Investor Relations | Management Policy

Message from CEO

With its founding spirit as an immutable guidepost, TDK will achieve sustained improvement in corporate value.

Under its new Medium-Term Plan, TDK will contribute to a more affluent society through electronics, offering solutions based on Kotozukuri (integrated solutions) and realized through Monozukuri (manufacturing excellence).

A never-changing TDK, an ever-changing TDK

TDK has always focused on the future needs of society

About 88 years ago, a black substance was invented; this was the magnetic material ferrite, a product of research conducted by Dr. Yogoro Kato and Dr. Takeshi Takei of the Tokyo Institute of Technology. Tokyo Denki Kagaku Kogyo K.K. (today’s TDK), founded in 1935 by Kenzo Saito, was the first to commercialize this previously unknown material with the development of its so-called “ferrite core.” Since its pioneering application in wireless telecommunications equipment in 1937, the uses of ferrite have expanded to include radio, television, microwave ovens, and more.
Ferrite continues to play a role as an essential magnetic material across a wide array of fields, from flat-screen televisions to components in automobiles, as they rely increasingly on electronics. As TDK’s core technologies, materials technology that is derived from ferrite and the process technology that maximizes the properties of materials have brought the world a variety of new products. From ceramic capacitors, to passive components that have continued to evolve through technical refinements, to magnets, they serve as the foundation of the electronics industry to this day. Throughout its long history, the Company has kept its focus on this kind of Monozukuri as the base for a never-changing TDK.
Kenzo Saito continuously took on new challenges, considering his own mission from the perspective of society’s future needs. That management philosophy is reflected in TDK’s corporate motto, “Contribute to culture and industry through creativity,” and in its corporate principles of “Vision,” “Courage,” and “Trust.” Having inherited this founding spirit, TDK has always been quick to respond to the future needs of society. Starting with the commercialization of ferrite, TDK’s electronic components, along with its four great world-class innovations, have been nurtured by uses beneficial to society, from the cassette tapes that answered the desire to listen to music on-the-go, to multilayer electronic components that even today contribute to more compact electronic devices, to the HDD magnetic heads that supported the explosive expansion in memory capacity.
This ability to continue to anticipate society’s future needs and translate those needs into products through Monozukuri is what has allowed us to transform our product portfolio before our mainstay products enter a decline, leading to our sustainable growth.

Self-transformation with an eye on the future

The right path was already in front of us

Going into the new millennium, TDK was confident that the spread of mobile phones and smartphones pointed to one trend representing the future needs of society. In 2005, we acquired Amperex Technology Limited (ATL), a manufacturer of rechargeable lithium polymer batteries. In 2008, we made our full-scale entry into the high-frequency components business through our acquisition of EPCOS AG (EPCOS). Taking advantage of our proprietary fine processing, module, and other technologies, we went on to contribute to the global spread of mobile devices. During our previous Medium-Term Plan (from fiscal 2016 to fiscal 2018), these smartphone components continued to deliver strong earnings growth, but by then we had already begun turning our thoughts to the next thing that would represent the future needs of society.
In smartphones, the anticipated start of commercial fifth-generation mobile communications system (5G) services will require components to be more highly integrated and highly functional. These technical requirements will be taken to an even higher dimension in more compact IoT devices. Intelligent components utilizing AI are also developing, going beyond automobiles and industrial equipment to play a role throughout our daily lives, and representing the formation of a new ecosystem for an industry structure built around integrated circuits.
It made sense, then, that TDK should ask how it can provide its customers with timely solutions not by insisting on self-sufficiency, but by comparing and adjusting its technology to that of the semiconductor manufacturers. These factors were behind the management decision to carve out a portion of our high-frequency components business through a joint venture with Qualcomm Incorporated (Qualcomm).
In the two years since I was appointed president in 2016, we have worked to build a new pillar for growth that would replace our high-frequency components; the right path, however, was already in front of us.

