Square Enix 2007 Annual Report Download - page 23

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6. Risk Factors
The risks described below are those that could impact the
Company’s management performance. Forward-looking state-
ments are in accordance with management’s judgments as of
June 30, 2007.
(1) Changes in the Economic Environment
In the event of an exceptionally harsh downturn in the economy,
causing consumer expenditures to fall, demand for the Group’s
products and services in the entertainment field may decline. Such
circumstances may lead to an adverse impact on the Group’s busi-
ness performance.
(2) Changes in Consumer Preferences in the
Digital Content Market and the Group’s
Ability to Respond to the Rapid Progress
of Innovative Technology
In such a period of transition as stated in the medium- and long-
term strategy and tasks, it is probable such change may affect the
Group’s business performance if it is unable to deal with the transi-
tions properly and promptly.
(3) Changes in Game Platforms and the
Company’s Response
The Group’s core business predominantly involves the sale of soft-
ware for use on home-use video game consoles. Consequently, the
Company’s business may be subject to the impact of transition to
next-generation console platforms and changes in console manu-
facturers’ strategies.
(4) Securing Human Resources to Execute the
Group’s Growth Strategies Concentrating
on Creation of New Conent Services and
Business Development Overseas
The Group has been making rapid growth in the expansion of its
business operations globally. Delays in developing human resources
may adversely affect the Group’s business performance.
(5) Expansion in the Group’s International
Business Operations
In the Games (Offline), Games (Online) and Mobile Phone Content
business segments, the Group is pursuing expansion of its interna-
tional business operations. A variety of factors present in the coun-
tries and regions in which the Group operates overseas may affect
the Group’s business performance. Such factors include market
trends, political situations, economic climates, law and legal fac-
tors, cultural factors, religious factors, customs and other factors.
(6) Fluctuation of Exchange Rates
The Group includes consolidated subsidiaries located in North
America, Europe and Asia. The risks of foreign exchange loss have
been reduced as foreign currency gained by subsidiaries is
expended for settlement or reinvestment in each country.
However, sales, expenses and assets of the overseas subsidiaries
are converted into Japanese yen amounts in the consolidated
financial statements. Consequently, the exchange rate may affect
the Group’s financial results as it fluctuates beyond our forecast.
(7) Entertainment Industry Laws
The operation of game centers is subject to government control
under the Law for Proper Control of Entertainment and
Amusement Business and other related laws and regulations. These
laws and regulations include an approval and licensing system for
the opening and operation of amusement centers, regulations on
business hours (ordinances vary, but operation is generally prohib-
ited from midnight to 10 a.m.), age restrictions (ordinances vary,
but the admittance of persons under 16 years old after 6 p.m. and
persons under 18 years old after 10 p.m. is generally prohibited),
area restrictions on outlet opening, and regulations concerning
facility structure, interior, lighting and noise. While complying with
the laws, the Group has actively pursued the establishment of new
centers. However, if regulations were to change owing to the
establishment of new laws or other reasons, the Group’s business
performance may be affected.
(8) Management of Personal Information
In conjunction with the enactment of the Personal Information
Protection Law, the Group has bolstered employee training with
the aim of increasing awareness about the handling of personal
information. The Group has also improved the timeliness of its per-
sonal information management systems and identified all personal
information obtained by the Group. The Group has undertaken a
full range of measures to strengthen its internal control systems,
including ongoing improvements to technology controlling access
to its customer database and to its data security system, restrictions
on personnel permitted to access information and establishment of
a system to deal with customer inquiries regarding personal infor-
mation. To this point, no leakage of personal information has
occurred from the Group. The Group intends to maintain its strin-
gent management systems for personal information by reviewing
current systems and enhancing employee training. However, if a
leak of personal information were to occur from the Group, the
Group’s business performance may be affected.
(9) Accidents and Disasters
The Group periodically carries out accident prevention checks, facil-
ity checks and emergency drills to minimize accidents and the
impacts of disasters, including terrorist attacks, infectious diseases,
food poisoning, fires, electrical blackouts, computer system/server
malfunctions, earthquakes, and typhoon and flood damage.
However, in the event of accidents or disasters it may not be possi-
ble to avoid or alleviate all adverse impacts. If a major earthquake
or disaster occurs, which could impede the continuation of busi-
ness, the Group’s business performance may be affected.
(10) Litigation
The Group is being managed strictly in compliance with laws and
regulations and with full respect for third parties’ rights while carry-
ing out its operations. However, in the course of its business activi-
ties in Japan and abroad the risk of the Group becoming the
defendant of litigation cannot be discounted. If such litigation were
to occur, the Group’s business performance may be affected.
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