Toshiba 2014 Annual Report Download - page 100

12 TOSHIBA Annual Report 2014
Management's Discussion and Analysis
competitiveness, and consequently, investments in R&D expenditures and investments in advances into new business
areas for the Healthcare Systems and Services business may not fully generate the anticipated level of profit.
(4) Business environment of the Electronic Devices and Components business
The market for the Electronic Devices and Components business is highly cyclical, depending on demand, and intensely
competitive, with many companies, mainly in overseas markets, manufacturing and selling products similar to those
offered by the Group. The results of this business tend to change with economic fluctuations and, in particular, to be
heavily affected by exchange rate fluctuations. Unforeseen market changes and corresponding changes in demand at the
time of production may result in a mismatch between the production of particular products based on the sales volume
initially expected and the actual demand for such products, or cause the business to be adversely affected by a decrease
in product unit prices due to oversupply. In particular, the price for NAND flash memory, the Group’s major product in this
business, may undergo rapid change, and changes in the consumer market or semiconductor heavy users may influence
demand for System LSIs and other semiconductor products.
Fluctuations in the results of this business may materially affect the Group’s overall business performance. In addition,
the market may face a downturn, the Group may fail to market new products in a timely manner, production may not go
as planned, or a rapid introduction of new technology may make the Group’s current products obsolete. Economies of
scale with respect to the manufacture of the many products produced by this business are significant and there is intense
competition to develop and market new products. Therefore, significant levels of capital expenditures are required to
maintain and improve competitiveness in both the price and quality of products.
The Group makes every effort to implement the business by focusing its attention on these factors and promoting
strategic allocation of resources. At the same time, the Group makes every effort to increase profits by enhancing cost
competitiveness, which is to be achieved by maintaining a technological advantage, and expanding the product line-up.
Additionally, the Group undertakes rigorous selection in its investments and makes every effort to carefully monitor the
latest market trends and to make capital investments in a timely manner, while thoroughly controlling flexible production
that corresponds to fluctuations in market demand, adjustment of supplies and investment management. The Group
promotes procurement of components from overseas in US dollars in order to mitigate the impact of exchange rate
fluctuations.
(5) Business environment of the Lifestyle Products and Services business
The market for the Lifestyle Products and Services business is intensely competitive, with many companies manufacturing
and selling products similar to those offered by the Group. Additionally, this business may be significantly affected by
exchange rate fluctuations, economic fluctuations and consumer spending trends which may be affected by the
scheduled increase in consumption tax, among other things. The Group makes efforts to monitor the latest trends in
market demand in order to better respond to changes in supply and demand conditions, and also makes every effort to
minimize the potential impact of the market volatility. However, any rapid fluctuation in demand may result in price
erosion or increases in prices of parts and components, which may adversely affect the Group’s financial results with
respect to this business.
The Group is promoting structural reforms in an attempt to improve profit and enhance the basic structure of the
Lifestyle Products and Services business. In this connection, there is a possibility that the Group will incur expenses for
business structure reform which may give material negative impact on profitability.
(6) Financial risk
Apart from being affected by the business operations of the Company or the Group, the Company’s consolidated and
nonconsolidated results and financial condition may be affected by the following major financial factors:
(i) Deferred tax assets
The Company accounted for a substantial amount of deferred tax assets. The Group reduces deferred tax assets by a
valuation allowance if, based on the weight of available evidence, some portion or all of the deferred tax assets are
unlikely to be realized. Recording of valuation allowances includes estimates and therefore involves inherent uncertainty.
The Group may also be required hereafter to record further valuation allowances, and the Group’s future results and
financial condition may be adversely affected thereby.
The Group may be affected by future tax regulatory changes as the recordation of deferred tax assets and valuation
allowances have been made based on the currently-effective tax regulations.
(ii) Exchange rate fluctuations
The Group conducts business in various regions worldwide using a variety of foreign currencies and is therefore exposed
to exchange rate fluctuations.
Although the Group makes efforts to minimize the effect of fluctuation in exchange rates by balancing sales in foreign
currencies and purchase in foreign currencies, there is a possibility that operating income/loss will be affected by
exchange rate fluctuations due to a change in the balance in each business segments and other factors. Also, there is a
possibility that such foreign exchange losses will occur, as resulting from a difference between the exchange rates at the