Our founding spirit as a guidepost

Contributing to society through Kotozukuri

In an advanced “smart” society created by IoT, where everything around us—from electronic devices to automobiles and production equipment—is connected through the internet and capable of exchanging information and operating autonomously, I believe the potential for electronic components will see limitless expansion. Among those components, sensors are one area in which we are confident TDK can contribute to society by leveraging our core technologies. By taking advantage of our materials technology, we can greatly improve quality and performance, and our process technology, including thin-film and fine processing technologies, will ensure we can respond to advanced requirements for precision.
TDK has been active in pursuing M&A as a means of building a lineup of sensor technologies that offer potential synergies with the magnetic sensors and temperature and pressure sensors it has worked on until now. We have worked to expand our offerings in non-optical sensors, targeting companies that contribute to the development of the MEMS sensor market, which is expected to see enormous growth going forward.
Power electronics is another area we have positioned as a pillar of our business. Society’s shift from fossil fuels to renewable energy, in automobiles and a wide variety of other fields, is expected to quickly accelerate, and the efficient use of energy will become an issue. With rechargeable lithium polymer batteries from ATL, power supplies provided by TDK-Lambda Corporation (TDK-Lambda), and the magnets built into generators and motors, TDK can contribute to resolving these issues across a wide range of fields.
Conventional electronic components were a build-to-order industry, with products developed and manufactured according to customer specifications, and were essentially sold on an individual basis. Today, however, a succession of completely new services, products, and functions are being created that are not simply an extension of existing offerings, and that take advantage of dramatically evolving technology. By, for instance, combining multiple sensors with different functions, a communication module to send the collected data, along with batteries, processing circuits, and software, TDK could offer a solution in the form of a packaged, modularized product, thus greatly expanding its business opportunities. What that will require is Kotozukuri that dovetails with a founding spirit originating in an understanding of society’s future needs.
Under Value Creation 2020, its new Medium-Term Plan covering the period from fiscal 2019 through fiscal 2021, TDK will turn to its founding spirit as a guidepost in offering a timely response to society’s requirements, utilizing Monozukuri to realize solutions based on the Kotozukuri concept—sensor solutions, power solutions, and package solutions—while continuing to follow a cycle that ties Kotozukuri to the further evolution of Monozukuri.

Improving corporate value through the pursuit of three types of value

Involving all employees in advancing strategy

Under Value Creation 2020, our new Medium-Term Plan, we have broken down corporate value into three components—Commercial Value (execution of growth strategy), Asset Value (improving asset efficiency), and Social Value (enhancing enterprise value)—and have established targets and specific measures for each of these.
The target set for Commercial Value calls for achieving net sales of ¥1.65 trillion in fiscal 2021, or growth of about 30% over fiscal 2018, and a compound annual growth rate (CAGR) of 9%.
Regarding Asset Value, we have established a target of operating income ratio above 10% with an ROE of more than 14%. Plans call for capital investments totaling ¥500 billion over three years, the same level as the previous Medium-Term Plan. In terms of operating income, we now see a clear trend toward profit growth in the Passive Components segment, where demand is strong in the automotive and industrial equipment markets, and in the Energy Application Products segment, primarily batteries.
The Sensor Application Products segment, which has reached a stage that requires a certain level of development investment in addition to acquisition-related expenses, will also be developed into a business that will contribute to profit during the term of this Medium-Term Plan.
To enhance the effectiveness of our strategy and increase the likelihood of achieving the Plan’s targets, we will design and manage a logic tree that takes the three types of value down to the level of specific measures for each business and work site. We will place particular emphasis on business speed. The greatest reason ATL enjoys the support of so many customers is its unrivaled ability to respond quickly in the prototype development process and production. That kind of speed is a differentiating component in advancing Kotozukuri and, through enhanced added value and an improved cash conversion cycle, is also a factor affecting profitability. TDK will establish a “First-to-Market product ratio” as a key performance indicator (KPI) and accelerate the business cycle across all of its organizations.

