Epson 2005 Annual Report Download - page 45

46 Seiko Epson Annual Report 2005
(6) Epson relies on certain clients in its electronic devices business
About half of Epson’s sales in its electronic devices business is dependent on Epson’s top 5 major
customer groups (which includes each of their suppliers). Epson treats mobile communications
devices as a business domain and pours its managerial resources into such efforts as developing
technologies and securing production capacity. As a result of this, Epson has a record of transac-
tions with the market’s major manufacturers of mobile communications devices and has established
good relationships among these customers, such as by engaging in the medium-term joint
development of products.
Epson believes that these trends will not change in the future, but there is a possibility that these
major customers will not carry out the same scale of transactions with it as they have done in the past.
If Epson was to lose its transactions with these clients, Epson’s results of operations could conse-
quently be adversely affected.
(7) Trends in the semiconductor market might adversely affect Epson
There are various trends in the electronics devices market, such as for semiconductors and for devices
for mobile communication devices, that reflect product life cycles and the economic environment. His-
tory also shows that large declines in the states of certain things are cyclical, and when that happens,
demand becomes sluggish, there is excess production, and prices fall.
A deterioration in the situation in, for example, the electronics devices market, such as for semicon-
ductors and for devices for mobile communication devices, could adversely affect Epson’s financial
condition and results of operations. There is also no assurance that Epson can always accurately pre-
dict future trends, and it is possible that Epson might not be able to make investments that are timely or
appropriate enough to respond to market trends.
(8) Epson competes with other companies in all its businesses
Epson faces serious competition in all its businesses with the following types of companies, and this
competition could adversely affect Epson’s results.
1. Big companies with large amounts of funds or strong financial compositions.
2. Companies in Taiwan, Korea, or China, for example, that have the ability to competitive products or
compete on prices in Epson’s markets.
In addition to the above competition, there is also the possibility that big companies Epson is not
currently in competition with may use their brand power, technological strength, ability to procure funds,
excellent marketing resources, sales skills, or ability to produce at low costs to enter a business area of
Epson’s and compete with it.
(9) There are risks inherent in contributing to Yasu Semiconductor Corporation
In June 2001, the company established Yasu Semiconductor Corporation (“YSC”) through a joint ven-
ture with International Business Machines Corporation and its affiliates (collectively, “IBM”), with the aim
of, among other things, operating a facility that produces ICs incorporating 200 mm silicon wafer chips,
which up to then IBM had controlled in Japan. Upon the establishment of YSC, Epson acquired 50% of
total issued shares of ¥8.1 billion. IBM has an option, effective from the end of June 2006, to sell its 50%
of YSC shares to Epson for ¥9.5 billion, and Epson has an option, effective from the same date, to buy
those shares for ¥9.5 billion.
Epson currently produces semiconductors at YSC and plans to continue doing so, but there is no
assurance that plan will not change in the future because of movements in market for Epson’s semicon-
ductor products or other factors. If Epson changes that plan, it might incur a loss in relation to its
present and future contributions to YSC.
(10) Expanding businesses overseas entails risks for Epson
Epson is continuing to expand its businesses overseas; 63.9% of its consolidated sales for the busi-
ness year ending March 2005 were overseas sales. Epson has production bases all over Asia, such as
China, Indonesia, Singapore, and Malaysia, and in America, England, Mexico, and Brazil. It has also
established many distribution companies all over the world. Epson’s employees overseas as of March
2005 accounted for 73.3% of its overall employees.