[ Financial Results for Fiscal 2005 Performance Briefing ]2Fiscal 2005 Consolidated Results and Fiscal 2006 Projections

Mr. Hajime Sawabe
President & CEO

Thank you for taking the time to attend today's earnings conference.

Today, I would like to report on TDK's consolidated results for fiscal 2005, ended March 31, 2005.

In the March 2005 fiscal year, TDK sold a U.S.-based semiconductor design subsidiary (TDK Semiconductor Corp.). As a result of this move, semiconductor design operations have been designated as a discontinued operation. In accordance with SEC standards, this business has been shown separately from continuing operations in our income statement.

In fiscal 2005, net sales from continuing operations rose 0.3% to ¥657.9 billion, operating income increased 5.9% to ¥59.8 billion, income from continuing operations before income taxes increased 11.4% to ¥62.1 billion and income from continuing operations rose 13.4% to ¥48.6 billion. After deducting a loss from discontinued operations, net of taxes, of ¥3.7 billion, net income was ¥44.9 billion, up 6.8% year on year. Operating income includes ¥4.2 billion in structural reform expenses.

Basic income per common share was ¥339.76, up from ¥317.80 in fiscal 2004. Stockholders' equity per common share was ¥4,920.54, up from ¥4,351.80.

In summary, both net sales and net income rose year on year, marking the third consecutive year of top- and bottom-line growth.

Moving on to sales by segment, the electronic materials and components segment posted sales of ¥545.2 billion, up 4.9% year on year. Results for each product sector that contributed to this performance were as follows.

In the first half of fiscal 2005, TDK's passive components businesses (electronic materials and electronic devices) turned in strong performances on buoyant demand for components for digital home appliances spurred in part by the Summer Olympic Games in Athens. However, the growth rate of PCs and mobile phones declined following the summer holiday period. And, while sales volumes of digital home appliances increased, price discounting was severe, creating extremely difficult conditions in the third and fourth quarters for TDK. Despite this challenge, both electronic materials and electronic devices recorded higher sales for the full year.

In recording devices, sales declined in the first half of fiscal 2005 due to inventory reductions at HDD manufacturers, a pull-back from the strong market in the second half of fiscal 2004, and to the effect of Western Digital producing HDD heads in-house. However, market expansion and a recovery in market share lifted sales in the second half and resulted in higher sales for the full year.

By product category, electronic materials sales rose 4.8% to ¥174.8 billion. In capacitors, sales were strong in the first half due in part to the boost given by the Summer Olympic Games, as explained before. However, second-half demand was lackluster. Even so, TDK was able to absorb the effects of forex movements and price discounts through the development of new products, improvements to the sales mix and other actions, resulting in higher year-on-year sales in this sector of 5%. In ferrite cores, sales declined year on year, despite growth in sales of transformers and power supplies for digital home appliances. This was the result of factors such as a reduction in output of flyback transformer cores for CRTs. Magnet sales increased year on year on rising demand for use in automotive and HDD applications. The overall result was a 4% year-on-year increase in sales in the ferrite cores and magnets sector.

Sales in the electronic devices sector rose 7.8% to ¥116.4 billion. Sales rose 8% in inductive devices on higher demand spurred by the increasing sophistication of mobile phones, the greater use of electronics in automobiles, including CAN-BUS, and other factors. The launch of new products also lifted sales.

In high-frequency components, sales increased in the first half, with growth recorded for wireless LAN products and other applications and for components for mobile phones. However, conditions were challenging in the second half, as exemplified by inventory reductions at mobile phone manufacturers in China. The result was flat sales for the year in this product sector. Sales of other products rose 10% year on year due to brisk sales of DC-DC converters and DC-AC inverters for the IT home electronics appliance and industrial machinery markets, as well as to higher sales of sensors and actuators for use in PCs and peripherals and other applications.

Recording devices posted sales of ¥234.6 billion, up 1.9% year on year. In HDD heads, there was a 6% decline in sales in the first half due to inventory reductions at HDD manufacturers and the effect of Western Digital producing heads in-house. In the second half, however, sales increased 14% on the back of strong market conditions, such as solid demand for HDD used in non-IT applications. TDK also regained market share. HDD head sales rose 4% year on year as a result of this second-half resurgence. Our market share was 33% in fiscal 2004, but dropped to 29% in the first half due to the loss of business from Western Digital. However, it returned to 33%, on a par with the previous year, in the second half. Sales of other heads declined due to inventory reductions of optical pickups for DVDs by customers.