Providing solutions across a wide range of fields

Creating a stream of Kotozukuri architecture

2017 was a year in which we sensed a clear global trend toward electric vehicles. As use of xEV spreads, and in the evolutionary process from there to connected cars and advanced driving assistance systems (ADAS), we believe the role of electronic components will expand further, serving as the interface between IC algorithms and the real world. Further, the trend is toward society-altering, cutting-edge technologies to first be adopted in smartphones, before then being applied to automobiles and industrial equipment, and we sense a similar progression taking place with wireless power supplies, biometric authentication, and other technologies. In batteries, as well as in passive components—where we transferred a portion of our high-frequency components business—we do not plan to intentionally reduce the ratio of products for smartphones. We will continue to take on that market while keeping a close eye on 5G and other future communication standards. With the addition of other fields, including the industrial equipment and energy sector—where innovation, backed by Industry 4.0, is progressing—, home appliances, and others, we will offer sensor solutions, power solutions, and package solutions. In the medical sector, we hope to sow the seeds across a wide range of fields in which we have determined we can make a contribution to society.
To do that, all of our organizations—from TDK Group operating companies and sales, our customer contact point, to the front lines of Monozukuri and our R&D sites—will be joined organically and autonomously to create a stream of Kotozukuri architecture. Essential to that effort will be open collaboration with partners having technology that TDK does not, with a particular focus on close cooperation with IC manufacturers.
With Qualcomm, we are now working together on high-frequency solutions across a wide range of areas, including next-generation mobile communications, IoT, and automotive-related fields. We are also engaged in a variety of joint development projects, including sensor reference design. In addition to IC manufacturers, we will work with IoT solution partners, and press forward in cooperating with industries and organizations with which TDK may not have had direct contact in the past.
In May 2018, TDK acquired Faraday Semi LLC (Faraday Semi), a venture company. The company’s Point of Load (POL) power semiconductor μPOL™*, among the world’s smallest, has enormous potential as a solution for reducing power supply space, offering greater system functionality, and shortening design time. The power solution realized through the combination of Faraday Semi’s semiconductor with TDK’s SESUB (Semiconductor Embedded Substrate) packaging technology is one such example. We are also first in the world to begin mass production of a rechargeable solid-state battery. Taking advantage of this so-called “battery componentization,” enabling a complete solution on the substrate, we plan to seek its potential across all types of IoT devices.
* μPOL™: A DC-DC converter placed adjacent to the ASIC, FPGA, or other LSI.

Achieving growth across all segments

1. Passive Components

We will target a CAGR of 7%. We will offer customized, optimal solutions in GPUs, CPUs, power supplies, interfaces, and a broad range of other areas, pursuing the high reliability and large capacity required in automobiles. For smartphones, we will achieve growth centered on ceramic passive components. We will expand applications for and our customer base in other fields as well, with the goal of achieving stable growth.

2. Sensor Application Products

In anticipation of reaching ¥200 billion in net sales, our plans call for steady growth in sensors for automobiles and for expanding sensors for consumer products, achieving major growth with a target CAGR of 35%. Through M&A activity since 2016, TDK has acquired a world-class arsenal of technology in nonoptical sensors, including temperature and pressure sensors, magnetic sensors, and MEMS sensors. This will allow for a growth rate of about 10% per year as we focus our target on the entire non-optical sensor market, which is expected to grow to US$12 billion by 2021.
We will steadily expand sales of automotive sensors through organic growth. TDK is currently considering development of a sensor that offers redundancy, combining tunnel magneto resistance (TMR) sensors that apply HDD magnetic head technology cultivated by TDK with Hall sensors. In addition, since the temperature and pressure sensors installed in gasoline-powered vehicles will also be needed in xEVs, we expect demand to continue growing. We will also expand applications for automotive use, including acceleration sensors, gyroscope sensors, ToF sensors, and other MEMS sensors.
We anticipate enormous growth in sensors for consumer products, exceeding that for automotive sensors. In the magnetic sensor field, progress is being made in replacing them with TMR sensors, which feature high accuracy and low power consumption. We will also move forward with development of new applications for microphones, ultrasonic sensors, and other MEMS sensors for use in smart speakers, fingerprint authentication, and other areas.

3. Magnetic Application Products

Rather than assuming any great growth in HDD magnetic heads, our policy is to grow sales of power-related magnetic products, including magnets, while ensuring a CAGR of 2%. By providing technology to meet the needs of the high capacity storage age, we will contribute to the HDD industry as the only manufacturer specializing in HDD magnetic heads. We will also attempt to apply HDD suspension technology from Hutchinson Technology Incorporated (Hutchinson) to areas such as the ICT market and medical field. Profitability in magnets has improved, with losses halved in fiscal 2018, and during the current medium-term, we plan to shift toward a structure that can generate profit. One particularly promising area is magnets for in-vehicle motors. Leveraging our core technology to realize innovations in configuration and performance, we hope to contribute to maximizing motor and generator efficiency.

