[ 1st Half of fiscal 2002 Performance Briefing ]HDD Head Business Outlook

Takehiro Kamigama
General Manager
Data Storage Components Business Group

[ Slide 1 - Cover ]

I have taken over from Mr. Hashimoto and I would now like to give you an overview of TDK's HDD head business.

[ Slide 2 - First Half Sales ]

Let me begin with HDD head sales. In the first half of fiscal 2002, net sales declined 4% to ¥64.0 billion, lower than our initial forecast of ¥67.0 billion. Significantly, we brought to market 40GB/P heads with a 3.5-inch platter, but mass production commenced slightly behind schedule, dragging down sales as a consequence. Technical issues involving both drives and magnetic heads were responsible for this delay. As a result, 40GB/P heads, which we had expected to capture a higher market share for TDK, declined as a percentage of product sales. TDK lost market share and sales fell short of the initial August 2001 forecast.

[ Slide 3 - Outlook for the Second Half ]

I will now go over our sales forecast for the second half. We expect demand for HDD heads to decline by 12% from the first half of fiscal 2002. By the fourth quarter of fiscal 2002, 40GB/P heads will likely be the mainstream product in the market, and thus TDK's market share is expected to rebound to 30%. TDK thus forecasts sales of ¥75.0 billion for the second half.

We expect demand for hard disks to remain strong, despite the projected 12% decline in demand for HDD heads. The principle reason for forecasting a decline in HDD heads is that the full-scale volume production of 40GB/P heads will enable manufacturers to produce disk drives, each equipped with only a single HDD head. We expect this to sharply lower shipment volumes of HDD heads.

The new 40GB/P heads have been approved for use in HDDs of almost all non-captive manufacturers. Notably, TDK has obtained OEM approval (HDD makers supplying to PC makers). This has fueled a substantial increase in orders, and should help TDK improve its market share to 30% in the fourth quarter of fiscal 2002.

In the second half, we estimate that sales of heads will climb 17% over the first half.

[ Slide 4 - FY2002 Demand and TDK Share ]

Let me now explain our estimates of aggregate demand for HDDs and our projections for TDK's market share in the current fiscal year. Demand for PCs and hard disks has been revised downward due to the economic slowdown. For this reason, demand for HDD heads has also been revised downward. Moreover, the proliferation of disk drives installed with a single HDD head will lower the number of HDD heads used and lower demand.

As mentioned earlier, TDK's initial forecast called for market share of 22% in the first half of fiscal 2002. However, TDK's market share fell to 20% for that period owing to the delay in mass production of 40GB/P heads. With the start of full-scale volume production, however, we expect market share to recover to 29% on average for the year's second half and to 30% in the fourth quarter.

[ Slide 5 - TDK Sales Prospects by Platter Capacity ]

I would now like to move on to our outlook for HDD head sales by platter capacity. In our August 2001 projections, we estimated that 40GB/P heads would make up 46% of sales volumes in the second quarter. However, second-quarter sales volumes were actually 36%, owing to the delay in mass production. Technical issues involving both HDD heads and disk drives were responsible for the delay, as explained earlier. As of September 2001, 40GB/P heads constituted 55% of shipment volumes. We project that this ratio will rise to roughly 68% in the third quarter and 80% in the fourth quarter. TDK's market share of 40GB/P heads is estimated to reach no more than 50% in the third quarter, but will likely exceed the 70% mark in the fourth quarter.

In view of market conditions, TDK is strongly positioned to reclaim market share, as full-scale mass production of 40GB/P products is finally under way, and sales volumes have picked up.

[ Slide 6 - Product Development Schedule ]

Let me finally present our development schedule for the products to follow 40GB/P heads. The next lineup of products comprises 60GB/P heads with a 3.5-inch platter, which have a recording density of 45Gbit per square inch. We are currently presenting samples to clients for evaluation. Incorporating existing technologies, these 60GB/P heads have so far been well received by clients.

The next step will be to develop 80GB/P heads. There have been calls from some of our clients to begin mass production from the second quarter of fiscal 2003. In response, we are pressing ahead with the development of these heads with the view to launching mass production in September 2002. This timeframe appears feasible from a technical standpoint, too. Samples of 80GB/P heads should be presented to clients in December 2001. There exists the distinct possibility that the market may skip over 60GB/P heads and head straight for the 80GB/P heads. Accordingly, TDK's approach to establishing dominance in 80GB/P heads holds the key to how our business performs in the next fiscal year.That concludes my presentation. Thank you for your attention.