「Customer inventories in the supply chain are steadily being worked down, and orders for semiconductor products are showing signs of recovery.」

「また、半導体及び電子デバイス事業並びにプライベートブランド（PB）事業においても、顧客在庫の消化に伴い、需要が回復局面へ移行しております。」

「Although customer inventories in the supply chain were gradually moving toward normalization, semiconductor demand had not yet recovered fully. Sales of semiconductor products for industrial equipment declined, the wafer market remained in an adjustment phase, and sales of private-label products were sluggish. As a result, sales to external customers for the six months ended 30 September were ¥77,048 million, down 18.1% year on year, and segment profit (ordinary profit) was ¥1,058 million, down 73.4%.」

「While stagnation in the Chinese market and inventory adjustments in the supply chain continued for an extended period, sales of the Group's semiconductor products for automotive applications remained solid, supported by the expansion of customer distribution rights, and the wafer inspection equipment business contributed to performance. However, sales of semiconductor products for industrial equipment declined, while sales of semiconductor products for communications equipment and consumer electronics also remained sluggish. As a result, sales to external customers for the fiscal year were ¥179,051 million, down 14.7% year on year, and segment profit (ordinary profit) was ¥6,149 million, down 41.2%.」

「Sales of the Group's semiconductor products for automotive applications remained solid, supported by the expansion of customer distribution rights, and the wafer inspection equipment business also contributed to performance. However, sales of semiconductor products for industrial equipment declined due to the prolonged stagnation of the Chinese market. In addition, sales of semiconductor products for communications equipment were sluggish. As a result, sales to external customers for the six months ended 30 September were ¥94,024 million, down 10.7% year on year, and segment profit (ordinary profit) was ¥3,978 million, down 20.3%.」

「As semiconductor supply gradually normalized, inventories in the supply chain remained at high levels. Against this backdrop, sales of the Group's semiconductor products for automotive applications remained strong, supported in part by the expansion of customer distribution rights. Design and mass-production outsourcing services for industrial and medical equipment also remained solid, but sales of semiconductor products for industrial equipment and computers and peripheral equipment declined due to stagnation in the Chinese market and semiconductor manufacturers shifting to direct sales.」

「While sales of semiconductor products for industrial equipment declined due to stagnation in the Chinese market and semiconductor manufacturers shifting to direct sales, sales of semiconductor products for automotive applications increased as the Group expanded its customer distribution rights.」

「As the supply-demand balance for the semiconductor products handled by the Group showed signs of improvement, sales of semiconductor products for industrial equipment and automotive applications remained solid.」

「As semiconductor supply and demand gradually improved, demand for the semiconductor products handled by the Group for industrial equipment and automotive applications remained strong.」

「For the fiscal year ending March 2024, although the computer systems-related business is expected to remain solid, the semiconductor market is expected to enter an adjustment phase. The business is therefore expected to reach what is often called a "plateau" and enter an adjustment phase.」

「During the cumulative second quarter period, there were no occurrences of major risks that management recognizes as potentially having a material impact on the consolidated companies' financial condition, operating results, or cash flows, among matters related to the business and financial conditions described in the quarterly report, nor were there any material changes to the business and other risks described in the annual securities report for the preceding fiscal year.」

「During the cumulative first quarter period, there were no occurrences of major risks that management recognizes as potentially having a material impact on the consolidated companies' financial condition, operating results, or cash flows, among matters related to the business and financial conditions described in the quarterly report, nor were there any material changes to the business and other risks described in the annual securities report for the preceding fiscal year.」

「During the cumulative third quarter period, there were no occurrences of major risks that management recognizes as potentially having a material impact on the consolidated companies' financial condition, operating results, or cash flows, among matters related to the business and financial conditions described in the quarterly report, nor were there any material changes to the business and other risks described in the annual securities report for the preceding fiscal year.」

「During the cumulative first quarter period, there were no occurrences of major risks that management recognizes as potentially having a material impact on the consolidated companies' financial condition, operating results, or cash flows, among matters related to the business and financial conditions described in the quarterly report, nor were there any material changes to the business and other risks described in the annual securities report for the preceding fiscal year.」

「Although uncertainty continued due to the impact of COVID-19 and US-China trade friction, global demand for semiconductor products expanded against a backdrop of growing data traffic and recovering automobile production, resulting in supply shortages.」

「The semiconductor market showed signs of improving demand, and production levels in China also recovered. Against this business backdrop, sales of the Group's products for industrial equipment proceeded smoothly, demand for automotive products recovered, and the expansion of customer distribution rights progressed generally in line with initial expectations. As a result, sales to external customers for the nine months ended 31 December were ¥83,614 million, up 1.4% year on year, and segment profit (ordinary profit) was ¥1,068 million, up 34.9%.」

「Although some improvement in semiconductor demand was observed as economic activity moved toward normalization, uncertainty continued due to the impact of COVID-19 and US-China trade friction. While production levels in China were recovering, demand for the industrial equipment products handled by the Group remained solid, and the expansion of customer distribution rights progressed generally in line with initial expectations. However, sales of products for automotive applications and office automation-related equipment remained sluggish due to lower consumption caused by COVID-19 and declining factory operating rates in the manufacturing sector. As a result, net sales for the six months ended 30 September were ¥51,475 million, down 5.2% year on year, and segment profit (ordinary profit) was ¥221 million, down 50.3%.」

