Toshiba 2006 Annual Report Download - page 57

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RISK FACTORS RELATING TO THE TOSHIBA GROUP AND ITS BUSINESS
The Group’s business areas of energy and electronics require highly advanced technology. At the same time, the Group faces
fierce global competition. Therefore, appropriate risk management is indispensable. Major risk factors related to the Group
are described below. The actual occurrence of any of those risk factors may adversely affect the Group’s results and financial
condition. In order to promote full disclosure to investors, this also may cover risk in the wider aspect. The Group recognizes
these risks and makes every effort to manage them and to minimize any impact.
These risks include potential risks for future, that the Group judged as risk as of the end of March 2006.
(1) Acquisitions and others
The Group entered into an agreement in February 2006 to acquire Westinghouse at a cost of US$5.4 billion. As a result, a
substantial amount of goodwill may be recorded in the Company’s consolidated balance sheets, pursuant to with US general-
ly accepted accounting principles (US GAAP).
The Company believes this goodwill is appropriate, reflecting Westinghouse’s future capabilities for profit generation and
the synergy to be obtained from combining Westinghouse and Toshiba Group. However, it is a significant task for the
Group to maintain and raise the value of the goodwill continuously.
(2) Reliance on Electronic Devices business
The Group is highly reliant on its Electronic Devices business segment in operating income. If the results of the segment are
weak, the Group may be unable to offset them with any profits it may make from other business segments.
(3) Business environment of Digital Products business
The market for the Digital Product segment is intensely competitive, with many competitors manufacturing and selling
products similar to those offered by the Group. In addition, demand for products in this segment can be volatile. In times of
decreased consumer spending, demand for the Group’s products can be low, while times of rapid increases in demand may
result in shortages of parts and components, hampering the Group’s ability to supply products to the market in a timely
manner. The segment makes every effort to monitor the demand situation, however if demand fluctuates rapidly, price ero-
sion and increases may occur in the prices of components.
Furthermore, some products in this segment are dependent on particular customers.
(4) Business environment of Electronic Devices business
The market for the Electronic Devices segment is highly cyclical in demand, a situation usually referred to as the “silicon
cycle”. In addition, competition to develop and market new products is severe. The segment makes every effort to monitor
shifts in the market, but if the market faces a downturn, if the Group fails to market new products in a timely manner, or if
there is a rapid introduction of new technology, the Group’s current products may become obsolete.
In addition, this business segment requires significant levels of capital expenditure. While efforts are made to invest in
stages by watching the demand situation carefully, unpredicted market change may make production capacity for particular
products available at a time when demand for those products is on the wane, creating saturation.
(5) Business environment of Social Infrastructure business
A significant portion of net sales in the Social Infrastructure segment is attributable to government and local municipality
expenditure on public works and private capital expenditure. The segment monitors the trend in these capital expenditures,
and makes best efforts to cultivate new business and customers, in order to avoid undue impact from any fluctuation in the
trend, however, reductions and delays in public works spending, as well as low levels of private capital expenditure, can
adversely affect the segment business.
Furthermore, the business of this segment involves supply of products and services in relation to large-scale projects.
Delays, changes in plans, stoppages, natural and other disasters, and other factors beyond the control of the segment and that
affect the progress of such projects may adversely affect the segment’s business operations.
(6) Lawsuits
The Group undertakes global business operation, and is investigated by authorities and involved in disputes, including law-
suits, in several regions. Due to differences in judicial systems it is difficult to rule out the possibility that the Group may be
subject to a judicial order requiring payment of an amount far exceeding normal expectations, a factor that results in signifi-
cant difficulty in estimating potential exposure. Judgments or decisions unfavorable to the Group may impact on Group
operations.
Lexar Media, Inc. filed suit against the Company and its US subsidiary, Toshiba America Electronic Components, Inc.
alleging misappropriation of NAND flash-related trade secrets and related misconduct. In December 2005, the Superior Court
of the State of California (the court of first instance) granted a new trial on damages, vacating a March 2005 jury award from the