Investor Relations | Management Policy

Message from CEO

Enhancing Social Value Leads to the Sustainable Growth of Both Society and TDK

Enhancing Social Value Leads to the Sustainable Growth of Both Society and TDK

Shigenao Ishiguro

President & CEO

TDK is capturing the wave of social change brought about by DX (Digital Transformation) and EX (Energy Transformation) sustainably enhancing its corporate value guided by the corporate motto, “Contribute to culture and industry through creativity.”

Create a framework for ensuring sustainability

Future of TDK Suggested 80 Years Ago by Our Pioneering Forefathers

Since I became CEO in June 2016, I have been considering the question of what TDK needs to do to continue its sustained growth. Looking back over the past three years, management efficiency has improved steadily. Consolidated net sales reached new records every term, operating income passed the ¥100 billion mark in fiscal 2019,* and return on equity (ROE) also moved close to 10%. In terms of financial performance, therefore, we have been able to show solid growth each fiscal year. To realize sustainability as a company, however, it is essential to flexibly adapt to internal and external changes in the business environment and to build a framework for continued growth. This is also the duty that I have to our stakeholders. In looking for answers to this challenge, I first asked the question, “How was TDK able to shape an 80-year history of growth?”

Having been founded in 1935 with the objective of realizing industrial applications for the magnetic material ferrite, TDK brought ceramic capacitors to the market, eventually followed by various passive components, magnets, and other products. In this way, TDK contributed to the worldwide growth of the electronics industry. Proprietary magnetic materials technology formed the basis for strong growth in such sectors as magnetic tapes and HDD magnetic heads, while strategic M&As brought in new drivers of growth, including SAW filters and other high-frequency components, as well as lithium polymer batteries. In recent years, the TDK of the future has gradually taken shape, centered on such pillars as passive components, lithium polymer batteries, and various types of sensors. However, the process of incorporating new businesses often involves the withdrawal from other sectors and the utilization of proceeds from the sale of businesses. For example, TDK sold its semiconductor subsidiary in the 1990s and applied the cash to an expansion of the HDD magnetic heads business. More recently, our aggressive investments in the sensor business took advantage of the funds from a carve-out of the high-frequency components business. And there are aspects that go beyond the use of funds. Expertise in coating technologies from the recording media business, which was shed in the 2000s, has found application in such products as lithium polymer batteries and functional films. By successfully pursuing M&As while retreating from other sectors, TDK has kept transforming itself.

While thinking about what should serve as a criterion in this transformation process, I found my answer in the very motto of our company. In that moment, I realized that the founder and the leaders that followed him shared the same sense of values that I also strongly believe in.

*Operating income compared on a basis excluding the capital gains on the transfer of business to Qualcomm recorded in fiscal 2017

Values that TDK should share on a global basis

Our Value Criteria: “Can It Contribute to Society?” and “Can It Be Realized with Our Technology?”

TDK’s founder, Kenzo Saito, was a true entrepreneur driven by the desire to contribute to the advancement of society. Inspired by the belief that “it will surely be useful to the world,” he tackled the potential of ferrite, which so far had not found any use. In later years, he recalled, “A person can make their business into a success by working with a strong sense of social values and with the dedication to never give up no matter what obstacles they may face.” This kind of management philosophy is expressed in our corporate motto “Contribute to culture and industry through creativity” and corporate principles of “Vision,” “Courage,” and “Trust.” Making a contribution to the world through technology has always been the driver of TDK’s actions.

As TDK continues to move forward, I have come to the conclusion that the insights of the founder from some 80 years ago still resonate: “Can it contribute to society?” and “Can it be realized with our technology?” For example, TDK so far has not been widely engaged in the medical field, but the potential for electronics-related solutions is ever expanding, ranging from prevention and treatment to health management. If TDK can be of use in these areas, there is no reason why we should not aim to expand our business operations accordingly.

As we move into the future, another important yardstick is the question of whether we can apply our accumulated core technologies to a given task. Just as the technological knowledge in magnetics that was gained through the engagement with ferrite helped us enter the field of HDD magnetic heads, our materials technology, along with process technology for getting the most out of materials, formed a solid basis for establishing a wide portfolio of excellent products in a broad range of fields. As with these core technologies, the dedication to monozukuri (manufacturing excellence) is a key value that dates back to our very beginnings and that will continue to enable sustainable and meaningful social contributions.

The Medium-Term Plan “Value Creation 2020” that was launched in May 2018 (covering the period from fiscal 2019 to 2021) reflects the value criteria of “Can it contribute to society?” and “Can it be realized with our technology?” Starting from market-in-based Kotozukuri (integrated solutions), monozukuri makes it happen. With Kotozukuri and monozukuri mutually reinforcing each other, we intend to continue bringing high added value to the world at large.

