Risk Factors
Risks that can affect NIDEC's operating results, stock price, and financial condition include the following.
１．Management strategy risks
（１）Risks related to political and economic downturns (Especially significant risk)
【Risk details】Our products and the end-products are produced and consumed in Asia, Americas, Europe and Japan, mainly in China, and demand for our products may be adversely affected by unexpected economic, political and policy, consumption trends in these countries or regions. Capital investment levels in the manufacturing sector can be particularly sensitive to economic trends, and a decline in capital investment could adversely affect sales of our products that are used in industrial applications. 【Main countermeasures】・Reduce risks and maximize business opportunities by promoting the opening of business sites (local sales and development activities) and local production for local consumption (local production and sales activities)・Reduce dependence on business models of existing businesses through timely confirmation and review of the business portfolio, and promote business and organizational renewal for sustainable corporate growth
（２）Risks related to changes in the technological environment and industrial structure (Especially significant risk)
【Risk details】If changes in demand due to technological changes and changes in customer trends in response occur at a faster pace than NIDEC expects, NIDEC’s operating environment in this market may be adversely affected. For example, the HDD motor business is one of NIDEC’s main businesses and has been a revenue base for NIDEC for a long time. However, the structural changes in the storage market due to the establishment of SSD and cloud computing have led to changes in the business model of customers, leading to a decline in demand for NIDEC’s HDD motors. 【Main countermeasures】・Optimize business by focusing on high-demand products such as HHDD motors for cloud servers ・Accelerate business portfolio conversion, such as concentrating resources on new products
（３）Risks related to competition (Especially significant risk)
【Risk details】NWe generally face aggressive competition in the markets in which we conduct business. Particularly in the markets for automotive and appliance components, we often face fierce competition with domestic manufacturers in emerging economies. Our competitiveness may decline and/or our profitability may be adversely affected if: ・any of our markets develops faster than our expectations due to rapidly increasing demand or otherwise, causing our market share to decline relative to our competitors that are able to better meet increasing demand or otherwise cope with developing markets; ・our cost reduction efforts are insufficient to offset declines in market price levels or increases in raw material costs; ・our competitors’ competitive efforts result in technological innovations, improved manufacturing efficiencies or enhanced research and developmental capabilities, rendering our products and technologies obsolete; ・mergers or consolidations among our competitors result in a relative decline in our competitive position; or ・we are unable to obtain financial, technological, human or other resources necessary to maintain or enhance our investments. 【Main countermeasures】・Maintain and increase investments in R&D fields, and expand manufacturing, sales and marketing capabilities ・Timely launch of new products ・Further improve profitability of existing products ・Reduce costs to ensure profitability
（４）Risks related to prior investments for anticipated customer demands (Especially significant risk)
【Risk details】If NIDEC anticipates growth in demand, we may expand our manufacturing capabilities in advance of anticipated customer demand or place advance orders for parts and materials in anticipation of lead times. Therefore, should we fail to accurately estimate the development and market entry trends of competitors or changes in product demand trends, the following risks could have a significant impact on NIDEC's operating results and financial position. 【Main countermeasures】・Consider thoroughly the necessity, recoverability, and amount of investment in the process of deciding on capital investment ・Confirm progress against the plan monthly and consider appropriate measures/minimize loss risk ・Minimize damage to economic value due to obsolescence ・Reduce financial risk by minimizing the amount of investment
（５）Risks related to M&A (Especially significant risk)
【Risk details】 We have achieved much of our growth by acquiring and otherwise investing in other companies that have provided us with complementary technologies, product lines, marketing and sales networks, and customer base. The continued success of our acquisition and investment activities constitutes a key factor in achieving our current business strategy. In a rapidly changing market, NIDEC may be unable to keep pace with the pace of market growth if we are unable to properly select and acquire the technologies necessary to change our business model. In addition, an inability to find suitable acquisition or investment targets, could have material adverse effect on NIDEC’s business, operating results and financial position. Although we believe that these assets appropriately reflect the future profitability achieved through the efficient integration of the acquired businesses, we may not be able to generate the estimated profit due to a deterioration of the business environment and others. In that case, NIDEC will need to recognize an impairment of these assets, which could adversely affect operating results and financial position. 【Main countermeasures】・Select companies to be acquired in line with NIDEC’s business strategy ・Purchase at a reasonable price following thorough preliminary investigation ・Prompt and thorough post-acquisition PMI ・Increase the corporate value of the acquired company and minimize the risk of goodwill impairment while deeply instilling NIDEC's management philosophy and management methods in all employees and creating synergies upon entering the Group
