Risk Management

Risk Management System and Implementation

Approach to Risk Management

Our Group has built and developed a risk management system to respond appropriately and promptly to various risks, such as geopolitical and market changes surrounding semiconductors, and to achieve sustainable growth. We believe that in addition to minimizing the impact of risks, that may be faced when conducting business, by giving them full consideration from a future perspective, also viewing them as business opportunities and appropriately addressing them are essential as a company that is trusted by society.

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Risk Management System and Implementation

In April 2024, we established the Corporate Project & Risk Management Office (CPRO) at the head office as a strategic department directly under the CEO to promote more effective risk management, and are working to further promote enterprise risk management*¹.
For major risks in business activities, we are implementing the following PDCA cycle throughout the Group.

The CPRO and the departments in charge of each business activities, together to comprehensively uncover various risks in our business activities, such as related to compliance, human resources and labor, and business continuity, based on their degree of impact on the Group and likelihood, identify 12 risk items, and appoint risk owners for each.
The 12 identified risk items are shared at the Risk Management Committee, which includes each risk owner.
Recognizing that mitigating risks is an opportunity that directly leads to improved business performance, quarterly review meetings attended by the CEO and each division officer review the progress of efforts on issues that are particularly problematic among the 12 risk items and discuss improvement measures.

The Group's risk management activities are regularly reported to the Board of Directors, which oversees various initiatives centered on those implemented by each risk owner. To continue practicing autonomous and highly effective risk management, we will carry out group-wide agile operations.
Additionally, we are also continuing to focus on the revision and operational improvement of our BCP for all Group companies, and we regularly conduct BCP drills and disaster drills to foster the practical ability to ensure the continuation of business operations in the event of an emergency.
Furthermore, we are actively promoting digital transformation in our risk management activities, and have been introducing GRC tools* that utilize digital technology since fiscal 2023. This introduction has made it possible to visualize the assessment of risks and response measures across the entire Group as well as to conduct global, cross-sectional information sharing between each owner and each responsible department.
To continue practicing autonomous and highly effective risk management, each owner will implement activities to further strengthen risk management for the 12 risk items across the entire Group.

Enterprise risk management: Group-wide systems and processes related to risk management activities

GRC tools: A system that contributes to managerial decision-making in a timely manner by systematically organizing multi-layered and complex corporate management functions and management information collected through the integration of Governance, Risk and Compliance (GRC) measures related to corporate activities

Risk Management Initiatives

We have begun assessing the current risk management state, identifying and examining mitigation measures for not only known and unknown risks that may surround the company in the future, but also emerging risks from a medium- to long-term perspective. As for fiscal 2024, the 12 risks identified to date were reviewed and reevaluated from the perspective of their potential to have a significant impact on our operating results, financial condition and cash flow. We then pushed forward risk management initiatives for each identified risk even further.

