Investor Relations | IR Events | Performance Briefing

[ Financial Results for Fiscal 2007 Performance Briefing ]Consolidated Results of FY March 2007 & Projections for FY March 2008

Mr. Takehiro Kamigama<br>
President & COO

Mr. Takehiro Kamigama
President & COO

Good afternoon. Thank you for taking the time to come here today.

Let me report on our consolidated operating results for fiscal 2007, the year ended March 31, 2007.

Consolidated net sales increased 8.4% to 862.0 billion yen, operating income climbed 31.5% to 79.6 billion yen, income from continuing operations before income taxes jumped 34.1% to 88.7 billion yen, and net income rose 59.0% to 70.1 billion yen.

Net sales increased for the fifth straight year, reflecting buoyant demand for passive components, which was underpinned by extremely strong sales of digital home appliances. Likewise, operating income was up for the fifth year in a row, with a 32% year-on-year increase in fiscal 2007. Net income at 70.1 billion yen was a record for TDK, surpassing the previous record of 60.3 billion yen set back in the year ended March 31, 1997. Basic net income per common share rose from 333.50 yen to 529.88 yen, and stockholders' equity per common share increased from 5,310.62 yen to 5,759.18 yen.

I will now discuss sales by business segment.

Sales rose 10.3% to 758.8 billion yen in the electronic materials and components segment. In the electronics market in fiscal 2007, digital home appliances recorded another year of strong growth. Illustrating this were statistics released by Japan Electronics and Information Technology Industries Association, or JEITA. According to JEITA, production units of flat-panel TVs, mobile phones, digital cameras and PCs are estimated to have recorded double-digit growth in the 2006 calendar year. Growth is forecast to continue in 2007. TDK benefited from this expansion in the form of strong orders for its passive components, particularly capacitors and inductors for digital home appliances. Indeed, in fiscal 2007, sales of electronic materials and electronic devices both grew more than 10% year on year. On the other hand, the recording devices sector saw sales decline 3.5% year on year. Total demand was up for mainstay HDD heads, but our operations were affected by Maxtor's acquisition. Sales of HDD heads thus fell a slight 2.4% year on year. The other electronic components sector, while small in terms of sales, is seeing new products make a greater contribution to sales year after year. Underscoring this, sales in fiscal 2007 were almost 5 times higher than the March 2003 fiscal year, the most recent low point in sector sales, as we gradually reap the fruits of our efforts to drive growth in this business.

Now let's look more closely at each sector. In the electronic materials sector, sales increased 10.2% to 199.2 billion yen. Capacitor sales increased year on year, the result of strong sales for use in PCs and flat-screen TVs. In terms of product types, sales grew for high- and large-capacitance products as well as products for special applications. Sales of ferrite cores declined due to the termination of some products, while magnet sales rose on the back of higher production of HDDs.

In the electronic devices sector, sales climbed 28.1% to 198.2 billion yen. Sales of inductive devices increased, mainly due to higher sales of power line coils used in mobile phones and HDDs. Sales of high-frequency components declined year on year, the result mainly of lower sales volumes and falling sales prices. Sales of other products increased mainly due to higher sales of power supplies, which offset a slight decline in sales of sensors and actuators as sales prices fell.

Sales of recording devices declined 3.5%, to 304.8 billion yen. Demand for HDD heads increased in line with higher unit production of HDDs. As a result, TDK saw HDD head sales volume increase as a whole, with higher sales volume to existing customers countering the effects of restructuring in the HDD industry. However, strong discounting pressure on HDD heads stemming from competition for market share among HDD manufacturers hurt results, leading to the overall decline in sales.

Sales of other electronic components increased 55.5% to 56.6 billion yen. This result mainly reflected higher sales of organic EL displays, mechatronics and other new products.

By market field in the electronic materials and components segment, sales to the IT home electronics field increased 4% and accounted for 67% of segment sales. Sales to the high-speed, large-capacity networks field rose 18% and accounted for 9% of segment sales. Sales to the car electronics field rose 9% and accounted for 9% of segment sales. Sales in the others field rose 10% and accounted for 15% of segment sales.