２．Business operation risks
（１）Risks related to recruiting and retaining highly skilled personnel (Especially significant risk)
【Risk details】 NIDEC is now on the verge of being able to ride the wave of technological innovation. Therefore, it is necessary to hire additional human resources with advanced knowledge and skills in new markets, and to create a system to develop and utilize them while fostering awareness as a NIDEC employee. If NIDEC may be unable to attract such additional personnel, NIDEC could lose the opportunity to ride on the wave of technological innovation. 【Main countermeasures】・Gradually introduce three human resources system reforms (evaluation system, grading system, and compensation system) ・Hire highly specialized human resources, secure management personnel, and strengthen development processes
（２）Risks related to our research and development
【Risk details】 The markets in which NIDEC provides its products are continually undergoing rapid technological innovation, focusing resources on five areas: decarbonization, energy-saving, labor-saving, 5G and thermal solutions, and digital data explosion. In such markets, our success will depend upon our ability to continue to develop superior technologies, products and processes in a manner in order to meet our customers’ needs. If third parties succeed in developing new technologies, products or processes that are more attractive to our customers than ours due to our inability to accurately anticipate the direction of the market, our inability to conduct research and development in an effective or timely manner or otherwise, our products could be rendered obsolete, their sales share shrinks, and they will impede the expansion of new product businesses and markets. If we are unsuccessful in our research and development activities, our business, results of operations and financial position could be materially and adversely affected. 【Main countermeasures】・Develop new products and solutions that meet the expectations and requirements of market, technological, and customer trends ・Improve effectiveness and efficiency and create groundbreaking innovation ・Further strengthen product development capabilities and advance and upgrade production technology
（３）Risks related to quality of our products
【Risk details】 Customer quality requirements are constantly changing, and environmental regulations on product materials and quality requirements for products are becoming more sophisticated. Failure to provide safe, high-quality products can lead to accidents that could result in property damage or the loss of human life. In addition to legal recalls, society demands particularly high levels of safety. If such malfunction is caused by or attributed or alleged to be attributed to defects in our products, significant legal claims and customer disputes could be occured and we may be subject to adverse regulatory action. Our results of operations may be adversely affected by costs associated with recalls, deterioration of brand image or lost sales. In addition, significant financial and human resources may be incurred, and management’s attention may be diverted, if we are required to defend ourselves against legal claims. 【Main countermeasures】・Identify and address potential issues in order to ensure product quality and safety, and prevent product defects by developing a quality management system ・Review regulations and guidelines as appropriate
（４）Risks related to procurement of raw materials or components
【Risk details】NIDEC procures many of the raw materials and parts necessary for the manufacture of products from outside sources. If the supply and demand conditions for these materials deteriorate extremely, NIDEC’s production capacity will decline. Furthermore, a country’s governmental policy changes relating to specific raw materials or conditions of use of components and changes in customers' procurement policy, etc. 【Main countermeasures】・Secure alternative materials based on consideration of the environment, human rights, working environment and resource availability in the procurement process of parts ・Continually review design concepts to reduce the amount of raw materials and parts used
（５）Risks related to intellectual property
【Risk details】Our business is dependent on our ability to protect the proprietary rights to our technologies and products and other intellectual property, which we seek to protect through patent, trademark, copyright and other legal protection afforded to intellectual property rights as well as contractual provisions and our internal information control system. Despite these efforts, we face the following risks because legal systems may be inadequate in some regions. ・We could incur substantial costs in defending against claims of infringement of the intellectual property of others, and such claims could result in damage awards against us, orders to pay for the use of previously unrecognized third-party intellectual property or injunctions preventing us from continuing aspects of our business, which could in turn have a material adverse effect on our business, results of operations and financial position;• our protective measures may not be adequate to protect our proprietary rights; ・Other parties, including competitors with substantially greater resources, may independently develop or otherwise acquire equivalent or superior technology, and we may be required to pay royalties to license the intellectual property of those parties; ・Patents may not be issued pursuant to our current or future patent applications, and patents issued pursuant to such applications, or any patents we own or have licenses to use, may be invalidated, circumvented or challenged; ・The rights granted under any such patents may not provide competitive advantages to us or adequately safeguard and maintain our technology; ・We could incur substantial costs in seeking enforcement of our patents against infringement or the unauthorized use of our trade secrets, proprietary know-how or other intellectual property by others; and ・The laws of foreign countries in which our products are manufactured and sold may not protect our products and intellectual property rights to the same extent as the laws of Japan, and such laws may not be enforced in an effective manner. 【Main countermeasures】・Investigate intellectual property rights owned by third parties comprehensively and continuously from the initial stage of product development ・Actively acquire, maintain and manage intellectual property rights in order to strengthen our competitive advantage and maintain our competitiveness by protecting our proprietary technologies
