Epson 2005 Annual Report Download - page 47

48 Seiko Epson Annual Report 2005
a delay in production. Also, Epson is outsourcing the manufacture of parts of products in the semicon-
ductor business to silicon foundries*6 and intends to increase that in the future. So if the foundries
cannot timely and reliably manufacture products that meet Epson’s specifications at an appropriate
price, Epson’s results could consequently be adversely affected.
*6. A silicon foundry is a business that contracts to produce semiconductors in accordance with its clients’ designs.
(14) Epson faces risks concerning the securing of personnel
It is vital that Epson secure qualified engineers and other technical personnel both in Japan and overseas
for the development and manufacture of Epson’s advanced new technologies and products, but the
competition for recruiting such qualified engineers and other technical personnel is becoming increasingly
intense. Epson is putting considerable effort into secure qualified engineers and other technical person-
nel by establishing research and development bases and design bases both in Japan and overseas.
But if Epson is unable to continue to use or employ enough such qualified engineers and other technical
personnel, the carrying out of its business plans could be adversely affected.
(15) Fluctuations in foreign currency exchanges create risks to Epson
A significant portion of Epson’s sales are denominated in U.S. dollars or the Euro. Because Epson is
striving to expand its overseas procurement and move its production bases overseas, thereby attract-
ing an increase in expenses in foreign currencies linked to the Euro or U.S. dollar, although it offsets a
significant portion of its U.S.-denominated sales, its Euro-denominated sales have become bigger than
its Euro-denominated expenses. Also, although Epson has executed currency forwards and currency
options to hedge against the risks inherent in foreign currency exchanges, unfavorable movements in
foreign currency exchange rates such as the U.S. dollar or Euro against the yen could adversely affect
Epson’s results.
(16) There are risks inherent in pension systems
The company and some of its consolidated subsidiaries have, as of April 2004, changed their pension
systems from the tax qualified defined benefit plans to the new tax qualified corporate defined benefit
plans and the new tax qualified defined contribution plans. Consequently, Epson’s defined-benefit pension
system that it had established has now become the new tax qualified corporate defined benefit plans
(fund-type), the new tax qualified corporate defined benefit plans (contract-type), the tax qualified pension
plans and the termination allowance plan.
If, with respect to the defined-benefit pension-type of retirement pension plan, there is a change in the
operating results of the pension assets or in the ratio used as the basis for calculating retirement allowance
liabilities, Epson’s results could consequently be adversely affected.
(17) Epson’s intellectual property rights activities expose Epson to certain risks
Patent rights and other intellectual property rights are extremely important to Epson for maintaining its
competitiveness. Epson has developed much of the technologies it needs itself, and it utilizes them as
intellectual property in the form of products or technologies by acquiring patent rights, trademark rights,
and other intellectual property rights for them or entering into agreements with other companies for
them. Epson carefully selects the personnel who manage its intellectual properties and is constantly
working to strengthen its intellectual property portfolio.
If, however, any of the following situations relating to intellectual properties occurs, Epson’s results
could consequently be affected.
1. An objection might be raised to, or an application to invalidate might be filed with respect to, an
intellectual property right of Epson.
2. A third party to whom Epson originally had not granted a license might come to possess a license as
a result of a merger with or acquisition by another third party, and Epson’s competitive advantage
that it had with that license might consequently be lost.
3. Epson might have new restrictions imposed on a business that were originally not imposed on it as a
result of a merger with or acquisition by a third party, and it might be forced to spend money to find
a solution to those restrictions.