The driving force of sustained enhancement of corporate value

Propelled forward by the Creation of Social Value

The Value Creation 2020 plan defines three components of corporate value, namely, Social Value, Commercial Value, and Asset Value. We are aiming to maximize value by setting specific targets for each of these. As Social Value is considered to act as the driving force for TDK’s sustainability, it is given top priority. Contributing to a sustainable society in turn enhances Commercial Value and Asset Value and thereby further reinforces the creation of Social Value. A framework for continuously repeating this cycle is being established throughout the entire TDK Group.

In 2019, we formulated the Sustainability Vision, which states that, through its innovative core technologies and solutions, the TDK Group advances the development of a sustainable society and champions well-being for all people. This is taken to mean that TDK technologies should benefit people and enable them to build a healthy world for future generations. This is also what inspires us to work toward achieving the Sustainable Development Goals (SDGs).

The Value Creation 2020 concept

Advance of DX and EX opens up unlimited market possibilities

Social Value Can Be Created in Any Market

The progress of digital technology has influenced business operations and lifestyles in a myriad of ways. Dramatic progress in such areas as the IoT and AI has altered the way information is created, transmitted, and processed, as well as transforming the industry and our world itself. Since the Industrial Revolution, people have enriched their lives through the use of fossil fuels. But as such problems as global warming and the depletion of fossil fuels worsen, the need to establish a new kind of energy society that breaks away from that tradition has become essential. Digital transformation (DX) and energy transformation (EX) are two major trends that would not exist without electronics. For TDK, these developments represent an enormous opportunity to contribute to markets with technologies and solutions. In terms of DX, we can utilize digital data to optimize Monozukuri manufacturing, reduce losses of energy and resources, and realize zerodefect product quality, thereby passing on value to society. In terms of EX, TDK’s expertise in electricity and magnetism helps improve energy conversion efficiency, which is highly significant for all aspects of daily life.

Before us is a vast array of market scenarios through which we can contribute to solving social issues by leveraging the strengths of our original technologies and products.

The capability to provide Social Value

Relying on Advanced Technological Power, Development Power, and Monozukuri Power

If we ask whether TDK has the capability to grasp these business opportunities, the answer is “Yes.”

TDK possesses a wide range of products and technologies to support DX, including its sensors, power supplies, and diverse electronic components utilized in ICT equipment, as well as semiconductor embedded substrates (SESUB), which contribute to the miniaturization and modularization of electronic devices. In the area of non-optical sensors, for example, we have a world-class lineup that includes magnetic sensors based on magnetics technology, gyroscope, acceleration, inertial, and ultrasonic sensors realized with MEMS technology, and temperature and pressure sensors. This enables us to offer integrated sensor solutions, including signalprocessing IC technology and software technology, for the automotive, ICT, and industrial and energy markets. In the automotive market, in addition to sensors, we offer DC-DC converters and other power supply devices, neodymium magnets for drive motors, automotive-grade multilayer ceramic chip capacitors (MLCC) for electronic control units (ECU), and many other products and technologies. These make a significant contribution to xEV (HEV/ PHEV/EV), as well as to the spread of advanced driving assistance systems (ADAS) and autonomous driving. In Japan, the fifth-generation mobile communications system (5G) is slated to begin operation in 2020. Although we have carved out our SAW and BAW filter businesses, we still offer other highfrequency components and many other products and technologies relevant to the 5G market.

As for EX, our expertise in materials technology accumulated since the founding of the Company has wide applications. Looking at the different scenarios where energy is being produced, we supply, for example, film solar cells as well as large neodymium magnets for wind power generators. Our AC-DC switching power supplies and DC-DC converters convert energy. As for efficient power distribution, TDK products and technologies again are a significant factor, for example, in wireless power transfer systems utilizing either electromagnetic induction or magnetic resonance. And lithium polymer batteries and other TDK products play an important role in the storage of energy. As a case in point, Amperex Technology Limited (ATL), acquired by TDK, is a dominant company and has a highly successful first-to-market track record in the lithium polymer battery sector. We are laterally propagating this business model in the development of mini cells for highly compact electronic and wearable devices and in the manufacturing of power cells for drones, e-drives, and residential energy storage systems.

Regarding Monozukuri too, the answer of whether we can grasp the business opportunities is “Yes.” In markets where TDK will further increase its presence, such as automobiles and medical equipment, any defect in a product can potentially have very serious consequences and may severely damage TDK’s corporate value. Since about three years ago, TDK has been pursuing Monozukuri Innovation that combines the Industry 4.0 concept with its zero-defect product quality policy. Under the slogan “Quality cannot be assured by final inspection,” we are implementing quality control throughout all manufacturing processes, with the aim of creating production lines that do not permit any defective output. We are making sure that Arubeki-Sugata (ideal process) is a globally shared concept within the Company. To give concrete shape to the concept at the forefront of manufacturing, in April 2017 we launched a model production line at the Inakura Factory East Site in Akita Prefecture making extensive use of the IoT, AI, and robotics. This approach will be expanded globally with the aim of realizing location-independent production, so that the same level of quality can be achieved regardless of physical location.