（６）Risks related to leaks of confidential information
【Risk details】 In the normal course of business, we possess personal and other confidential information on our customers, other companies andother third parties with whom we do business as well as personal information of our employees. Although we have securitymeasures, access control in research and development sites and strict management of CAD data, etc. in place to protect suchinformation, we may be subject to liability or regulatory action if any of such information is leaked due to human or technical error,unauthorized access, other illegal conduct or otherwise. Failure to protect confidential information could also lead to a loss of ourcompetitive advantage and customer and market confidence in us, adversely affecting our business, results of operations andfinancial position. Moreover, societal trust in our sales activities, systems and brand image will be lowered. 【Main countermeasures】・Build a group-wide security management system (Establishment of the Information Security Management Office, monitoring of activities by the Information Security Committee, appointment of Information Security Management Officer and Information Security Promotion Officer) ・Provide information security education to employees ・Conclude confidentiality agreements for each M&A-related individual case to ensure thorough information management
（７）Risks related to our pension plans
【Risk details】Some companies of the NIDEC Group adopt both a defined benefit pension plan and a defined contribution pension plan for theiremployees who fulfill certain requirements. We may incur losses if the fair value of our pension plans’ assets declines, if the rate ofreturn on our pension assets declines, or if there is a change in the actuarial assumptions on which the calculations of the projectedbenefit obligations are based. We may also experience unrecognized service costs in the future due to amendments to existingpension plans. Moreover, fluctuation in interest rates, changes to the environment surrounding NIDEC and other factors mayadversely affect the amount of unfunded pension obligations, among other factors. In addition, the assumptions used in thecomputation of future pension expenses may not remain constant. 【Main countermeasures】・Integrate the retirement allowance system into the defined contribution pension plan ・Establish a governance system for the pension system and cooperation with third party organizations
（８）Risks related to fluctuations of foreign currency exchange rates
【Risk details 】 A significant portion of our overseas sales is denominated in currencies other than the Japanese yen, primarily the U.S. dollar,Euro, the Chinese yuan and Thai baht. As a result, the appreciation of the Japanese yen against the U.S. dollar, Euro and othercurrencies will generally have a negative effect on our sales, operating profit and profit. We may also experience significant effects from foreign currency exchange rate fluctuations when the results of operations ofsubsidiaries operating in currencies other than the yen are consolidated into our financial statements, which are reported in Japaneseyen. 【Main countermeasures】・Reduce exchange rate risk by offsetting exchange rates between sales and purchases
（９）Risks related to fluctuations of interest rates
【Risk details】 We have long-term receivables and interest-bearing liabilities with fixed and variable interest rates. We are exposed to interest rate fluctuation risks on these receivables and liabilities which may affect ourinterest expenses, interest income and the value of our financial assets and liabilities 【Main countermeasures】・Reduce the risk of fluctuations in interest rates by entering into agreements such as interest swaps for long-term receivables and interest-bearing debt loans
（1０）Risks related to our liquidity of funds
【Risk details】 We rely on borrowings from financial institutions and direct equity financing from financial markets to finance our operations,capital expenditures and acquisitions of other companies. If, due to rapid changes in financial market conditions or other factors, financial institutions reduce the amounts of their lending, creditlines, or terms of lending to us, and if we are unable to find alternative financing sources on equally or more favorable terms, ourbusiness may be materially adversely affected. In addition, if there is a significant downgrade of our credit ratings by one or morecredit rating agencies as a result of any deterioration of our financial position or if investor demand significantly decreases due toeconomic downturns or otherwise, we may not be able to access funds when we need them on acceptable terms, our access to capitalmarkets may become more restricted, or the cost of financing our operations through indebtedness may significantly increase. Thiscould adversely affect our business, results of operations and financial position. 【Main countermeasures】・Maintain and improve credit ratings and diversify funding sources. Improve cash flow by curbing capital investment and reducing working capital and use a global cash management system (CMS) to concentrate the Group's surplus funds and respond to demand for funds, thereby increasing the efficiency of funds.
