[ 3rd Quarter of fiscal 2001 Performance Briefing ]On the HDD head business

Yoshinori Hashimoto
Executive Director
General Manager of Data Storage Components Business Group

In our HDD head business, I would first like to talk about our sales. Last November I forecast third-quarter sales of 40.6 billion yen. Sales, however, were 39.5 billion yen, 3% below projections.

The reason behind this is that some customers reduced production from the latter half of November through December. Consequently, our sales decreased 3% in monetary terms and around 10% on a volume basis, compared with the November 2000 third-quarter projection.

At the previous earnings release conference I explained that we faced three problems related to our production yield. In the third quarter, however, we have on the whole achieved our production yield targets. Later I will report in more detail on these problems, including the technical aspects.

I would now like to move on to our fourth-quarter forecast. Again, although we projected sales of 46.6 billion yen back in November, this has been revised to 38.0 billion yen-an 18% downward revision. In January we began producing new products in an effort to stimulate a market recovery, but this has not brought about a recovery in terms of volume of sales. As such, we anticipate a decrease of about 20% from our original November projection. Net sales in this area also includes other types of head. In addition to sales of heads for HDDs, sales volumes of heads for large-capacity floppy disk drives and other heads, are falling as a consequence of a slowdown in the PC and peripheral market. On account of these and other factors, we lowered our forecast by 18% for the entire head business.

Our previous forecast for net sales in the second half of the current fiscal year was 87.2 billion yen. As a result of the revised sales forecast, however, we now project sales of 77.5 billion yen. As such, we forecast that net sales for the current fiscal year will be 169.3 billion yen, down on our November estimate of 179.0 billion yen.

I would like now to talk about TDK's position in and share of the HDD head market. In November, I estimated that annual demand for PCs and HDD heads would be 138 million units and 620 million units, respectively, and that our market share would be 32%. This was based on the assumption that our year-on-year performance would decline due to problems associated with production yields and damage caused by heavy rains. Since then the market has softened further. We therefore estimate that annual demand for PCs will be 128 million units and demand for HDD heads 590 million units. We also anticipate a marginal decline in the number of heads used per HDD, and accordingly expect to maintain a market share of 31%. One reason for why we believe that our market share will fall a percentage point is that the effects of the production yield problems still linger.

I would now like to explain how we intend to generate and improve results in the HDD head business. The TDK GMR Head Roadmap outlines how we aim to proceed. We have the 20-gigabit/square inch (30-gigabyte/disk) head, mass production of which is already beginning to get underway. This will be followed by the 30-gigabit/square inch (40-gigabyte/disk) and 45-gigabit/square inch (60-gigabyte/disk) heads. We are committed to bringing forward these technologies. Although we were temporarily lagging behind, we are determined to be at the forefront in this area.

Let me first take the 20-gigabit/square inch (30-gigabyte/disk) head. The MR element is a major area for improvement. When the dimensions for the MR element are very large, it does not cause major problems. However, to create higher densities the MR element dimensions have to be smaller. But by making the MR element dimensions smaller, you encounter a major problem with shape. Until now, MR elements have been shaped like a trapezoid. This shape, however, makes the MR element less efficient. We have therefore improved the MR element by building it in a rectangular shape. This new shape allows for impressive changes in output. We believe that this new technology can be applied to the 20-gigabit/square inch (30-gigabyte/disk) head.

For the 30-gigabit/square inch (40-gigabyte/disk) head, we propose using a Lead Overlaid (LOL) structure. Though LOL is a structure well known throughout the industry, it is yet to be successfully applied by any company. At present, however, I do believe that we are ahead of our competitors. Although there are a number of issues to be surmounted, we are working to establish this technology by developing new techniques and introducing new equipment.

In terms of the MR element, while until now we have employed the top-spin valve, we are now applying a structure called the bottom-spin valve. This is because LOL allows for greater efficiency. The main feature of LOL is that it overlays the spin valve.

The next product to bring to market is the 45-gigabit/square inch (60-gigabyte/disk) head. As the Roadmap illustrates, we are currently working to develop this product so that it can be supplied to our customers on a trial basis. With this product, we are applying an Ex-Bias to the LOL structure.

We are also working on utilizing a specular-type MR element within the structure of the bottom-spin valve. Given that this involves inserting an oxidation layer, from a technical perspective it will pose unique technical difficulties.

Furthermore, this class of GMR head creates a major obstacle to recording, in the sense that you cannot actually record. To overcome this problem, we are looking at employing new recording materials.

The next item concerns all the heads I have talked about-improving the stability of dynamic performance. As precision rises, the gap between the head and disk becomes smaller. As such, we are examining various structures as we aim to develop a head that alters as little as possible.

The biggest problem is that heat is generated when an electric current is passed through the coil. This heat can significantly alter the head itself. We are faced with the problem of how best to prevent this from happening. We are adopting structures that avoid generating heat as much as possible; for example, improving the undercoat by making it thinner, or enhancing the shape of the coil pattern. These processes will be employed in all the products I mentioned earlier.

Next is the unique problem of writing onto a disk. We are considering addressing this by using a Stitched-Pole structure. This is also a well-known structure in our industry, and, I believe, one used for the largest volume of HDDs manufactured and passed on to our customers as products. I think that this structure will be highly beneficial in realizing higher precision. Another matter is that our products will not be distinctive unless we make improvements to recording materials. That is why for the 45-gigabit/square inch (60-gigabyte/disk) head we propose using a double-layer structure incorporating a BS that employs 2.2 Tesla materials.

Moving forward in the manner I have just explained, we will work to ensure that we bring out new products without repeating the errors of last year.