4. Energy Application Products

Here, we will aim for stable growth with a CAGR of 8%. Rather than assuming major growth in batteries for smartphones, we will move forward with a horizontal deployment of ATL’s “First-to-Market” success model by expanding our applications and customer base. We will also push to develop the small cell market, including wearable devices, while also developing the market for use in more high-powered devices such as e-scooters, automated guided vehicles (AGVs), drones, and others. In power supply products, our efforts will center on TDK-Lambda, providing customized power supply solutions for medical devices, robotics, and other uses through vertical integration from materials to finished products. In automotive power supply, we will pursue smaller, lighter, and more highly efficient products while offering solutions through redundant, reliable design with an eye toward the full-scale expansion of the xEV market.

Areas where refinements should continue for sustainable growth

Moving forward with innovation aimed at true globalization

TDK has worked to strengthen its ability to develop its own candidates for acquisition while gaining insight into each company’s technology and corporate culture. Rather than adapting these companies to TDK’s way of doing things following an acquisition, we have respected their different approaches and cultures, handing them leadership over their own businesses. Cultivating the strength of diversity by allowing our varied human resources to maximize the potential of their individual capabilities has become the driver of nonlinear self-transformation.
Pushing forward with Kotozukuri will require bringing the approximately 140 companies of the TDK Group together, heading in the same direction even as we reinforce the dynamism of diversity. While progress is already being made toward collaboration among Group companies in a variety of areas, including product development and quality control, we intend to introduce cross-functional cooperation as a means of further strengthening these organic linkages. As part of that effort, Andreas Keller, our general manager of the Human Resources HQ, is building a global human resource system. Going forward, enhancing the mobility of our human resources globally will help further reinforce our base for long-term sustainable growth.
As the globalization of TDK has progressed further through M&A in recent years, diversity management has become an important issue. This is why, under the Human Resources HQ, we are pushing ahead with programs to discover and foster outstanding human resources worldwide to serve as management candidates. With more than 90% of our personnel consisting of non-Japanese employees, we believe HQ functions do not necessarily need to be located in Japan, or led by Japanese managers.
We also will not compromise when it comes to refining Monozukuri, the foundation of our sustainable growth. In the automotive field, where TDK hopes to continue expanding its business, a single incidence of a product defect that leads to the loss of human life could threaten our very survival as a company. This is why we continue to press forward with Monozukuri Innovation, which combines Industry 4.0 concepts with a zero-defect approach to quality. For the past several years, our factories in Akita Prefecture, where TDK was founded, have engaged in Monozukuri activities based on our concept of Arubeki Sugata (ideal process). At its most basic, the Arubeki Sugata behind improved reliability should involve preventing defects during the production process, rather than the conventional approach of sifting out defective products. With this in mind, we are undertaking a fundamental review of Monozukuri. We have already completed and are working to test a model line that prevents defects before they happen, by ensuring optimal coordination between robots and human workers, using sensors to monitor every step of the production process, and detecting signs of potentially defective products. In the common language of TDK, this activity has become known as Arubeki Sugata, and is being utilized in front-line improvements at our sites around the world.

The aspirations embodied in Social Value

Moving forward, encouraged by our founder’s beliefs

I would like to close by talking about my aspirations for Social Value, the last of the three types of value highlighted in our new Medium-Term Plan. When I joined TDK 36 years ago, our business in the automotive industry involved only very limited fields, such as car radios. Today, though, we have entered an era in which automobiles cannot move without electronics. The things that electronic components can do to benefit society will likely expand even further going forward. Advanced technology is not merely for the select few. It can contribute to resolving issues in ultra-aging society, and can enrich the lives of evCreating a stream of Kotozukuri architecturee. Technology also has the power to solve issues on a global scale, including tightened energy supply and demand and global warming. Sustainable development goals (SDGs) and other worldwide trends emphasize that profit is not the goal, but the result of contributions to society. Social Value embodies my determination to return us to our founding spirit, which has something in common with this concept.
The road we are to follow will not necessarily be an easy one. A variety of competition exists in growth markets, and the megatrends bringing major changes to the structure of industry make it impossible to clearly foresee the future of our business environment. Still, encouraged by the beliefs of our founder, we will not be led astray by these uncertainties, and will continue moving forward with our corporate motto “Contribute to culture and industry througCreating a stream of Kotozukuri architectureh creativity.”

October 2018
Shigenao Ishiguro
President & CEO

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