Sharp 2010 Annual Report Download - page 34

(6) Intellectual Property Rights
Sharp strives to protect its proprietary technologies by acquir-
ing patents, trademarks, and other intellectual property rights
in Japan and in other countries, and by concluding contracts
with other companies. However, there is a risk that rights may
not be granted, or a third party may demand invalidation of an
application, such that Sharp may be unable to obtain sufficient
legal protection of its proprietary technologies. In addition,
intellectual property that Sharp holds may not result in a supe-
rior competitive advantage, or Sharp may not be able to make
effective use of such intellectual property, such as when a
third party infringes on the intellectual property rights of Sharp.
There may also be instances where a third party launches
litigation against Sharp, claiming infringement of intellectual
property rights. Resolution of such cases may place a signifi-
cant financial burden on Sharp. Furthermore, if such a third-
party claim against Sharp is recognized, Sharp may have to
pay a large amount of compensation, and may incur further
damage by having to cease using the technology in question.
Also, as a result of an M&A, a third party previously unlicensed
to use Sharp’s intellectual property may acquire such license,
with the result that Sharp’s intellectual property may lose its
superiority. Alternatively, an M&A with a third party could
result in Sharp’s business becoming subject to new restric-
tions to which it had not previously been subject, the resolution
of which may require Sharp to pay additional compensation.
Furthermore, although compensation is given to employees
for innovations that they make in the course of their work
pursuant to a patent reward system governed by internal
regulations, an employee may consider such payment inad-
equate and initiate legal action. If any of the above problems
related to intellectual property were to occur, it could impact
Sharp’s business results and financial position.
(7) Product Liability
Sharp manufactures products in accordance with strict quality
control standards to ensure the utmost in quality. In order to
fulfill its responsibility as a manufacturer in case product
defects do arise, Sharp has taken out insurance to cover com-
pensations based on product liability. Nonetheless, there is
still a risk of a large-scale product recall or litigation caused by
unforeseen events, which may adversely affect brand image
or influence Sharp’s business results and financial position.
(8) Laws and Regulations
The business activities of Sharp are subject to various regula-
tions in countries where it operates, including business and
investment approval, export regulations, tariffs, accounting
standards and taxation. Sharp must also adhere to various
laws and regulations concerning trading, antitrust practices,
product liability, consumer protection, intellectual property
rights, product safety, the environment and recycling, and
internal control. Changes in such laws and regulations, and
additional expenses to comply with the amendments may
affect Sharp’s business results and financial position. Further,
Listed below are the principal business risks of Sharp that may
have a significant influence on investors’ decisions. Note that
in addition to these, there exist certain other risks that are
difficult to foresee. Each of these risks has the potential to
impact the operations, business results and financial position
of Sharp. All references to possible future developments in
the following text were made by Sharp as of March 31, 2010.
(1) Global Market Trends
Sharp manufactures and sells products and services in different
regions around the world. Business results and financial position
are thus subject to economic and consumer trends (especially
trends in private consumption and corporate capital investment),
competition with other companies, product demand, raw mate-
rial supply and price fluctuations in each region. The political and
economic situation in respective areas may also exert an influ-
ence on business results and financial position.
(2) Exchange Rate Fluctuations
The proportion of consolidated net sales accounted for by
overseas sales stood at 53.5% in fiscal 2007, 54.3% in fiscal
2008 and 48.1% in fiscal 2009. Although Sharp hedges the
risk of exchange rate fluctuations by employing forward
exchange contracts and expanding and strengthening over-
seas production, such fluctuations may affect Sharp’s busi-
ness results.
(3) Strategic Alliances and Collaborations
Sharp implements strategic alliances and collaborations with
other companies in respective business fields to bolster the
development of new technologies and products, and to enhance
competitiveness. If, however, any strategic or other business
issues arise, or objectives change, it may become difficult to
maintain such alliances and collaborative ties with these compa-
nies, or to generate adequate results. In such cases, Sharp’s
business results and financial position may be impacted.
(4) Business Partners
Sharp procures materials and receives services from a large
number of business partners, and transactions are made only
once a detailed credit check of the company has been com-
pleted. However, there is a risk that business partners may
suffer deterioration in performance due to slumping demand
or severe price erosion, or face an unexpected M&A, or be
impacted by natural disasters or accidents, or procure materi-
als of insufficient quality, or become involved in a corporate
scandal including a breach of the law–any of which may affect
Sharp’s business results and financial position.
(5) Technological Innovation
New technologies are emerging rapidly in the markets where
Sharp operates. Resultant changes in social infrastructure,
intensified market competition, changes in technology stan-
dards, or the appearance of substitute technologies may
impact Sharp’s business results and financial position.
Risk Factors
Risk Factors
SHARP CORPORATION32