General Manager of Data Storage Components Business Group
Today I would like to give you an overview of our HDD head business. Let me begin with net sales. In fiscal 2001, net sales were ¥169.1 billion. In the first half of the year we posted net sales of ¥91.8 billion, and in the second half ¥77.3 billion. This represents a 16% decline on fiscal 2000 net sales of ¥200.7 billion.
The above results equate to a 31% share of overall HGA demand. This is a 3% decrease on the 1999 figure of 34%. Overall HGA demand in 2000 was 590 million heads. In 1999, when our share was 34%, overall HGA demand was 622 million heads.
Consequently, net sales in fiscal 2001 declined sharply and our market share declined. Let me explain why.
On the technological side, TDK misjudged the technological direction of products demanded by customers. The biggest factor in our declines, therefore, was that we weren't quick enough in supplying products to customers. For example, we worked to enhance MR sensitivity, but we were slow to pick up on the limitations of thinner free layer and the impact of MR element shaping. As such, we weren't fast enough in improving our products. Furthermore, we were slow to detect the impact of head structures on performance stability, an issue which took time to resolve. Finally, significant losses in production yields arose as a result of problems with controlling track width. Here, there was a period where we weren't able to control tack widths.
Let me move on to production and sales. 10-gigabit/square inch HDD heads were the mainstream in the first quarter of fiscal 2001. We remained a cut above competitors, and orders were steady. We achieved a market share of 36%. The second quarter saw the launch of 15-gigabit/square inch HDD heads and 20-gigabit/square inch heads with a 3.5-inch platter. During this quarter, however, we had a track width control problem which led to a decline in production yields in terms of head performance. Accordingly, we were unable to supply a sufficient volume of products, and sales dipped sharply. During the second quarter, wafer production decreased on account of damage caused by heavy rains and other factors in August and September.
The impact of the above-mentioned damage lingered in the third quarter, where HGA shipments markedly declined. This caused considerable inconvenience to our customers. While production yields improved, this did not translate into sharply increased sales volume. Moreover, the slowdown in the PC market from December 2000 onward hampered any potential sales recovery.
In the fourth quarter, we released a new 20-gigabit/square inch head. However, it failed to be chosen as the No.1 product by customers in its field, and was also affected by reduced PC market production. Accordingly, orders for this HDD head decreased significantly. That concludes my review of fiscal 2001.
I would now like to explain how we intend to proceed in fiscal 2002. We expect total market demand for HDD heads to be 583 million heads. Overall HDD production volume is expected to be 207 million units. This equates to 2.8 heads per HDD.
In terms of HDD market developments, we envisage the market dividing into two areas: one where we will have to create higher-density products mainly for servers; and another where we will have to lower prices primarily for digital home electronics. TDK will address these two areas with dedication and resolve.
In the current fiscal year we estimate HDD production volumes, including new markets, of 207 million units. The 2002 forecast is 255 million units, and the 2003 estimate is 293 million units. We also expect the portion of new markets, digital home electronics, game consoles, mobile handsets and other devices to increase sharply from 5.5% in 2001 to 18% in 2002 and 25.5% in 2003.
As mentioned earlier, I believe three new markets will emerge. The first is digital home electronics, where demand in fiscal 2002 should amount to around 5 million HDD. The second area is games consoles, where again we expect demand of 5 million HDD. And the third area is mobile devices, where we forecast demand of around 2 million HDD. We project that by 2003 the total demand of HDD in these new markets will be 69 million, representing 23.7% of all HDD demand.
I will now move on to TDK's initiatives in the current fiscal year. We are working to create higher-density HDD heads from the following three angles.
First is higher sensitivity in terms of read-head performance. To address this issue, we will introduce a Lead Overlaid (LOL) structure to all products. We have newly commercialized this LOL structure, which has been extremely well received by our customers. To enable higher densities and higher sensitivities, we will employ a H-DR film, which has a 20% MR ratio.
The second angle is the write-head performance. We will allow for higher frequencies and higher recording efficiency by employing a new coil structure and new Hi-Bs materials. We will use these Hi-Bs materials to the very limits of their potential.
Thirdly-and common to both reading and writing performance-we will work to develop narrower track widths. To this end, we will introduce new equipment and resist technologies to reduce the track width to 0.01 microns. It's not just about making tracks narrower. It's also about controlling them, making them capable of mass production and making them stable. We will therefore also work to apply new control techniques.
We are also considering when to bring the next generation of products to market once we have overcome these technological challenges. We began mass producing 30 gigabyte/disk HDD heads in January 2001. Although some of our rivals got a headstart on us, we have now started supplying this product.
We are also on the verge of launching production of 40 gigabyte/disk HDD heads. This product, which incorporates an LOL structure, has been highly acclaimed by our customers. With this product, we can expect to make a fresh assault on the number one market position.
Regarding 60 gigabyte/disk and 80 gigabyte/disk HDD heads, we are committed to submitting prototypes and sample products as early as possible. This will enable us to iron out any problems that arise and ensure high yields when production begins. The slide here shows up to the 80 gigabyte/disk HDD head. Here we believe we can generate higher densities with the existing advanced GMR technology. In the future, we will need to incorporate perpendicular and TMR products.
We expect our new markets to expand. A major issue here will be reducing costs in digital home electronics, games consoles and mobile devices. In fiscal 2002, we will work to realize lower costs using the 15-gigabit/square inch class of HDD head.
There are four points here. First, we will achieve higher production yields by employing the LOL structure. Second, we aim to raise production efficiency through less wafer processing and reduce costs by paring lead-times. Third, we will use low-cost components. In this regard, we are developing new products through a joint venture in the suspension field. Fourth, we will ally with drive manufacturers to realize cost-saving designs. The designs that emerge from such alliances will drive production yields higher.
Speed will be an important catchword. Enhanced alliances with drive manufacturers will add momentum to our efforts. We intend to begin R&D as early as possible, creating varied drive designs in conjunction with drive manufacturers. This will allow us to identify and resolve any issues that arise, and ultimately lead to higher production yields during volume production. There are a number of internal issues, too. TDK's R&D efforts are divided among three parties-TDK the parent company, SAE in Hong Kong and Headway Technologies in the U.S. We will make each of these more efficient and more expeditious. Responding to customers' needs will naturally continue to be of major importance, but raising production yields will be paramount in all our efforts.
I will end by giving you our numerical targets for the current fiscal year. We expect a 31% share of sales-28% in the first half, 35% in the second half. The lingering delay in product qualification from the previous fiscal year will decrease our share in the first half of the year, particularly the first quarter. In the year's second half, we expect a favorable response to our new products, which will recover our market share. That concludes my presentation. Thank you for your attention.