Risk Factors

(1) Impact of market competition and fluctuations

Shipments of office MFP units may decline due to the streamlining of offices and longer replacement cycles. The drop in print volume due to the rising trend towards paperless offices may impact the Group's financial performance regarding maintenance services. Third parties are selling substitute toner cartridges for laser printers and the earnings of genuine Canon products may be adversely affected if the sales volume of such products increases.
With the market for digital interchangeable lens cameras shifting from SLR cameras to mirrorless cameras, the market for digital interchangeable lens cameras may continue to shrink. In addition, the fall in the sales of inkjet printer units and ink cartridges may accelerate due to a decline in the printing volume caused largely by a decrease in color printing.
In the industrial equipment business, orders received for semiconductor manufacturing devices and testing and measuring instruments are significantly affected by the condition of capital expenditure of semiconductor and device manufacturers. If the capital expenditure of such manufacturers decreases, the Group's financial performance may become sluggish.
In the healthcare industry, the Pharmaceutical and Medical Device Act (formerly the Pharmaceutical Act) and various guidelines for the protection of medical information require us to develop a legal compliance system, ensure thorough quality control, and implement information security measures. While the Group has a comprehensive system in place to ensure compliance with laws and regulations, unanticipated risks may occur that prevent it from properly implementing the requirements. If this happens, its business with medical institutions and dealers who are engaging in sales of medical equipment to medical institutions may decrease.
In addition, because the Group receives products and services from its parent company, Canon Inc., and many other suppliers, it is exposed to the risk of not being able to receive an adequate supply due to incidents such as natural disasters and large accidents experienced by the suppliers. If such a situation arises, the Group’s financial performance may be affected by its inability to facilitate sales activities.

(2) System development

The Group undertakes the contracted development of systems in a broad range of areas to provide customers with a variety of solutions. To move projects forward, it establishes an internal deliberation system, implements project management and exercises carefully planned work process control to prevent unprofitable projects from occurring and to reduce risks.
However, costs may increase if significant additional work processes are required due to disagreements with customers regarding the understanding of specifications and progress. In this situation, the Group's business performance may be affected.

(3) Data center business

The Group established the Nishi-Tokyo Data Center to operate a stock-type business, providing relevant services such as data center service, cloud service and system operation service. Data centers are expected to meet high standards in a range of features such as the quality of buildings, facilities, security and operation. Therefore, the data center was constructed on stable ground and is equipped with high performance facilities and an advanced security system. The Group acquired M&O certification^* in 2017 by leveraging its accumulated knowledge and expertise from years of data center operation. As a result, the data center also features operational quality that meets global standards certified by third party institutions.
However, if disasters such as earthquakes, large-scale flooding and fires, infectious diseases, operation errors, cyber-attacks and/or other detrimental events occur, concerned parties, including business partners, may incur damages and losses due to the suspension of system operation and leaking of important customer information. In addition, a decline in trust resulting therefrom may negatively impact the Group’s business operation, performance and/or financial position.

• *Global standards regarding the quality of data center operation defined by the Uptime Institute, a private U.S. organization.

(4) Information management

The Group holds various types of important information concerning the Group’s management and confidential information of many other companies and individuals, which is obtained through its services, including the provision of solutions to customers. The Group has established the Group Information Security Basic Policy and Group Information Security Basic Rules for the management of such information and has organized and operates a management system for information security, including thorough communication of the importance of information management to its employees through education, training and other opportunities as well as the implementation of system security measures and monitoring of progress. It also established rules defining relevant matters including selection standards and methods for checking safety management measure to manage and supervise the operation of parties to which operations are outsourced.
In addition, in conjunction with cyber-attacks, it established a system under which the prevention, detection and countermeasures at the time of occurrence are implemented by the CSIRT^*, an organization specializing in cyber security.
Despite taking such measures, if important information leaks to an external party due to cyber-attacks, etc., the Group’s affiliates and other relevant parties including business partners, may experience serious damages and losses, and the Group's business operation, financial performance and condition may be adversely affected due to a loss of trust in the Group.

• *CSIRT : Computer Security Incident Response Team

(5) Natural disasters and other calamities

If natural disasters such as earthquakes and typhoons, a serious outbreak of infectious disease, or similar situations occurs in the regions where the Group engages in business activities, humans may be harmed or property may be damaged and the Group may incur losses. This may impact the business activities of the Group. While the Group advances efforts to prevent and minimize damage in the event of a disaster by establishing backups for its facilities and information systems and conducting group-wide disaster response drills and disaster prevention drills at each business site, there are no guarantees that these measures will allow the Group to fully avoid damages due to various disasters, and in the event of such a disaster, the performance of the Group's businesses or the financial status of the Group could be affected.
In addition, if these natural disasters cause economic activity to stagnate, disrupt supply chains, or cause a decline in the business activities and investment appetites of business partners, the Group's business, operating results and financial condition may be adversely affected.

(6) Risk of bad debts

The Group is exposed to the risk of incurring unpredictable bad debt expenses due to a large number of transactions requiring payment collection after providing products and services. Therefore, the Group uses credit information from external credit agencies and other data to implement thorough credit management and takes measures such as factoring to hedge the risk. The Group also individually allocates an allowance for doubtful accounts depending on the status of receivable collection to hedge the risk of future bad debts. If, however, the Group suffers a large amount of uncollectible receivables due to an unexpected event, its financial performance and condition may be adversely affected.

(7) Relationship with the parent company

Canon Marketing Japan Inc. is a subsidiary of Canon Inc. (its voting rights ratio was 58.5% as of December 31, 2023) and holds exclusive rights to sell in Japan all products (excluding semiconductor exposure devices, liquid crystal substrate exposure devices and medical equipment) manufactured under the Canon brand by Canon Inc. Purchases from Canon Inc. accounted for a large portion of total purchases made by the Company.
Due to this condition, any substantial change in the management policies, business development, and other aspects of Canon Inc. may considerably affect business activities, the financial performance and condition of the Group. Moreover, if the advantages of Canon products in related industries cannot be maintained for any reason, the Group’s financial performance may be adversely affected.