Company: DSWL
Filing Date: 2025-07-29
Form Type: 20-F
Source: 0001174947-25-001096
Chunk: 38

Company: DESWELL INDUSTRIES INC
Filing Date: 2025-07-29
Form: 20-F
Item: Item 3
Chunk 38
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-yearpercent changes in the consumer price index for December 2021 and 2022 were increases of 1.5% and 1.8% and in 2023 a decrease of 0.3%, the Company’s actual cost of operations has significantly exceeded the overall inflation rate in China. The rapid growth of China’s economy in the past few years has in general increased the Company’s operating costs, including energy prices and labor costs. These increased costs have adversely affected the Company’s cost of operations, caused the Company to increase its prices, and resulted in the loss of some customers.

There is no fixed minimum wage which is applicable to all of China; local governments in China adopt different amounts based on the situation in their area. China’s Guangdong Province, where our manufacturing facilities are located, raised minimum wages by approximately 15% to RMB 1,510 per month effective May 1, 2015. The Provincial Government sets different tiers of minimum wages according to the developmental status of the Province’s urban clusters. In the City of Dongguan, where our manufacturing facilities are located, the minimum wage was raised to RMB 1,720 per month in July 1, 2018. Again, effective December 2021, the Guangdong Provincial Government increased the Province’s statutory minimum wage by around RMB180 per month to RMB 1,900 per month. Since March 1, 2025, the minimum wage in the City of Dongguan, where our manufacturing facilities are located, has been increased to RMB2,080 per month. Regions may want to freeze local wages in order to maintain their economic competitiveness amid the economic slowdown.

In China, regional governments are authorized to set their own minimum wages according to local conditions. Increases in wages also result in increases in our and other employer’s contributions for various mandatory social welfare benefits for Chinese employees that are based on percentages of their salaries. Continuing material increases in our cost of labor will continue to increase our operating costs and will adversely affect our financial results unless we pass on such increases to our customers by increasing the prices of our products and services. The effect of increases in the prices of our products and services would make our products more expensive in global markets, such as the United States and the European Union. This could result in the loss of customers, who may seek, and be able to obtain, products and services comparable to those we offer in lower-costregions of the world. If we do not increase our prices to pass on the effect