（１１）Risks related to recoverability of deferred tax assets
【Risk details】 We must assess the likelihood that our deferred tax assets will be recovered from future taxable profit and to the extent we believethat recovery is not likely, we are required to reduce our deferred tax assets. In the event of a deterioration in market conditions orresults of operations in which we determine that there is additional uncertainty regarding realization of all or part of our net deferredtax assets, the resulting adjustment to our deferred tax assets would decrease our profit during the period in which suchdetermination is made. 【Main countermeasures】・Conduct periodic reviews of the recoverability of deferred income taxes assets and the need to record valuation allowances, and develop tax planning
３．Governance risks
（１）Risks related to our dependence on our Representative Director and Chairman, Shigenobu Nagamori
【Risk details】 The continued success of NIDEC has depended mainly on the abilities and skills of Mr. Shigenobu Nagamori, the founder of NIDEC. In the current situation where various economic and political risks have become apparent, there is a possibility that NIDEC will be unable to produce a new leader to drive growth under the founding spirit of NIDEC, “Do it now; do it without hesitation; do it until completed.” This may have a negative impact on NIDEC's businesses, operating results and financial position. 【Main countermeasures】・Continuously implement and operate a new succession plan to prepare for the next 50 years （1）Promote sustainability-minded management through a collective management (collective guidance) system （2）Under new President Fumio Kishida (Chief Executive Officer), build a solid management foundation and promote reform of the system that relies on the founder * The new President is deliberated by the Nomination Committee and resolved by the the Members of the Board of Directors Committee. （3）Strengthen the organizational cooperation among the Group executives (strengthening of the Chief Officer System)
（２）Risks related to internal controls over financial reporting
【Risk details】 NIDEC has determined that there is a material deficiency that should be disclosed in terms of the internal controls of the settlement of accounts and financial reporting process, as it has become clear that NIDEC’s consolidated subsidiaries have misidentified a part of their consolidated reconciliation, such as net sales, which involves transactions between the Group’s consolidated subsidiaries in the consolidated closing procedure, as subject to reconciliation, and that net sales has been overstated. NIDEC is fully aware of the significance of internal controls over financial reporting. In order to correct material deficiencies that should be disclosed, NIDEC secured the reliability of financial reporting by promptly formulating and implementing the following measures to prevent recurrence in the Group, such as examining the settlement of accounts from various perspectives and strengthening the approval procedures by the person with the authority to approve. However, if a material deficiency that should be disclosed occurs again in the future, the reliability of the Group's financial reporting may be affected. 【Main countermeasures】・Conduct of a detailed review of the financial statements disclosed in prior years and of the consolidated financial statements included in the revised consolidated financial statements to identify other related issues and improve accounting and presentation ・Update of policies related to consolidated accounting procedures, strengthening of the system to grasp accurate and comprehensive information necessary for identifying reconciliation transactions related to transactions between consolidated subsidiaries, and implementation of training focusing on verification of consolidated accounting procedures and approval procedures by the person with the authority to approve ・Strengthen the comprehensive monitoring function of the accounting and finance managers of NIDEC and its subsidiaries with respect to the consolidated settlement procedures and strengthen the review and approval procedures relating to the reconciliation of transactions between consolidated subsidiaries in the settlement of accounts and financial reporting process
４．Risks related to contingencies
（１）Risks related to natural and human disasters
