Mr. Shinji Yoko
Director and Senior Vice President
[ Slide 1 ]
Let me begin by outlining market trends for key finished products in fiscal 2003 that affect TDK's operations.
[ Slide 2 ]
On the graph shown, the vertical axis represents the growth rate compared with fiscal 2002, and the horizontal axis represents production volume. The 500 shown at the right end of the horizontal axis should be read as 500 million units. In fiscal 2003, finished products that are forecast to grow sharply over the preceding term include DVD players, digital cameras and video game consoles. Demand for DVD players has been driven by an enhanced lineup of content and falling prices.
Finished products that are expected to perform mostly on a par or slightly better than the preceding year include mobile phones, PCs and automobiles. Mobile phone makers have rolled out numerous new products in anticipation of explosive growth in 3G mobile phone sales. However, their expectations appear to have been off the mark. That said, mobile phones with color LCDs and models equipped with cameras are expected to enjoy strong demand throughout the Christmas shopping season and thereafter. In PCs and peripherals, customers are telling us that demand is not likely to pick up until midway through 2003. Demand for automobiles has remained firm on account of attractive financing programs in the U.S. and other factors. Demand for devices manufactured by TDK for use in car electronics applications is expected to more than double by 2010. TDK expects at least double-digit year-on-year growth in net sales this fiscal year.
We expect certain markets, like the communications infrastructure market, to continue to stagnate through 2004. Capacity utilization for fiber-optic products, for example, is currently around 10% to 20%.
Let me now outline developments so far in fiscal 2003.
By the end of the previous fiscal year, manufacturers of PCs, DVD players, VCRs and other finished products had slashed inventories of finished products and components to the bone. Prompted by fears of stockouts, these manufacturers rushed to order inventories in the first quarter of fiscal 2003. Strong sales of DVD/VCR combos at Wal-Mart stores also spurred this trend. Consequently, TDK did not get the strong volume of orders it usually receives in the second quarter, when customers stock up in anticipation of the Christmas shopping season. Orders in the third quarter are expected to be mostly the same as the second quarter. However, the outlook is still clouded by fallout from the dock strikes in the U.S., terrorist attacks and other factors. The mobile phone industry plans to increase production relative to second-quarter levels. However, there are concerns about excessive production, as unsold items from the Christmas shopping season could detrimentally affect fourth-quarter results.
[ Slide 3 ]
The graph shows projected production trends for the second half of fiscal 2003 versus the first half. As you can see, growth is expected to slow across most categories. All along we had expected to see strong demand for electronics components in the first half and a slight downturn in the second half.
[ Slide 4 ]
On the pricing side, TDK continues to receive strong calls from customers for discounts due to a supply glut. Calls for discounts are expected to intensify in the fourth quarter of fiscal 2003, when prices are renegotiated upon renewal of yearly contracts. Currently, TDK is negotiating the terms of yearly contracts with its European and U.S. customers, but has yet to reach an agreement on prices. By product, commodity items tend to be hardest hit by discounts.
[ Slide 5 ]
Today, the electronic components industry's markets in which TDK is active are moving around the globe.
Take an example of a customer, who develops products in the U.S. and manufactures them at facilities in Hungary and Mexico, shifting its manufacturing base to China several months later.
Serving this customer previously required TDK to carry out product design in the U.S., product development in Japan and negotiate orders in Hungary and Mexico, where the customer's manufacturing facilities were located. Products would be shipped from Japan, or alternatively from regional manufacturing facilities. When the customer shifts its manufacturing base to China, TDK must respond by taking orders in China and making necessary adjustments to its own manufacturing facilities and logistics networks. These adjustments must be implemented without delay, on a global scale.
[ Slide 6 ]
This example shows that the era of carrying out everything, from design through sales, on a regional basis under the supervision of regional business units, is over. The locations where TDK sells and designs will be different. This paradigm shift is redefining the role of TDK's sales activities, and the way the company evaluates them. Specifically, it is now imperative that TDK evaluate operations by business process as well as sales figures.
With the progress of globalization, TDK has reviewed the role of its sales activities and evaluation methods. As "a Unified TDK," we are now sharing and applying information and strategies across relevant regions and divisions to better support our customers' projects on a global scale.
A global company must see its market as the world. That naturally requires a single marketing strategy for the global market. And to win in a global market characterized by rapid change, companies must overcome differences in time zones and distances, creating a framework that can respond to continuous change. TDK is creating such a system. We are introducing a multidimensional system to systematically manage finished products, customer relations, products and regions on a global basis.
The following are essential to successful marketing activities-identifying finished products with growth potential and manufacturers of those products that have a leading position; determining which products will be used; and deciding which products should be developed. To precisely identify and meet market needs as required, marketing personnel will propose R&D themes and cooperate more with their development and manufacturing counterparts.