General Manager of Data Storage Components Business Group
Let me begin with net sales. In the first quarter of fiscal 2002, net sales were ¥32.8 billion. This represents a 34% decline on the ¥49.4 billion in net sales for the first quarter of fiscal 2001. Meanwhile, prices of HDDs declined nearly 5% during the first quarter. This points to a substantial decrease in sales volume.
As explained earlier, sales fell mainly because major customers scaled down production in line with weak PC demand. However, there were also other reasons. For instance, we were unable to fully replenish orders for 30-gigabyte/disk HDD heads, which are used in many of our customers' flagship products. Thirdly, we were unable to secure orders from so-called captive manufacturers. TDK has lost market share as a result. That is how recording device operations fared during the first quarter.
In the second quarter, we estimate net sales of ¥34.2 billion, a 19% decrease compared with net sales of ¥42.3 billion in the second quarter of fiscal 2001. Consequently, reflecting sales in the first quarter, we forecast net sales of ¥67.0 billion for the first half of fiscal 2002. This figure is just below 10% of our initial target for the first half of ¥75.0 billion, announced in May 2001.
Shipments of 40-gigabyte/disk HDD heads will come fully on stream in the second half, and are projected to account for more than 60% of sales by the end of September 2001. TDK estimated in May that sales of 40-gigabyte/disk HDD heads would constitute more than 70% of net sales for the second quarter. However, since the roll-out of new 40-gigabyte products is slightly behind schedule in the second quarter, we now expect the ratio of 40-gigabyte/disk HDD head sales to remain at around the 50% mark.
Let me now discuss how TDK's market share will be affected by weaker demand for magnetic heads. Aggregate demand for HGA heads is likely to remain at 513 million units due to waning PC demand, and the resulting decrease in demand for HDDs. This represents a 12% downward revision from our earlier May estimate of 583 million units.
Under these market conditions, TDK's market share in the first half is projected at around 22%. This represents a 6% downward revision from our earlier May estimate. One reason for the decrease is that captive manufacturers are producing a higher percentage of HDD heads themselves . TDK estimates that this percentage has increased to nearly 60%. Indeed, we have been unable to secure as many orders as we had hoped for from captive manufacturers. Instead, orders are falling and thus dragging down our market share. Another reason is that the roll-out of 40-gigabyte/disk HDD heads is behind schedule, making it impossible for us to meet targeted sales volume.
I would now like to explain our outlook for sales of flagship 40-gigabyte/disk HDD heads, set to become a mainstay product in the future. In the first quarter, 40-gigabyte/disk HDD heads made up about 4% of net sales. In the second quarter, we estimate that they will comprise about 46%, approximately 30% below our original target set in May. Back then, we expected sales of 40-gigabyte/disk HDD heads to reach roughly 70%. Although a large discrepancy will appear in the second half, we project that the figure will recover to 81% in the third quarter and 91% in the fourth quarter. We are confident that TDK can drive its results closer to targets in the third and fourth quarters.
Next, I want to talk about the development of new products. We are currently in the process of launching our 40-gigabyte/disk HDD product lineup. In our view, we have resolved the basic technical issues posed by these products, and mass production should proceed smoothly. The next step will be to develop 60-gigabyte/disk and 80-gigabyte/disk HDD heads. At present, we expect to begin mass production of 80-gigabyte/disk HDD heads ahead of the schedule announced in May. We have adjusted schedules with each of our customers accordingly.
Let me discuss new technologies that will be play a key role in the development of new products. The introduction of a Lead Overlaid (LOL) structure and H-ΔR high-output film will enable higher densities and sensitivities, and thus greatly enhance reading performance. The effect of LOL structures has been proven on 40-gigabyte/disk HDD heads. We are confident that our decision to adopt LOL structures is the correct way forward.
Another technological imperative is improving writing performance. We will allow for higher frequencies and higher recording efficiency by employing a new coil structure and new Hi-Bs materials. Although these technologies are by no means new, their effect has been proven on 40-gigabyte/disk HDD heads, and they are being rapidly incorporated into our products.
Thirdly, narrower track widths are required for both reading and writing tracks. For instance, 60-gigabyte/disk HDD heads require reading track widths of 0.18 microns and writing track widths of 0.28 microns. To this end, we will introduce new stepper devices and resist technologies. But it's not just about making tracks narrower. We are already prepared to create 40-gigabyte/disk HDD and 60-gigabyte/disk HDD heads with extremely narrow track widths. We are currently addressing technical issues involved in building 80-gigabyte/disk HDD heads with even narrower track widths.
In conclusion, I want to discuss another issue: assuring the quality of new products. As data storage components assume ever-higher density, the difficulty of resolving technical issues that bear crucially on product reliability increases in leaps and bounds. Technical challenges include head failure due to the buildup of static electricity and the extremely short lifetime of MR components. These issues cannot be solely resolved by those involved in magnetic head operations. In practice, TDK must work even more closely with HDD manufacturers from a very early stage to address these issues. In this way, we will work to supply products on schedule without delay.
That concludes my presentation. Thank you for your attention.