Creating the framework for continued success

Building a Strong and Flexible Organization Encompassing Diversity and a Global Outlook

Short-term risks are mainly due to external factors, but in the medium and long term we must also consider risks within TDK itself. If we fall behind in the DX trend or become insensitive to the needs of the world, TDK will inevitably decline. Therefore, we have been promoting reforms to fundamentally change TDK from the inside.

Rather than expecting companies acquired through M&As to take on TDK’s culture, we respect their cultures and ways of thinking and have left management independence to each company. This has fostered our strength of diversity created by human resources of many different nationalities. We are promoting a global human resource strategy. In 2018, we established our Global Human Resources HQ in Munich, Germany, with Corporate Officer Andreas Keller as general manager. The main aim here is to continue our respect for diversity while merging the relative strengths of each culture to create a strong organizational framework that can respond flexibly to changes in the social climate. We are close to completing a human resource platform including global human resource evaluation standards, promotion of communication for strengthening cooperation, and systems to discover and nurture excellent human resources across the globe. The sharing of successful case examples is also progressing. In the near future, we look forward to an environment where the horizontal deployment of excellent human resources can be realized even more actively.

Governance to Enable Speedy Decision-Making

The TDK Group has some 140 consolidated subsidiaries. In an age where dramatic changes are expected, increased speed of management is an essential concern. Rather than aiming for single centralized control, we believe that it is necessary to be an autonomous, decentralized organization. True to the slogan “Empowerment and transparency,” I believe it is important to place trust in people who share our goals and principles, motivate them by delegating authority, and ensure transparency for stakeholders without hiding things from one another.

With this in mind, we have implemented a reform of the management meeting at our headquarters. Previous meetings tended to have discussions along business division lines, and the overall TDK perspective and management perspective were sometimes lacking. Therefore, we have renewed the participation roster, aiming to enable healthy opinion exchanges between management functions and business functions. The name has been changed to Executive Committee Meeting (ECM). Currently, we are discussing reports from each business unit from a multifaceted, neutral, and companywide perspective, taking such aspects as technology, quality assurance, finance, and human resources into consideration. After having been thoroughly discussed at the ECM, issues are submitted to the Board of Directors to enable focused discussions at an even higher level, thereby making it possible to arrive swiftly at decisions. With non-Japanese nationals representing more than 90% of our employees, the common language for the TDK Group is English. Therefore, the ECM and other important internal meetings are all conducted in English. The ECM is held several times per year not only in Japan but overseas as well, in order to bring the Group closer together and provide a morale boost to business sites worldwide.

The headquarters function has also undergone structural reform. To allow Business Companies (BCs) and Business Groups (BGs), which are the main operators of our business, to directly interact with customers and devote their full power to delivering Kotozukuri solutions, authority has been delegated and lateral connections have been put into place to provide logistical support. The Global Headquarters supplies functions to BCs and BGs covering technological development, human resources, legal support, among others acting as an axis to promote global collaboration. The Regional Headquarters in China, America, and Europe work closely with the Global Headquarters while providing comprehensive functions that are tailored to each region.

With regard to development, the Global Headquarters is responsible for developing materials and core technologies for the future, while the BCs and BGs concentrate on utilizing existing technologies to create products. This is designed to result in an overall increase of development speed. With the aim of accelerating product development speed through hands-on experience of actual needs onsite around the world, over 100 development personnel formerly affiliated with the Headquarters have been dispatched to BCs.

Through this organizational reform, the delegation of authority has been steadily transitioning from the Board of Directors to the executive side, and from the executive side to BCs and BGs, and tangible results can be seen in terms of speedier decision-making and increased collaboration. Monitoring at the Global Headquarters and Regional Headquarters has been strengthened, and efforts are also being made to further enhance transparency. As shown by the evaluation of the Board of Directors as well, I feel that the series of reforms has resulted in steady improvements in management.

Toward the realization of a sustainable society and enterprise

Organizational Structure That Produces Tangible Results

At present, there are concerns about the impact of U.S.–China trade friction, Brexit, and other factors on the global economy. TDK’s outlook for fiscal 2020 does not project major growth in areas in which it performed strongly in fiscal 2019, such as lithium polymer batteries and such passive components as MLCC. However, we are steadily implementing measures based on the Medium-Term Plan, aiming for record-high consolidated net sales and operating income. We are also pursuing revenue improvements from sensors and magnets. At the same time, fiscal 2020 is designated as a pivot point for long-term growth measures, and we will be pursuing a policy of aggressive investments.

Unlimited possibilities lie ahead for the TDK Group, and we have a wealth of technological capabilities and know-how to contribute. In order to sustainably create value, it is necessary to flexibly respond to changes in the business environment and to have an organizational structure that allows for continued growth. I believe that we meet both of these requirements. The results will become clearly apparent within the current “Value Creation 2020” period. Contributing to culture and industry through creativity, as our corporate motto envisions, harks back to the founding of TDK and shapes our future path too. We will continue to evolve and do our best to play our part in the realization of a sustainable world.

October 2019
Shigenao Ishiguro
President & CEO