Nikon 2011 Annual Report Download - page 30

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for new technology by a competitor will lead to a secession
of production or sales, or that margins will decline as a
result of royalty payments, as well as the possibility that
new technology adopted for the systems of a competitor will
drive down the price of the Company’s systems. For LCD
steppers and scanners, the entry of a new company into
the market or the introduction of a new technology would
likely lead to more intense competition, which could have an
impact on earnings.
In the Imaging Products Business, technical advancement
for digital cameras is rapid, products are becoming more
sophisticated and diverse and continual investment is
necessary to develop new products and technologies.
However, if the results of such investment are not fully
realized, or if there is a sudden shift in demand toward more
advanced digital devices, it is possible that the technologies
and products developed will not lead to greater earnings.
Similar to the Precision Equipment Business, there is a
risk that acquisition of a patent for new technology by a
competitor will lead to a secession of production or sales,
or that margins will decline as a result of royalty payments,
which could have an impact on earnings.
5. Intensifying Price Competition
In digital cameras, the principal product of the Imaging
Products Business, competition is becoming more
intense with the entry into the market of electric goods
manufacturers in Japan and overseas alongside traditional
camera producers. Also, since the product lifecycle is
short, particularly for compact digital cameras, companies
tend to try to sell products manufactured in large quantities
in a short period of time, which drives further price
competition due to slower market expansion.
In IC steppers and scanners, there is a possibility that
while the development of advanced technology progresses,
competitors will launch a price-reduction offensive.
In the Instruments Business, the maturing of the
microscope market will enhance competition centered on
product differentiation. Price competition is becoming
tighter particularly in the market for mid-range and low-
end products, and a sudden fall in prices could have a
negative impact on the earnings and financial position of
the Nikon Group.
6. Overseas Business
The Nikon Group’s production and sales activities are
largely dependent on countries outside Japan. Consequently,
business in Japan and overseas is susceptible to changes in
laws, tax structures and regulations regarding imports and
exports. Nikon’s business activities could incur significant
damage or loss as a result of risks inherent in overseas
business, including fluctuations in political structure or
economic environment; societal turmoil due to insurgency,
terrorism, war, epidemic or other factors; damage to
water, electric, telecommunications or other aspects of
infrastructure, or to distribution functions as a result of
natural disasters; and difficulties in recruitment or loss of
personnel. Such events would constrain production and/or
sales, which could have a negative impact on the earnings
and financial position of the Nikon Group.
7. Currency Fluctuation Risk
The Nikon Group is heavily dependent on overseas markets,
with overseas sales accounting for 85.7% of all sales.
Consequently, although the Group conducts appropriate
currency hedging in accordance with sales volume and
region, sharp fluctuations in foreign currency markets could
have an impact on sales and earnings from transactions
conducted in foreign currency for the Group’s products and
services denominated, as well as on the profits, assets and
liabilities of overseas subsidiaries, when converted into
Japanese yen.
8. Financing Risk
The Nikon Group conducts financing appropriate to its
capital needs, in consideration of the long-term and short-
term balance, and balance of direct and indirect financing.
However, deterioration in the finance market environment
could have an impact on the Group’s financing, including
increase in interest rates, or limitations on financing methods.
Further, downgrading of the ratings on the Company’s
corporate bonds or other issues as a result of deterioration
in earnings could have a similar impact on the Group’s
financing.
9. Protection of Intellectual Property Rights and
Litigation Risk
The Nikon Group has acquired and holds a large amount
of intellectual property rights as a result of its product
development activities. These intellectual property rights
are sometimes licensed to other companies. The Company
makes the utmost effort to maintain and protect these
intellectual property rights, but in the event the unauthorized
use of the Group’s intellectual property rights leads to
litigation, there is a possibility that substantial legal expenses
could be incurred.
The Nikon Group also conducts its product development
with due consideration to not infringing on the intellectual
property rights of third parties, but there is a possibility
that the Company will face litigation for infringement
of intellectual property rights from other companies,
individuals or other parties. Such circumstances could have
a negative impact on the earnings and financial position of
the Nikon Group.
10. Retaining Key Personnel and the Loss of
Personnel or Expertise
The Nikon Group relies on personnel who possess expertise
and skills in advanced technology and other areas, and
retaining these personnel is important to overcoming the