Toshiba 2009 Annual Report Download - page 65

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RISK FACTORS RELATING TO THE TOSHIBA GROUP AND ITS BUSINESS
The business areas of energy and electronics, the Group’s main business areas, require highly advanced technology for their
operation. At the same time, the Group faces fierce global competition. Therefore, appropriate risk management is indis-
pensable. Major risk factors related to the Group recognized by the Company are described below. The actual occurrence of
any of those risk factors may materially adversely affect the Group’s results of operation and financial condition.
The risks described below are identified by the Group based on information available to the Group as of the date of filing
this document and involve uncertainties. Therefore the actual effects of such risks upon the Group’s business may differ.
Please note that the risk factors discussed below should not be regarded as a complete and comprehensive statement of risks
relating to the Group’s business. The Group recognizes these risks and makes effort to minimize any impact from them by
maintaining the proper risk management and implementing various measures.
(1) Business environment of Digital Products business
The market for the Digital Products business is intensely competitive with many companies manufacturing and selling prod-
ucts similar to those offered by the Group. Additionally, this business is heavily affected by economic fluctuations and
demand for these products is volatile. In times of decreases in demand for the Group’s products in a market that is experi-
encing a downturn, prices may decline, while in times of rapid increases in demand, the Group’s profit may be reduced due to
the need to purchase costly parts and components, and a shortage of these parts and components may hinder the Group’s
ability to supply products to the market in a timely manner. While the Group makes effort to monitor demand as well as
implement strategic allocation of resources in response to changes in the market situation and introduce products that meet
market trends based on the forecast of future market trends, any rapid fluctuation in demand may result in price erosion or
increases in component prices, which may adversely affect the Group’s financial results with respect to this business.
Sales in the mobile phone business are decreasing as the entire domestic market shrinks due to changes in the marketing
method adopted by the mobile network operators.
(2) Business environment of Electronic Devices business
The market for the Electronic Devices business is highly cyclical depending on demand and intensely competitive with com-
panies manufacturing and selling products similar to those offered by the Group mainly in overseas markets. The Group
makes effort to monitor shifts in the market, concentrate on areas in which the Group has competitive advantages by imple-
menting drastic strategic allocation of resources as well as enhance its cost competitiveness and rebuild its profit base through
restructuring. However, if the market faces a downturn, or if the Group fails to market new products in a timely manner, or
if there is a rapid introduction of new technology, the Group’s current products may become obsolete. Although the results
of this business for the three months ended June 30, 2009 improved compared with the preceding three months mainly as a
result of the implementation of “Action Programs to Improve Profitability”, including the reduction of the fixed costs, the
results of this business tend to be heavily affected by economic fluctuations. A rapid and large decline in product prices and
sales volume may be caused by a decrease in demand. This, in turn, may materially affect the Group’s operating income. In
addition, Toshiba Mobile Display Co., Ltd., which engages in the LCD business, is in a situation in which its liabilities
exceed its assets while its business results for the three months ended June 30, 2009 improved compared with the preceding
three months mainly due to implementetion of “Action Programs to Improve Profitability”. Furthermore, results of this
business tend to be substantially affected by exchange rate fluctuations.
Economies of scale with respect to the manufacture of many products of this business are significant and there is intense
competition to develop and market new products. Therefore, significant levels of capital expenditures are required to main-
tain and improve the competitiveness in prices and quality of products. In the year ending March 31, 2010, the Group plans
to reinforce its competitiveness in the semiconductor business by focusing carefully on selected investments, namely invest-
ment in finer lithography for NAND flash memories, and to curb investments in new production facilities. In the LCD
business, the Group will curb its investments for capacity increase. While, the Group makes effort to carefully monitor
demand and invest in stages, however, unforeseen market changes and corresponding changes in demand may result in the
mismatch between the production of particular products based on the sales volume expected at a time when production com-
menced and the actual demand for such products, or cause this business to be adversely affected by a decrease in product
price due to oversupply.
As a strategic alliance concerning production of NAND flash memories, the Group has formed two production joint ven-
tures (equity method affiliates) with a US company SanDisk Corporation (“SanDisk”). Under the joint venture agreement
related to one of these production joint ventures, Flash Alliance, Ltd., SanDisk has an option to request the Company to
purchase its ownership interests in such production joint venture at book value. In addition, the Company and SanDisk