「Sales of products for automotive applications, computers and peripheral equipment, and consumer electronics remained sluggish due to a decline in consumption caused by COVID-19 and the suspension of factory operations in the manufacturing sector. As a result, net sales for the three months ended 30 June were ¥23,356 million, down 15.2% year on year, and segment profit (ordinary profit) was ¥77 million, down 65.5%.」

「Although demand for products for industrial equipment was also gradually recovering, sales of products for computers and peripheral equipment and consumer electronics remained sluggish. In addition, some delays occurred in the planned transfer of distribution rights. As a result, net sales for the fiscal year were ¥110,138 million, down 8.0% year on year, and segment profit (ordinary profit) was ¥871 million, down 33.9%.」

「Against a backdrop of the rising number of semiconductor products installed in automobiles, our product sales remained solid. Although demand for products for industrial equipment was gradually recovering, sales of products for computers and peripheral equipment and consumer electronics remained sluggish. As a result, net sales for the nine months ended 31 December were ¥82,475 million, down 9.0% year on year, and segment profit (ordinary profit) was ¥791 million, down 43.7%.」

「Against a backdrop of the rising number of semiconductor products installed in automobiles, our product sales remained solid. However, sales of products for industrial equipment, as well as computers and peripheral equipment, declined due to the impact of US-China trade friction and slower growth in the Chinese economy. As a result, net sales for the six months ended 30 September were ¥54,282 million, down 9.0% year on year, and segment profit (ordinary profit) was ¥444 million, down 49.6%.」

「Although semiconductor products installed in automobiles increased, demand for products for industrial equipment remained sluggish due to the impact of US-China trade friction and slower growth in the Chinese economy. As a result, net sales for the three months ended 30 June were ¥27,529 million, down 6.4% year on year, and segment profit (ordinary profit) was ¥223 million, down 40.0%.」

「The Semiconductor and Electronic Devices business may be affected by semiconductor demand and capital investment trends because its major customers include large electronics manufacturers. The Computer Systems business may be affected by trends in capital investment, including IT investment, because its customers include companies and organizations involved in building and maintaining networks and systems.」

「There were no material changes during the third quarter of the current consolidated cumulative period in abnormal fluctuations in the financial position, results of operations or cash flows, or in the matters concerning risks of the business described in the annual securities report for the previous fiscal year.」

「There were no material changes during the first quarter of the current consolidated cumulative period in abnormal fluctuations in the financial position, results of operations or cash flows, or in the matters concerning risks of the business described in the annual securities report for the previous fiscal year.」

「For some time, the Group has pursued measures to avoid these effects, including increasing its handling of products with high added value and relatively limited price volatility. However, a deterioration in the supply-demand balance across the electronics industry, including the Group's trading partners, could affect the Group's earnings.」

「The Semiconductor and Electronic Devices business may be affected by semiconductor demand and capital investment trends because its major customers include large electronics manufacturers. The Computer Systems business may be affected by trends in capital investment, including IT investment, because its customers include companies and organizations involved in building and maintaining networks and systems.」

「There were no material changes during the third quarter of the current consolidated cumulative period in abnormal fluctuations in the financial position, results of operations or cash flows, or in the matters concerning risks of the business described in the annual securities report for the previous fiscal year.」

「There were no material changes during the second quarter of the current consolidated cumulative period in abnormal fluctuations in the financial position, results of operations or cash flows, or in the matters concerning risks of the business described in the annual securities report for the previous fiscal year.」

「As corporate investment shifts from in-house equipment toward the use of cloud computing and other solutions, demand is expected to increase for services provided by cloud and data-center operators. In addition to security, attention is also focusing on fields such as AI (artificial intelligence) and IoT (Internet of Things). Against this backdrop, although the company’s maintenance business remained solid, sluggish sales of storage equipment and other factors resulted in revenue of ¥3,258 million, down 12.8% year on year, and segment profit (ordinary profit) of ¥41 million, down 50.2%.」

「In addition to efficient network operation technologies to handle growing data volumes, security products to counter cyberattacks have attracted attention in IT capital investment. Against this backdrop, sales of storage equipment to the financial sector and network equipment to government agencies, which had been strong in the previous fiscal year, were sluggish. As a result, net sales were ¥16,836 million, down 5.9% year on year, and segment profit (ordinary profit) was ¥786 million, down 7.1%.」

「Large-scale system upgrades in the financial sector, particularly among banks, which had been strong in the previous fiscal year, and projects for government agencies were sluggish during the current fiscal year. Due to the reactionary decline in sales of equipment for the financial and government sectors, net sales for the nine months ended 31 December were ¥10,831 million, down 13.4% year on year, and segment profit (ordinary profit) was ¥169 million, down 53.7%.」

「Large-scale IT investments by banks and government agencies, which had been strong in the previous year, remained weak in the current year.」

「There have been no material changes to the matters concerning “Business and Other Risks” described in the annual securities report for the previous fiscal year.」

「The Semiconductor and Electronic Devices business may be affected by semiconductor demand and capital investment trends because its major customers include large electronics manufacturers. The Computer Systems business may be affected by trends in capital investment, including IT investment, because its customers include companies and organizations involved in building and maintaining networks and systems.」