Epson 2006 Annual Report Download - page 44

Seiko Epson Annual Report 2006
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(8) Epson competes with other companies in all its businesses
Epson faces serious competition in all its businesses with the following types of companies, and this
competition could adversely affect Epson’s results.
1. Powerful companies with large amounts of funds or strong financial compositions.
2. Companies in Taiwan, Korea, or China, for example, which have the ability to manufacture com-
petitive products or compete on prices in Epson’s markets.
In addition to the above competition, there is also the possibility that powerful companies Epson is
not currently in competition with may use their brand power, technological strength, ability to pro-
cure funds, excellent marketing resources, sales skills, or ability to produce at low costs to enter a
business area of Epson’s and compete with it.
(9) There are risks inherent in contributing to Yasu Semiconductor Corporation
In June 2001, the Company established Yasu Semiconductor Corporation (“YSC”) through a joint
venture with International Business Machines Corporation and its affiliates (collectively, “IBM”), with
the aim of, among other things, operating a facility that produces semiconductors incorporating 200
mm silicon wafer chips, which up to then IBM had controlled in Japan. Upon the establishment of
YSC, Epson acquired 50% of total issued shares of ¥8.1 billion. IBM has an option, effective from the
end of June 2006, to sell its 50% of YSC shares to Seiko Epson for ¥9.5 billion, and Seiko Epson has
an option, effective from the same date, to buy those shares for ¥9.5 billion. In the board of directors’
meeting held on June 23, 2006, Seiko Epson resolved to start procedures of the exercise of such
option and Seiko Epson plans to operate YSC as its wholly owned subsidiary in future.
Epson currently produces semiconductors at YSC, but there is no assurance that YSC’s
business plans will not change despite the business environment or business restructuring of
Epson’s semiconductor products, and such a change in business plan may adversely affect
Epson’s business performance.
(10) Expanding businesses overseas entails risks for Epson
Epson is continuing to expand its businesses overseas; 68.7% of its consolidated sales for the
business year ending March 2006 were overseas sales. Epson has production bases all over Asia,
such as China, Indonesia, Singapore, and Malaysia, and in the United States, the United Kingdom,
Mexico, and Brazil. It has also established many distribution companies all over the world. Epson’s
employees overseas as of March 2006 accounted for 74.1% of its overall employees.
Epson believes that this global expansion has many merits that makes it possible to undertake
market activities that precisely ascertain market needs of each individual region and leads to the secur-
ing of high-cost competitiveness through cutting production costs and reducing lead times. There are,
however, unavoidable risks related to producing and selling overseas that come with expanding busi-
nesses overseas, some of which are changes in government laws, ordinances, or regulations related
to production and sale, social, political, or economic changes, transport delays, damage to infrastruc-
ture (e.g., power supply), restrictions on currency exchanges, insufficient skilled labor, change in regional
labor environment, changes in taxes, regulations, or the like, protective of trade, and laws, ordinances,
regulations, or the like related to the import and export of Epson products.
(11) The intense technological innovation required of Epson entails risks
Because Epson is engaged in manufacturing and selling products that require advanced technologies,
technology is an extremely vital element of Epson’s businesses. Epson possesses the core tech-
nologies—for example, ultra-fine, ultra-precise processing technologies, low-power consumption
technologies, thin-film technologies, surface treatment technologies, high-density mounting
technologies, digital control technologies, and digital color image processing technologies. By evolving
and fusing these technologies, Epson has been able to manufacture and sell products that meet
customers’ needs, thereby developing the presence for itself that it has today.