Nikon 2011 Annual Report Download - page 29

27Annual Report 2011Nikon Corporation
Business and Other Risks
The Nikon Group’s business results could be materially
affected by a variety of factors that might occur in the
future. The following is a list of major potential risk factors
that could affect the business of the Nikon Group.
Forward-looking statements in this text are the
determination of the Nikon Group as of the time of preparation
of this document.
1. Special Business Circumstances or Situations
Dependence on specific products
The Nikon Group is heavily dependent on its Precision
Equipment and Imaging Products businesses, which
together account for 90.7% of net sales. Accordingly, the
performance of these businesses has a significant impact
on the results of the entire corporate group.
The Precision Equipment Business is heavily dependent
on IC steppers and scanners, and on LCD steppers and
scanners, while the Imaging Products Business is dependent
on digital cameras and interchangeable lenses.
Special circumstances for principal businesses
In the semiconductor industry, which is the target market
for the IC steppers and scanners handled by the Precision
Equipment Business, the wide fluctuations in the business
cycle that had characterized the industry have eased in
recent years as a result of greater diversity in finished
products. Consequently, there is a risk that during periods
of oversupply of semiconductor devices in the market
that demand for steppers and scanners will decline as
semiconductor manufacturers curb capital expenditures,
with a corresponding increase in inventories. However,
accurately predicting the timing, length and degree of such
fluctuations is difficult. In addition, a distinctive characteristic
of customer behavior in the industry is to postpone or cancel
orders after they have been placed, creating a structure
in which inventories can easily increase during periods of
slowdown in demand. Demand for LCD steppers and
scanners is dependent on trends in the LCD panel market,
and should there be an oversupply of LCD panels prices will
fall, and there could be a sudden falloff in demand for
steppers and scanners.
The market for digital cameras, the principal product
of the Imaging Products Business, continues to expand.
While a further rise in ownership rates and market growth
in emerging countries is expected, there is the potential for
fluctuations to occur in the market, including slowdowns in
demand for digital cameras stemming from such factors as
economic cycles in individual regions, and the emergence of
strong competing products such as new digital devices.
In the Instruments Business, the market for microscopes
is reaching the point of saturation, and there is the potential
for industry reorganization and other changes in the
competitive structure. Also, the industrial instruments
business is susceptible to economic conditions and
equipment trends in a variety of industries, including
semiconductors, electric, electronic components,
automobiles and machine tools.
Such changes in the business environment could result in
a substantive impact on the business results and financial
position of the Nikon Group.
2. Dependence on Specific Suppliers
The Nikon Group is in certain areas dependent on specific
suppliers to provide its businesses with raw materials, core
components, finished goods manufactured under contract
and other products. The Group strives to ensure stable
procurement while maintaining close relationships with
these specific suppliers. However, should there be
significant disruptions to procurement due to sudden spikes
in demand, natural disasters, quality issues or changes
in strategy, bankruptcy or business failure on the part of
specific suppliers, or should there be an appreciation of
procurement prices, there could be a negative impact on
the earnings and financial position of the Nikon Group.
3. Dependence on Specific Customers
The semiconductor industry, which composes the
customer base for the Precision Equipment Business, is
constantly shifting through mergers and alliances in order
to adapt to the growing scale of capital expenditures and
diversifying technology development. The relative merits
in competitiveness of each company is becoming clearer
depending on the technical capabilities they possess or the
characteristics of the devices they manufacture, and the
weeding-out process is continuing. The LCD panel industry
is also facing a similar rise in the fierceness of competition,
and moves toward industry reorganization are becoming
apparent. Under such conditions, the capital expenditure
programs of major customers of the Nikon Group are
susceptible to change, including for example an acute
decline in order volume, switching an order to a rival firm,
or for whatever reason a situation arises that hinders the
customer’s ability to repay its debts. Such circumstances
could have a negative impact on the earnings and financial
position of the Nikon Group.
4. New Product Development Capability and
R&D Investment
The Nikon Group’s principal businesses are extremely
competitive, and require constant development of new
products through ongoing, advanced research and
development. Consequently, continual investment in prod-
uct development needs to be maintained regardless
of fluctuations in the Group’s earnings.
In the Precision Equipment Business, earnings could
decline if the development of new products and next-
generation technology is not conducted in a timely fashion,
or if the technology developed by the Group is rejected by
the market. There is also a risk that acquisition of a patent
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