Investor Relations | IR Events | Performance Briefing

[ 1st Half of fiscal 2007 Performance Briefing ]Consolidated Results of 1st half FY March 2007 &

Mr. Takehiro Kamigama President & COO

Mr. Takehiro Kamigama
President & COO

Good afternoon. Thank you for taking the time to come here today. Mr. Sawabe has given these presentations in the past, but I will be giving them from now on.

I would like to begin by reporting on our results for the first six months of the current fiscal year.

In terms of our consolidated sales and earnings, TDK posted net sales of 424.8 billion yen, up 21% year on year. Operating income rose 36% to 38.3 billion yen, income from continuing operations before income taxes increased 31% to 41.3 billion yen and net income climbed 37% to 29.6 billion yen. The large year-on-year growth in the first half reflected robust demand for passive components that has continued since last year. This stellar performance of higher sales and earnings bettered our plan. As a result of the earnings growth, basic net income per common share increased from 163.84 yen last year to 223.89 yen. Furthermore, stockholders' equity per common share increased from 5,058.27 yen to 5,479.51 yen.

In terms of sales by segment, sales in the electronic materials and components segment rose 25.3% to 376.7 billion yen. As I mentioned at the start, there was extremely strong demand for capacitors, inductive devices and certain other products in the electronics market in the first half of fiscal 2007. Unfortunately, we failed to keep up with demand for some products, for which we apologize for any inconvenience caused to our customers. As you already know, large flat-screen TVs are rapidly gaining in popularity in the digital home appliances market. Moreover, strong demand from BRICs nations is driving growth in shipments of mobile phones. In addition, we are seeing an increasing number of mobile phones equipped with sophisticated functions. In the PC field, CPU manufacturers are leading the way in increasing clock frequencies and in the trend toward multi-core CPUs. All of these trends are driving the use of more electronic components in electronic devices and a shift from existing products to high-end products. Against this backdrop, demand for electronic components was extremely brisk in the first half of the fiscal year.

Hard disk drive demand was a little soft in the first quarter, but from the latter half of the second quarter demand for components picked up in anticipation of year-end demand. So, while there was a feeling that first-half HDD demand lacked some of the strength of the previous year, there was no question that demand continued to expand. This expansion in demand for HDDs was reflected in demand for HDD heads.

The recording media segment saw sales fall 3.1% to 48.1 billion yen. This was mainly the result of the ongoing fall in demand for audiotapes, videotapes and other analog products as a whole.

Looking at earnings in each segment, the electronic materials and components segment posted an increase of 8.3 billion yen in operating income to 40.6 billion yen, with all four product sectors recording year-on-year sales growth.

The recording media segment posted an operating loss of 2.3 billion yen, but this was a 1.9 billion yen improvement on the previous fiscal year's first-half result and reflects the benefits of sweeping structural reforms initiated in the previous fiscal year. This improvement came despite persistent negative factors such as declining sales of profitable magnetic tapes, a poorer product mix and sales price discounts. The segment operating loss included restructuring expenses of 1.1 billion yen. These expenses were budget leftovers from the previous fiscal year's restructuring expenses, of which none remained by the end of the interim period. We will work to strengthen operations in this segment to ensure that we post a profit for the second half, given that the third quarter is the busiest period of demand during the year.

In accordance with TDK's basic policy, the Board of Directors approved an interim dividend of 50 yen per share of common stock, 10 yen more than the 40 yen declared for the fiscal 2006 interim period.

Turning to our full-year forecasts, we are projecting net sales of 820.0 billion yen, up 3.1% year on year. We are also forecasting a 35.5% rise in operating income to 82.0 billion yen. Income before income taxes is projected to rise 33.1% to 88.0 billion yen. And our forecast calls for a 38.3% rise in net income to 61.0 billion yen. These forecasts are the same as those issued at the end of July.

As of now, I believe that it is fair to say that the operating environment in the third quarter remains strong. In addition, with the completion of work to ramp up capacitor production capacity at the end of the interim period as planned, the additional capacity will contribute fully to our results in this area from October onwards. However, at this time there is still uncertainty about how the year-end selling season will unfold. Accordingly, uncertainties such as how demand will trend in the new year continue to cloud forecasts for operating results in the second half of fiscal 2007. We decided to leave our forecasts unchanged because, while considering the latest information, we felt there was still insufficient information for us to change them. Incidentally, we have assumed an average exchange rate of 110 yen to the U.S. dollar for the second half of fiscal 2007 as per our original plan.

Finally, as I just said, because it is still difficult to discern how the year-end selling season will play out, there is lingering unease regarding the fourth quarter. Under these circumstances, TDK is working to expand sales of capacitors, inductive devices and other passive components to capitalize fully on the current strong demand for components. Furthermore, with competition intensifying among HDD manufacturers, our primary customers for HDD heads, our head business is expected to be affected by changes in market share of our customers. While it is difficult for one company alone to overcome these changes, what TDK must do is to constantly bring to market products that are technologically superior. That's why we are committed to doing our best to develop products that will enable us to prevail against rival companies in terms of both quality and cost. In that sense, we recognize that the period from the beginning of the second half of fiscal 2007 through the next fiscal year is a key period for TMR and PMR products from the perspective of our product roadmap. We are also taking various steps to capture synergies with Densei-Lambda in the power supplies business. We believe that you will gradually see the results of these efforts.

With regard to the recording media segment, now that major structural reforms are behind us, our next step is to boast earnings power in this business.

As I have explained before, by strengthening the three businesses that form the backbone of our earnings at present as well as bolstering businesses that have the potential to become core businesses, I believe we can meet stockholders' expectations of TDK. To that end, I ask for your continued support. Thank you.

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