Nikon 2012 Annual Report Download - page 30

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NIKON CORPORATION ANNUAL REPORT 2012
In the Imaging Products Business, technical advancement
for digital cameras is rapid, products are becoming more
sophisticated and diverse, and constant investment is
necessary to develop new products and technologies.
However, if the results of such investment are not fully
realized, or if there is a sudden shift in demand to that
for more advanced digital devices, it is possible that the
technologies and products developed will not lead to greater
earnings. Similar to the Precision Equipment Business,
there is a risk that acquisition of a new technology patent by
a competitor might cause production or sales to cease, or
margins to decline as a result of royalty payments, which
factors could have an impact on earnings.
5. Intensifying Price Competition
In digital cameras, the principal product of the Imaging
Products Business, competition is becoming more
intense with the entry into the market of electric goods
manufacturers in Japan and overseas alongside traditional
camera producers. Also, since the product lifecycle is short,
particularly for compact digital cameras, companies tend to
try to sell products manufactured in large quantities over a
short period of time, which drives further price competition
due to slower market expansion.
In IC steppers and scanners, there is the possibility that,
as advanced technology develops, competitors will launch a
price reduction offensive.
In the Instruments Business, the maturing of the
microscope market will enhance competition focused on
product differentiation. Price competition is becoming
tighter, particularly in the market for mid-range and
low-end products, and a sudden fall in prices could have
a negative impact on the earnings and financial position
of the Nikon Group.
6. Overseas Business
The Nikon Group’s production and sales activities are largely
dependent on countries outside Japan. Consequently,
business in Japan and overseas is susceptible to changes in
laws, tax structures and regulations regarding imports and
exports. Nikon’s business activities could incur significant
damage or loss as a result of risks inherent in overseas
business, including fluctuations in political structure or
economic environment; societal turmoil due to insurgency,
terrorism, war, epidemic or other factors; damage to
water, electricity, telecommunications or other aspects of
infrastructure, or to distribution functions as a result of
natural disasters; and difficulties in recruitment or loss of
personnel. Such events would constrain production and/or
sales, which could have a negative impact on the earnings
and financial position of the Nikon Group.
7. Currency Fluctuation Risk
The Nikon Group is heavily dependent on overseas markets,
with overseas sales accounting for 85.8% of all sales.
Consequently, although the Group conducts currency
hedging as appropriate to the sales volume and region
in question, sharp fluctuations in foreign currency
markets could have an impact on sales and earnings from
transactions conducted in foreign currencies for the Group’s
products and services, as well as on the profits, assets
and liabilities of overseas subsidiaries, when converted to
Japanese yen.
8. Financing Risk
The Nikon Group conducts financing appropriate to its
capital needs, in consideration of the long-term and short-
term balance, and balance of direct and indirect financing.
However, deterioration in the financial market environment
could have an impact on the Group’s financing, including
an increase in interest rates, or limitations on financing
methods. Further, downgrading of the ratings on the
Company’s corporate bonds or other issues resulting from
deterioration in earnings could have a similar impact on the
Group’s financing.
9. Protection of Intellectual Property Rights and
Litigation Risk
The Nikon Group has acquired and holds a large amount
of intellectual property rights as a result of its product
development activities. These intellection property rights
are sometimes licensed to other companies. The Company
makes the utmost effort to maintain and protect these
intellectual property rights, but in the event that the
unauthorized use of the Group’s intellectual property rights
leads to litigation, there is a possibility that substantial legal
expenses could be incurred.
The Nikon Group also conducts its product development
with due consideration to not infringing on the intellectual
property rights of third parties, but there is a possibility
that the Company will face litigation for infringement
of intellectual property rights from other companies,
individuals or other parties. Such circumstances could have
a negative impact on the earnings and financial position of
the Nikon Group.
10. Retaining Key Personnel and the Loss of
Personnel or Expertise
The Nikon Group relies on personnel who possess expertise
and skills in advanced technology and other areas, and
retaining these personnel is important to overcoming the
fierce competition in the market. However, in the event of
further employment mobility for whatever reason, there is
a possibility that these key personnel will leave, and their
knowledge and expertise will flow outside the Company.