Toshiba 2007 Annual Report Download - page 77

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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 2007. They also include
issues that may not affect investment judgment, but which are mentioned in line with the Group’s policy of proactive disclo-
sure.
(1) 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.
(2) Business environment of Electronic Devices business
The market for the Electronic Devices segment is highly cyclical in demand. 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.
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 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.
(4) Acquisitions and others
In October 2006, the Group completed the $5.4 billion acquisition of all the stock of BNFL USA Group Inc. (currently
TSB Nuclear Energy USA Group Inc.) and Westinghouse UK Limited (collectively “Westinghouse”), which has its pri-
mary operations in the nuclear power systems business. In this connection, the Company entered into partnership agree-
ments with the Shaw Group (“Shaw”), a major US engineering firm, and Ishikawajima-Harima Heavy Industries Co., Ltd.
(“IHI”), a leading Japanese heavy electrical engineering company, that ensured the participation of these two companies as
strategic business partners in the Company’s acquisition of Westinghouse. Currently, the Company’s ownership interest is
77%, Shaw’s 20%, and IHI’s 3%. The Company also continues talks with other companies that are interested in participation
in this investment. As a result of the acquisition, a substantial amount of goodwill is recorded in the Company’s consolidated
balance sheet, pursuant to US generally accepted accounting principles (US GAAP).
The Company believes that this goodwill is appropriate, reflecting Westinghouse’s future capabilities for profit generation
and the synergy to be obtained from combining Westinghouse and Toshiba Group. Nonetheless, it is a significant task for
the Group to maintain and raise the value of the goodwill.
Under the partnership agreements, Shaw and IHI are restricted from transferring their ownership interests for six years.
The Company gives each of Shaw and IHI an option to sell all or part of its ownership interest to the Company during a cer-