Semiconductors & others sales increased 30.8% to ¥19.4 billion. This was due to growth in external sales of manufacturing equipment and higher sales of anechoic chambers for electromagnetic noise control.

By market field in the electronic materials and components segment, sales to the IT home electronics field increased 3% and accounted for 65% of segment sales. Sales to the high-speed, large-capacity networks field rose 10% and accounted for 9% of segment sales. Sales to the car electronics field rose 10% and accounted for 9% of segment sales. Sales to other fields rose 8% and accounted for 17% of segment sales.

In the recording media & systems segment, sales declined 17.2% to ¥112.6 billion. Lower sales of analog products such as audiotapes and videotapes and a sales decline resulting from the sale of a software subsidiary outweighed growth in optical media such as DVDs, computer data storage tapes and other products.

Turning to sales by region, sales in Japan increased 9% and sales in Asia outside Japan rose 2%. However, sales in Europe and the Americas declined 11% and 12%, respectively. This reflected lower sales in recording media. Overseas sales decreased 3% to ¥473.8 billion and accounted for 72% of consolidated net sales, down 2.3 percentage points.

Consolidated operating income rose 6%, from ¥56.5 billion in fiscal 2004 to ¥59.8 billion. There were various reasons for the ¥3.3 billion year-on-year increase. One was an increase in sales along with an improved product mix, which raised operating income by ¥41.0 billion. Rationalization and other measures contributed ¥44.5 billion to operating income. These positive factors were negated somewhat by sales price discounts of 10.6% on average, which reduced operating income by ¥78.2 billion. Exchange rate fluctuations also lowered operating income. The ¥6 appreciation of the yen from ¥113 to ¥107 against the U.S. dollar had a ¥4.0 billion negative effect on operating income.

Looking at operating income by segment, the electronic materials and components segment posted operating income of ¥67.5 billion, up ¥8.8 billion year on year. As a result, the operating income ratio in this segment improved 1.1 percentage point, from 11.3% to 12.4%. This was the result of higher sales in the electronic materials and electronic devices sectors, as well as in recording devices, where TDK had initially projected a sales decline. Another factor behind the higher segment operating income was progress made improving the profit structure in the electronic materials and electronic devices sectors.

The recording media & systems segment, meanwhile, recorded an operating loss of ¥7.7 billion, an increase of ¥5.5 billion from the previous fiscal year's loss. The single largest factor behind this performance was sales discounts caused by a drop in market prices for optical media products. DVD prices fell 55% in one year, reducing earnings by ¥32.0 billion. Initially, we had allowed for a 27% fall in prices and an impact of ¥14.4 billion on earnings. We were unable to overcome this drop in sales prices in fiscal 2005. At the end of the first half we initiated various additional measures, but these haven't yet completely produced the results expected. The large loss in this segment, which resulted from an overly optimistic forecast of the extent of the drop in sales prices, is disappointing. However, we will step up the pace of initiatives to improve profits and quickly put a halt to losses in optical media. Mr. Shikanai, the corporate officer in charge of recording media operations, will talk more about this later in today's presentation.

Moving on to non-consolidated results, net sales rose 3.9% to ¥328.5 billion. Operating income climbed 392.8% to ¥8.7 billion. Current income increased 197.3% to ¥30.6 billion. Net income soared 786.3% to ¥39.5 billion.

Turning to dividends, TDK plans to pay a year-end dividend of ¥40 per common share. Together with the interim dividend of ¥30 per common share paid in December 2004, the dividend per common share applicable to the year will be ¥70. We initially planned to pay a dividend of ¥60 for fiscal 2005. We will instead pay a dividend of ¥70 per share because our results have improved in the past three fiscal years since the collapse of the IT bubble, pointing to stability in our performance. This proposed increase is in line with our basic policy of "giving consideration to a consistent increase in dividends." If approved by shareholders, the full-year dividend for fiscal 2005 will represent a ¥15 per share increase over fiscal 2004. Based on our dividend policy, we plan to increase the annual dividend by ¥10 to ¥80 for fiscal 2006. Depending on our operating results, we will consider increasing the dividend by a further ¥10 per share.

