Epson 2007 Annual Report Download - page 51

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Annual Report 2007
difficulty in predicting changes in consumers’ needs, a slowdown in purchases of existing products and
competition between Epson’s existing and new products.
(12) Procuring products and outsourcing the manufacture of products comes with risks to Epson
Epson procures parts, half-finished products and finished products from third parties, but it has generally
conducted transactions without entering into any long-term purchase agreements. Epson is developing
upon its efficient procurement activities by cooperatively engaging with such suppliers in maintaining
product quality, improving products and reducing costs. But if its ability to procure was to be adversely
affected by, for example, insufficient supply from a third party, poor quality of products supplied or the like,
then Epson’s results could consequently be adversely affected. Epson strives to, in principle, procure
parts and the like from multiple suppliers, but there are some cases in which it can only procure parts for
from one company, for example, actuators, which are the primary component of the printer heads in
medium- and low-cost printers, because it is difficult to procure an alternative component from another
company.
On the manufacturing side of business, Epson outsources the manufacturing of parts of products,
such as laser printers and inkjet printers in the low price range, image scanners and computers. If demand
for such products rises severely, it will become difficult to secure alternative or additional manufacturers to
outsource to, and Epson might become vulnerable to such risks as an increase in costs or a delay in pro-
duction. Also, although Epson is outsourcing the manufacture of parts of products in the semiconductor
business to silicon foundries*6,if the foundries cannot reliably manufacture products that meet Epson’s
specifications in a timely way and at an appropriate price, Epson’s results could consequently be
adversely affected.
*6. A silicon foundry is a business that contracts to produce semiconductors in accordance with its clients’ designs.
(13) Epson faces risks concerning the securing of personnel
It is vital that Epson secure qualified engineers and other technical personnel both in Japan and overseas
for the development and manufacture of Epson’s advanced new technologies and products, but the com-
petition for recruiting such qualified engineers and other technical personnel is becoming increasingly
intense. Epson is putting considerable effort into securing qualified engineers and other technical person-
nel by establishing research and development bases and design bases both in Japan and overseas. But if
Epson is unable to continue to use or employ an adequate number of qualified engineers and other tech-
nical personnel, the implementation of its business plans could be adversely affected.
(14) Fluctuations in foreign currency exchanges create risks for Epson
Asignificant portion of Epson’s sales are denominated in U.S. dollars or the euro. Epson is striving to
expand its overseas procurement and move its production bases overseas, thereby attracting an increase
in expenses in foreign currencies linked to the euro or U.S. dollar, and, although it offsets a significant
portion of its U.S. dollar-denominated sales, its euro-denominated sales have become bigger than its euro-
denominated expenses. Also, although Epson has executed currency forwards and currency options to
hedge against the risks inherent in foreign currency exchanges, unfavorable movements in foreign currency
exchange rates such as the U.S. dollar or euro against the yen could adversely affect Epson’s results.