12 Risks

Item	Main Potential Risks	Main Risk Management Initiatives
⒈Market Fluctuations	A rapid contraction of the semiconductor market could lead to overproduction or an increase in dead inventory A sharp increase in demand could lead to an inability to supply customers with products in a timely manner, resulting in lost opportunities	Periodically review market conditions and orders received at the Board of Directors and other important meetings, and appropriately adjust capital investments, personnel/inventory planning and other aspects of business Establish a dedicated division to work closely with a wide range of customers around the world and to quickly identify their needs and capital spending trends. Through these efforts and others, we strive to strengthen our sales framework and further improve our customer responsiveness
2.Research and Development	Delays in the launch of new products or the mismatch of such products with customer needs could lead to a decline in the competitiveness of products	Establish the Corporate Innovation Division and build a Group-wide development framework that integrates innovative technology development with the technologies of each development division Provide highly competitive next-generation products ahead of competitors by collaborating with research institutions and sharing a technology roadmap spanning multiple generations with leading-edge customers
3.Geopolitics	Geopolitical tensions and regional conflicts that influence international order and global macroeconomic conditions can affect the national security, diplomatic, industrial or environmental policies of countries and regions. This could in turn lead to supply chain disruptions or deterioration of the macroeconomic environment, restricting the Company’s ability to operate business	Carefully monitor the international situation as well as the diplomatic and security measures and industrial policy trends in each country and region Analyze the implications on our business of regulations concerning product exports and imports and technological development and changes in the macroeconomic environment while actively engaging in dialogues with the policy-making authorities, industry groups and experts in various fields, and consider countermeasures in advance
4.Procurement, Production and Supply	Interruptions in the Company’s production due to natural disasters, delays in component procurement stemming from deterioration of suppliers’ business conditions, increased demand that exceeds suppliers’ supply capacities, changes in laws and regulations, a shrinking working population or other factors, and strains on domestic or international logistics networks could lead to delays in the supply of products to customers	Develop BCP, such as by establishing alternate production capabilities, seismically reinforcing our plants, promoting production leveling, maintaining backups of information systems, developing multiple sources of important components, and maintaining an appropriate level of inventory Share forecasts based on demand projections for semiconductors with suppliers and build a system for the stable supply of products
5.Safety	Safety problems with the Company's products or serious accidents resulting in workplace injuries could lead to damage to customers, liability for damages and a decline in public trust and confidence in the Company's safety initiatives	Based on the “Safety First” approach, we implement thorough safety design at the product development phase with risk reduction in mind By conducting risk assessments such as frontline workers’　hazard prediction meetings, we implement company-wide efforts such as identifying potential risks and implementing preventative or mitigation measures, promoting safety through in-house competency qualification and safety training programs that are designed according to job requirements and developing an accident reporting system
6.Quality	The occurrence of a product defect could lead to liability for damages, costs for countermeasures and a decline in the Group’s brand and credibility	Promote continuous education on quality to employees and suppliers to establish a quality assurance system and a world-class service system Resolve technical issues from the product development and design stage Thoroughly investigate the cause of any defects and implement measures to prevent the same or similar defects from occurring Monitor the quality status of suppliers, conduct audits and provide support for improvement
7.Environmental Issues	The inability to respond appropriately to each country’s climate change policies, environmental laws and regulations, and customer needs could lead to additional related costs such as for developing new products or changing specifications, as well as to reduced product competitiveness and diminished public confidence in the Company	To achieve industry leading medium- to long-term environmental goals that include the net zero target, implement measures such as reducing greenhouse emissions from the use of our products, increase the rate of renewable energy usage at plants and offices, reduce overall power consumption, review packaging materials, and promote a model shift Provide technologies, etc., that contribute to higher performance and energy efficiency of semiconductor devices through implementation of our E-COMPASS initiative
8.Laws and Regulations	Violations of the laws and regulations of the countries and regions where the Company operates could lead to diminished public confidence in the Company, fines, liability for damages or restrictions on business activities	Monitor compliance activities at key sites in and outside Japan under the direction of the Chief Compliance Officer Have assessments conducted by external experts and report identified issues to the CEO, the Board of Directors and the Audit & Supervisory Board for swift and effective action
9.Intellectual Property Rights	The inability to obtain exclusive rights to proprietary technologies could lead to reduced product competitiveness Infringement of the intellectual property rights of third parties could lead to restrictions on the production and sale of products as well as liability for damages	Advance the intellectual property strategy, business strategy and R&D strategy in an integrated manner to build an appropriate intellectual property portfolio Reduce the risk of infringement of other companies' patents by continuously monitoring other companies' patents and establishing a system to take appropriate measures in cooperation with the business and R&D departments
10.Information Security	Cyberattacks, internal fraud and other incidents against the Company or suppliers that cause data breaches or service disruptions could result in a loss of our competitiveness or technological superiority, interruptions of our manufacturing and other operations, diminished public confidence in us and damage claims	We strive to properly manage and protect our information assets through establishing a global security policy, educating and training employees to increase awareness, while implementing cybersecurity solutions, security monitoring, and safeguards against internal fraud and other technical and operational measures We have established an Information Security Committee to strengthen our group-wide security posture and are working to further enhance the effectiveness of our information security measures, including through internal audits and assessments by external agencies
11.Human Resources	The inability to recruit and retain necessary human resources on an ongoing basis or the inability to create an environment where people with diverse values and expertise can play an active role could lead to diminished product development capability or customer support quality	Make continuous improvements to work environments and promote diverse work styles as well as health and productivity management (e.g., sharing our visions by management, establishing training plans for human resource who will lead the future, visualizing career paths for employees and offering attractive remuneration and benefits) Fostering semiconductor talent through collaborative efforts between industry, government, and academia as well as strengthening our partnerships with academic institutions globally
12.Other Risks Such as Infectious Diseases and Natural Disasters	In addition to economic conditions, financial and stock markets, and foreign exchange rates, earthquakes, typhoons, heavy rains, floods and other natural disasters, and pandemics could cause the Company’s business activities to stagnate and the global economy to deteriorate	In addition to taking appropriate measures against each risk, in case of a potential impact on the continuation of the business, establish an Emergency Task Force headed by the CEO and implement measures to minimize the impact