【Risk details】 Natural disasters, fires, public health issues, armed hostilities, terrorism and other incidents, whether in Japan or any othercountry in which we or our suppliers operate, could bring about political or economic instability and cause damage to us, oursuppliers or customers. In the event of a large-scale natural disaster or pandemic that severely damages transportation and energyinfrastructure, production and sales activities by NIDEC and its supply chain in the affected area will be suspended until safety isassured. In the event of a disaster in China or other overseas regions where NIDEC’s production and development bases, customers,and many of its supply chains are active, or in Japan where NIDEC’s head office functions and other important R&D facilities arelocated, the damage will be particularly severe. Our network and information systems are important for normal operations, but suchsystems are vulnerable to shutdowns caused by unforeseen events such as power outages or natural disasters or terrorism, hardwareor software defects, or computer viruses and computer hacking. Any such events, over which we have little or no control, couldsignificantly hinder our production activities and our sales activities, delay the delivery of products, and make it difficult for us toobtain materials and components from suppliers, and also may require large expenditures to repair or replace our facilities. 【Main countermeasures】・Risk transfer through non-life insurance ・Implement business continuity measures such as the decentralization of production sites, duplication of supply chains, and strengthening of cybersecurity measures ・Improve the effectiveness of the business continuity plan (BCP) by formulating BCP and conducting simulation exercises
（２）Climate Change Risks
【Risk details】 Since COP21 adopted the Paris Agreement in December 2015, the issue of climate change has come to be positioned as a globalpriority for businesses in all countries and regions. For NIDEC, which develops businesses around the world centering on productdevelopment and production activities, climate change is not only an opportunity for business creation but also a source of wide-ranging medium- to long-term business risks. The realizationof the following risk events could have adverse effects on NIDEC's financial position.
「Transition risk」
a) The increase of tax burden due to delays in responding to carbon tax and other energy transformation measures aimed atrealizing a decarbonized society;
b) The loss of market opportunity and increased compliance costs due to stricter regulations applied to existing products andservices, and non-compliance with new standards;
c) The loss of market opportunity and increased compliance costs due to stricter regulations applied to existing products andservices, and non-compliance with new standards;
d) The delay in research and development of alternative raw materials required by new low-carbon products and increase ofassociated costs;
e) The decrease of corporate value due to ineffective climate change actions, and the resultant decline of investmentattractiveness and downward adjustment of credit rating.
「Physical risk」
a) Suspension of business activities due to frequent flood damage caused by typhoons and heavy rains;
b) Restriction on business activities due to drought;
c) Health hazard due to rising temperature;
d) Supply chain disruptions caused by the above factors.
【Main countermeasures】
The measures to address “transition risk”
・In March 2024, we set a new medium- to long-term target for CO2 emissions reduction. Aiming to achieve net zero carbon emissions for the entire supply chain by fiscal 2050, we will aim to reduce Scope 1 and 2 emissions by 42% from fiscal 2022 levels by fiscal 2030 (carbon neutrality in fiscal 2040), and Scope 3 emissions by 25% from fiscal 2022 levels.
・Promotion of research and development activities based on the SDGs concept;
・Establishment of multiple purchasing routes.
・Eco-governance Department established in April 2022 (Established the Sustainability Management Department and transferred the Environmental Management Department in January 2024)
・Sustainability Committee established in August 2022
・- Conduct scenario analysis in line with the TCFD and consider countermeasures
The measures to address “physical risks”
・Diversification of production risk through global location strategy;
・Implementation of awareness surveys for offices operating in countries and regions with high risk of climate change;
・Innovation in the product line
・Visualization of supply chains and enhancement of their flexibility;
・Continuation of BCP trainings at domestic and overseas offices.