Now a word on our forecasts for fiscal 2006. We are projecting consolidated net sales of ¥690.0 billion, a year-on-year increase of 4.9%. Operating income is forecast at ¥67.0 billion, a 12% increase. Income before income taxes is projected at ¥69.0 billion, up 11.2%. And we are forecasting consolidated net income of ¥50.0 billion, up 11.2%. We are assuming an exchange rate for fiscal 2006 of ¥100 to the U.S. dollar. This would have the effect of lowering net sales by approximately ¥26.0 billion and operating income by approximately ¥9.0 billion. However, we are forecasting growth in both sales and earnings despite this impact.

Macroeconomic conditions are becoming increasingly difficult to forecast due to surging natural resource prices, forex fluctuations and other factors at the same time as bubble-like conditions emerge in the U.S. and China.

The previously robust electronics industry has been losing momentum since the fall of last year. And the electronic components industry has seen demand decline year on year since November 2004 on a global basis. Forecasts are for demand in the April-June period to fall short of the previous year, when the Summer Olympic Games boosted demand.

With the growth rate now in single digits for PCs and mobile phones, which account for a large share of applications for electronic components, and considering the fall in sales prices, we believe that market expansion on a monetary basis will be limited in the near term.

Furthermore, while much is expected of digital home appliances in terms of volume now that they are becoming widely popular, prices are falling sooner than expected. As a result, we believe that discounting pressure on components will only grow stronger. Furthermore, as we are assuming that the yen will appreciate further, our results will be affected by a lower yen-denominated value of overseas sales. In fiscal 2005, sales price discounts and forex movements had a combined negative effect on net sales of approximately ¥100.0 billion (13.2%). Achieving growth won't been easy given these operating conditions. We therefore regard fiscal 2006 as a period for shifting from strategies designed to strengthen our earnings structure to management focus intensely on bolstering our ability to deliver growth.

Demand is growing for HDD heads as applications widen for HDDs. Demand is also expanding for components due to the increasing sophistication of IT home electronics, mobile phones and other products. In addition, much is expected of car electronics as hybrid cars and other vehicles are equipped with more electronics. And electronic components that respond to energy conservation and environmental requirements are in increasing demand. Demand is thus rising for components that are more compact, deliver higher performance, conserve energy and respond to environmental issues. To respond to these demands, we will refine our core technology, which is the development of new materials, as well as the closely linked process and simulation technologies, with the aim of aggressively expanding our business. In the digital era, the benefits of standardization and increased sales volumes are fated to be negated by lower prices. We believe that overcoming this market structure by using our core technologies to achieve growth in the medium term is the key issue facing TDK now.

TDK was founded 70 years ago this year. We hope to rekindle the venture spirit at the time of our founding in all employees and unite as a company to achieve growth.

We have set forth five key themes to strengthen our ability to drive growth.

1.Actively invest but prioritize resources
2.Upgrade manufacturing capabilities in step with the market environment
3.Expand business in the Chinese internal market
4.Speed up development
5.Develop people and increase their numbers

More than anything else, our people are key to our growth. We will thus do our best to make sure that we develop employees and put their skills to good use.

The electronic components industry has entered a correction phase that has more to do with the imbalance between supply and demand than with excess inventory. Recovery in this market is likely to come in the fall, when a seasonal increase in demand can be expected. Our sales plan therefore calls for expansion in the second half of fiscal 2006. However, we want to generate as much revenue as possible in the first half. Our profit plan, meanwhile, calls for a growth rate of slightly less than double digits due to a projected increase in structural reform expenses. Nevertheless, our goal remains a double-digit operating income margin. In fiscal 2006, we will develop our businesses conscious of achieving a margin of around 15% over the medium term.

New products, environmental harmony, China and currencies are keywords for the next few years. But increasing the share of new and industry-leading products will also remain ongoing themes at TDK. In fiscal 2006, we aim to increase the share of new products, excluding HDD heads, to at least 35% of net sales, and for number-one products to generate at least 50% of net sales. From the perspective of raising our corporate value, we will also concentrate on the important management themes of enhancing corporate governance and corporate social responsibility, including responding to environmental issues, as we work to make TDK an exciting company.

I ask for your continued support and encouragement.

Thank you.