Sharp 2007 Annual Report Download - page 34

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RISK FACTORS
Listed below are the principal business risks of Sharp that
may have a significant influence on investors’ decisions. Note
that in addition to these there exist certain other risks that
are difficult to foresee. Each of these risks has the potential
to impact the operations, business results and financial
position of Sharp. All references to possible future
developments in the following text were made by Sharp as of
March 31, 2007.
(1) Global market trends
Sharp manufactures and sells products and services in
different regions around the world. Business results and
financial position are thus subject to economic and consumer
trends (especially trends in private consumption and
corporate capital investment), competition with other
companies, product demand, raw material supply and price
fluctuations in each region. The political and economic
situation in respective areas may also exert an influence on
business results and financial position.
(2) Exchange rate fluctuations
The proportion of consolidated net sales accounted for by
overseas sales stood at 47.6% in fiscal 2004, 50.1% in fiscal
2005 and 51.2% in fiscal 2006. Although Sharp employs
forward exchange contracts to hedge the risk of exchange
rate fluctuations while simultaneously seeking to expand and
strengthen overseas production, such fluctuations may affect
the business results of Sharp.
(3) Strategic alliances and collaborations
Sharp implements strategic alliances and collaborations with
other companies in respective business fields to bolster the
development of new technologies and products, and to
enhance competitiveness. If, however, any strategic or other
business issues arise, or objectives change, it may become
difficult to maintain such alliances and collaborative ties with
these companies, or to generate adequate results. In such
cases, the business results and financial position of Sharp
may be impacted.
(4) Business partners
Sharp procures materials and receives services from a large
number of business partners, and transactions are made
only once a detailed credit check of the company has been
completed. However, there exists the possibility that
business partners suffer deterioration in performance due to
slumping demand or severe price erosion, or face
unexpected M&A, which may affect the business results and
financial position of Sharp.
(5) Technological innovation
New technologies are rapidly emerging in the markets that
Sharp operates. Such condition could change social
infrastructure and intensify market competition, which may
impact the business results and financial position of Sharp.
(6) Intellectual property rights
Sharp strives to protect its proprietary technologies by
acquiring patents and other intellectual property rights.
However, there are possibilities that rights are not granted,
and Sharp may be unable to get sufficient legal protection of
its proprietary technologies. In addition, there may be times
that a third party infringes on the intellectual property rights
of Sharp. Sharp may launch legal action against a third party
in response to the wrongful use of its intellectual property
rights. Conversely, a third party may launch legal action
against Sharp if it deems that its intellectual property rights
have been breached. Such litigation may impose a heavy
financial burden on Sharp. Although compensation is given to
employees for innovations that they make in the course of
their work pursuant to a patent reward system governed by
internal regulations, an employee may consider such
payment inadequate and initiate legal action.
(7) Product liability
Sharp manufactures products in accordance with strict
quality control standards to ensure the utmost in quality. In
order to fulfill responsibility as a manufacturer in case
product defects do arise, Sharp has insurance to cover any