Nintendo 2008 Annual Report Download - page 22

18
•Overseas business expansion and international activities
In addition to Japan, Nintendo engages in business in the Americas, Europe, Australia, Asia and other areas throughout the
world. Expansion of business to these overseas markets involves risks such as  unpredicted enforcement or changes to laws or
regulations,  disadvantages from emergence of political or economic factors,  disadvantages from inconsistency of multilateral
taxation systems and diversity of tax law interpretation,  difficulty of recruiting and securing human resources,  social disruption
resulting from terrorist attacks, war, and other catastrophic events.
•Dependency on third-party manufacturers
Nintendo commissions a number of third-party manufacturers to produce key components or assemble finished products. In
the event one or more of these businesses fail, Nintendo may have difficulty procuring key components or manufacturing its
products. In addition, suppliers may be unable to provide necessary components on a timely basis. A shortage of key components
could cause margin decline due to higher costs, shortage of products and quality control issues. These issues may impair the
relationship between Nintendo and its suppliers.
Furthermore, as many suppliers’ production facilities are located overseas, potential production interruptions caused by riots
or disasters in the area would negatively affect Nintendo’s business.
•Business operations affected by seasonal fluctuation
A major portion of demand is focused around the holiday season. Should Nintendo fail to release attractive new products or
supply hardware during the period, it would suffer unfavorable operating performance.
(3) Risks around legal regulations and litigation
•Product liability
Nintendo manufactures its products based on quality control standards required in each location throughout the world. However,
in the future, large-scale product recalls may occur due mainly to defective products. If it is the case, Nintendo may incur additional
expenses in connection with lawsuits on product liability and Nintendo’s reputation may suffer as well as Nintendo’s performance
and financial position.
•Limitations of protecting intellectual property rights
Although Nintendo continues to accumulate various intellectual properties to produce differential products, counterfeit products
already have gone into circulation and violated Nintendo’s intellectual property rights. It may not be possible to fully protect its
intellectual property rights.
•Leakage of personal and confidential information
Nintendo possesses consumer’s individual information such as memberships of “Club Nintendo”. If such information or confidential
information concerning development and business operation should leak outside of Nintendo, these issues may adversely affect
Nintendo’s future operating performance, share price and financial condition.
•Changes in accounting standards and taxation system
Unpredicted adoptions or changes in accounting standards or taxation system could have an effect on Nintendo’s performance
and financial position. Conflict of views between Nintendo and the tax authorities may cause additional tax costs.
•Litigation
Nintendo’s operations in Japan and overseas may be subject to litigation, disputes and other legal procedures. These issues
may adversely affect Nintendo’s performance.
(4) Other risks
Other than risks set forth above, factors such as uncollectibility of trade accounts receivable and notes receivable, collapse of
financial institutions and environmental regulations may adversely affect Nintendo’s performance and financial position.
Analysis of Operations and Financial Review