・ Conduct scenario analysis in line with the TCFD and consider countermeasures
5．Risks for foreign investors
（１） Japan’s unit share system imposes restrictions in holdings of our common stock that do not constitute whole units
【Risk details】Our Articles of Incorporation provide that 100 shares of our stock constitute one "unit". The Companies Act of Japan imposes significant restrictions and limitations on holdings of shares that constitute less than a whole unit. Holders of shares constituting less than a unit do not have the right to vote. A shareholder who owns shares representing less than one unit will not be able to exercise any rights relating to voting rights, such as the right to participate in a demand for the resignation of a director, the right to participate in a demand for the convocation of a general meeting of shareholders and the right to join with other shareholders to propose an agenda item to be addressed at a general meeting of shareholders. Under the unit share system, holders of shares constituting less than a unit have the right to require us to purchase their shares. However, holders of the American Depositary Shares ("ADSs") that represent other than multiples of whole units cannot withdraw the underlying shares representing less than one unit and, therefore, they will be unable to exercise the right to require us to purchase the underlying shares. As a result, holders of ADSs representing shares in lots of less than one unit may not have access to the Japanese markets to sell their shares through the withdrawal mechanism.
（２）Rights of shareholders under Japanese law may be more limited than under the laws of other jurisdictions
【Risk details】Our Articles of Incorporation, Regulations of the Board of Directors, Share Trading Regulations and the other related regulations, as well as the Companies Act govern our corporate affairs. Legal principles relating to such matters as the validity of corporate procedures, directors’ and officers’ fiduciary duties and shareholders’ rights may be different from those that would apply if we were a non-Japanese company. Shareholders’ rights under Japanese law may not be as extensive as shareholders’ rights under the laws of other countries or jurisdictions within the United States. Shareholders may have more difficulty in asserting their rights as a shareholder than they would as a shareholder of a corporation organized in another jurisdiction. In addition, Japanese courts may not be willing to enforce liabilities against us in actions brought in Japan that are based upon the securities laws of the United States or any U.S. state.
（３）A holder of our ADSs will have fewer rights than a shareholder has and will need to act through the depositary to exercise those rights
【Risk details】The rights of the shareholders under Japanese law to take actions, including voting their shares, receiving dividends and distributions, bringing derivative actions, examining our accounting books and records and exercising appraisal rights are available only to holders of record. Because the depositary, through its custodian agent, is the record holder of the shares underlying the ADSs, only the depositary can exercise those rights in connection with the deposited shares. The depositary will make efforts to vote the shares underlying ADSs as instructed by the ADS holder and will pay to ADS holders the dividends and distributions collected from us. However, as an ADS holder, shareholders will not be able to bring a derivative action, examine our accounting books and records or exercise appraisal rights in their capacity as ADS holder.
（４）Because of daily price range limitations under Japanese stock exchange rules, shareholders may not be able to sell their shares of our common stock at a particular price on any particular trading day, or at all
【Risk details】Stock prices on Japanese stock exchanges are determined on a real-time basis by the equilibrium between bids and offers. These exchanges are order-driven markets without specialists or market makers to guide price formation. To prevent excessive volatility, these exchanges set daily upward and downward price fluctuation limits for each stock, based on the previous day’s closing price. Although transactions may continue at the upward or downward limit price if the limit price is reached on a particular trading day, no transactions may take place outside these limits. Consequently, an investor wishing to sell at a price above or below the relevant daily limit may not be able to sell his or her shares at such price on a particular trading day, or at all.
（５）Foreign exchange fluctuations may affect the dollar value of our ADSs and dividends payable to holders of our ADSs
【Risk details】Market prices for our ADSs may fall if the value of the yen declines against the U.S. dollar. In addition, the U.S. dollar amount of cash dividends and other cash payments made to holders of our ADSs would be reduced if the value of the yen declines against the U.S. dollar.
（６）It may not be possible for investors to effect service of process within the United States upon us or our members of the Board of Directors or members of the Audit and Supervisory Board or to enforce against us or these persons judgments obtained in United States courts predicated upon the civil liability provisions of the federal securities laws of the United States
【Risk details】We are a limited liability, joint-stock corporation incorporated under the laws of Japan. Most of our members of the Board of Directors or members of the Audit and Supervisory Board reside in Japan. A substantial portion of our assets and all or substantially all of the assets of these persons are located in Japan and elsewhere outside the United States. It may not be possible, therefore, for investors to effect service of process within the United States upon us or these persons or to enforce against us or these persons judgment obtained in United States courts predicated upon the civil liability provisions of the federal securities laws of the United States. There is doubt as to the enforceability in Japan, in original actions for enforcement of judgments of United States courts, of liabilities predicated solely upon the federal securities laws of the United States.