The increase in sales in the IT home electronics field reflected higher sales of components for computers, while in the high-speed, large-capacity networks field it was due to higher sales of components for mobile phones. Increased sales of electronic components due to the increasing use of electronics in cars was behind the higher sales in the car electronics field. Growth in other fields was mainly attributable to higher sales of components for industrial machinery.

In the recording media segment, sales declined 3.9% to 103.2 billion yen. Sales of optical media and tape-based storage media for computers rose. However, there was a large drop in sales of existing analog products, that is, audiotapes and videotapes, leading to the overall decline in segment sales.

Turning to sales by region, sales in Japan decreased 1.3% to 171.4 billion yen. Sales in the Americas increased 14.3% to 103.1 billion yen, while sales in Europe rose 10.1% to 83.5 billion yen. Sales in Asia outside Japan rose 10.7% to 504.0 billion yen. Overall sales thus increased 8.4% to 862.0 billion yen.

There were two main reasons for the lower sales in Japan. One was a decline in sales of recording media products. The other was the transfer offshore of some products in the electronic materials and components segment. This, however, didn't result in an actual change in sales for the company as a whole. Generally speaking, electronic materials and electronic devices recorded impressive performances in all regions, supported by robust demand for digital consumer products. Consequently, overseas sales increased 11% to 690.7 billion yen and accounted for 80.1% of consolidated net sales, up 1.9 percentage points from 78.2%.

Turning now to earnings in each segment, the electronic materials and components segment recorded operating income of 81.8 billion yen, up 7.4 billion yen year on year. While sales fell in the recording devices sector, this was compensated for by growth in sales in the other three product sectors of this segment, resulting in higher segment sales and earnings. The segment incurred structural reform expenses of 5.6 billion yen.

The recording media segment, while seeing an 11.6 billion yen improvement on the previous fiscal year, recorded an operating loss of 2.2 billion yen. TDK implemented structural reforms at main manufacturing bases in Europe and Japan from fiscal 2006 through the first half of fiscal 2007. As a result of these restructuring actions, the segment returned to profitability in the third quarter of fiscal 2007. However, these profits were insufficient to cover the structural reform expenses booked in the fiscal year's first half, and as a result the segment recorded a loss on a full-year basis. The segment incurred structural reform expenses of 1.4 billion yen in fiscal 2007.

As announced on April 19, TDK has decided to focus on development and manufacturing activities in the recording media segment with the transfer of the recording media sales business for TDK brand products to U.S. company Imation Corporation. This transfer is expected to be completed in the latter half of the second quarter of fiscal 2008. TDK is determined to turn this segment into a business with a stable profit base by increasing investment efficiency going forward.

Now for a word on our consolidated projections for fiscal 2008. We are projecting consolidated net sales of 865.0 billion yen, 0.3% higher year on year, along with a 13.1% increase in operating income to 90.0 billion yen, an 8.3% rise in income before income taxes to 96.0 billion yen and a 2.7% increase in net income to 72.0 billion yen.

We expect high production levels of digital consumer products to continue in fiscal 2008. In today's climate, where lifecycles of digital products are getting shorter and shorter, we will actively seek to expand sales of new products by further refining our systems for supplying components matched to consumer demands in an even more timely manner. This will entail pushing ahead with efforts to reduce development and manufacturing lead times.

Our fiscal 2008 sales forecasts are calculated based on the premise that the transfer of the recording media sales business for TDK brand products to U.S. company Imation Corporation takes place in the latter half of the second quarter. In the recording media business, we expect an approximate 40% annual decline in sales due to our focus on the development and manufacture of our own products in the second half of the fiscal year following this transfer.

Looking only at the electronic materials and components segment, our sales forecast assumes expansion in this business, supported by growth in main passive components. Key themes in this regard are raising production of capacitors, expanding sales of inductors and strengthening the magnetic products and power supplies businesses.

Moreover, our forecasts assume an average yen-U.S. dollar exchange rate of \110 for the full year.

That concludes my presentation of TDK's fiscal 2007 operating results. Thank you for your attention.