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[ 1st Half of fiscal 2008 Performance Briefing ]Consolidated Results of 1st half FY March 2008 & 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 attend today's presentation. I would like to report on our results for the first six months of the current fiscal year.

In terms of consolidated sales and earnings, TDK posted net sales of 433.1 billion yen, up 2% year on year. Operating income rose 23% to 47.1 billion yen. Income before income taxes increased 17% to 48.4 billion yen. Net income was 34.6 billion yen, up 17% year on year.

Net sales were a record for an interim period and reflected continued robust demand for passive components for digital home appliances. Another highlight was that earnings rose substantially at all levels year on year, with interim earnings increasing for the sixth straight year. However, earnings included a gain on transfer of approximately 14.9 billion yen that was recognized for accounting purposes following the transfer of our TDK brand recording media business. Basic net income per common share increased from 223.89 yen last year to 266.16 yen. Furthermore, stockholders' equity per common share rose from 5,479.51 yen to 5,768.87 yen.

In terms of sales by segment, sales in the electronic materials and components segment increased 5.8% to 398.4 billion yen. The electronics market in the first half of fiscal 2008 saw continued strong growth in digital home appliances. There was a steady increase in production of flat-screen TVs, digital cameras and game consoles, among other products. The production of mobile phones also continued to increase. Coupled with a rapid increase in production of notebook PCs, TDK's operating environment was generally favorable in the first six months of fiscal 2008.

Shipments of passive components for digital home appliances were strong on the whole. This strength lifted sales of electronic materials and electronic devices higher year on year in the interim period. Sales of recording devices also rose. The main reason was growth in TDK's shipments of HDD heads, the mainstay product in this sector, thanks to rapid growth in demand for HDDs in the second quarter.

Let me now give you an overview of the performance of each product sector.

The electronic materials sector recorded a 4.1% year-on-year increase in sales to 102.8 billion yen. Capacitor sales increased, with sales for PCs and flat-screen TVs strong. In terms of product types, sales grew for high- and large-capacitance products. Ferrite cores and magnets suffered a slight decrease in sales. While sales of magnets increased, reflecting growth in sales for automotive applications, ferrite core sales were down in line with the termination of some products.

Turning to electronic devices, sector sales rose 8.1% to 104.4 billion yen. Sales of inductive devices increased, the result mainly of higher sales of power line coils used in flat-screen TVs, game consoles and portable audio players and of multilayered products. High-frequency component sales increased too, owing to higher sales volume of modular products. Sales of other products increased as higher sales of power supplies offset lower orders of sensors and actuators due to production cutbacks by some customers.

Sales of recording devices rose 1.9% to 156.9 billion yen. In HDD heads, TDK increased sales volumes in step with higher unit production of HDDs. At the same time, HDD head demand is shifting to products with higher areal recording density, resulting in an improvement in our product mix.

Sales of other electronic components increased 25.4% to 34.3 billion yen. This result mainly reflected higher sales of mechatronics, products related to electromagnetic wave engineering 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 63% of segment sales. Sales to the high-speed, large-capacity networks field rose 13% and accounted for 10% of segment sales. Sales to the car electronics field rose 12% and accounted for 8% of segment sales. Sales in the others field increased 6% and accounted for 19% of segment sales.

The increase in the IT home electronics field reflected mainly higher sales of components for MPEG3 products, game consoles and computers. In the high-speed, large-capacity networks field, the main contributor was higher sales of components for mobile phones. A steady increase in sales of electronic components for automotive applications 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 28% to 34.7 billion yen. As previously announced, on August 1 this year TDK transferred the sales business for TDK brand recording media products to U.S. company Imation Corporation. At the same time, TDK granted a license to use the TDK brand name to Imation, but only for recording media products. This means that during the license period Imation has the right to sell recording media products bearing the TDK brand. The businesses left at TDK after these transfers are R&D and manufacturing operations for magnetic tapes and Blu-ray Discs for consumer and professional use, as well as OEM sales. This dramatic transformation of our recording media business led to the large 28% year-on-year decline in segment sales during the interim period. The aforementioned business transfer was completed around two months ahead of the plan for structurally reforming the pre-existing recording media business this fiscal year.

Turning to sales by region, sales in Japan decreased 8% to 76.3 billion yen. Sales in the Americas edged down 0.7% to 50.9 billion yen, while sales in Europe decreased 15.4% to 32.9 billion yen. Sales in Asia outside Japan rose 8.5% to 273.0 billion yen. Overall sales increased 1.9% to 433.1 billion yen.

Recording media segment sales decreased in all regions due to the transfer of the TDK brand sales business I have just explained. Regarding the electronic materials and components segment, although sales decreased in Japan, they rose in all other regions, supported by buoyant demand for digital consumer products. Consequently, overseas sales increased 4.4% to 356.8 billion yen and accounted for 82.4% of consolidated net sales, up 1.9 percentage points from 80.5%.

Turning now to earnings in each segment, the electronic materials and components segment recorded operating income of 36.0 billion yen, down 4.5 billion yen, despite higher sales in all four product sectors. This result included structural reform expenses of 1.5 billion yen. The recording media segment posted operating income of 11.1 billion yen, an improvement of 13.4 billion yen year on year. The substantial improvement in earnings was mainly due to the one-time gain on the previously mentioned sales business transfer. The general manager in charge of finance and accounting will give you more details about this gain later. The segment incurred structural reform expenses of 1.9 billion yen.

As a result of various structural reforms, the recording media business returned to profitability in the second half of fiscal 2007. The series of structural reforms was largely completed in the first half under review with the transfer of the sales business and TDK brand license. From the second half onward, we will concentrate on the remaining business activities in this segment and work to generate benefits from the structural reforms as we target improved earnings.

Now for a word on consolidated projections for fiscal 2008. We are projecting consolidated net sales of 865.0 billion yen, up 0.3% 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. So far, production levels of digital consumer products remain high, largely as we had assumed. Finished product manufacturers, our customers, are steadily producing goods to meet demand during the year-end shopping season. Underlying orders for components reflect these production trends. However, in August this year we saw the problem of excess liquidity around the world, most starkly demonstrated by the subprime loan issue in the U.S., affect share markets and then not just investment markets but also the entire global economy. This global economic instability continues today. Whether or not there is a drop in consumption in the U.S., there is likely to be an impact on our electronic components business. Therefore, we must carefully monitor just how closely present component orders are linked with actual demand for finished products. The year-end selling season in Japan, the U.S. and Europe, demand in Asia around the Chinese New Year at the start of 2008 and demand in the second half of fiscal 2008 associated with the Summer Olympic Games in Beijing suggest that the operating environment will be filled with a mixture of expectation and unease. Regarding our outlook for sales in the electronic materials and components segment, we have revised our sales plan for mainstay passive components, assuming that final demand will be within the range of seasonal fluctuations in a typical year.

With regards to the second half of fiscal 2008, we must take further steps to put in place a framework to cope with expansion in the HDD head business, where demand is currently strong. Other important themes during this period include ramping up capacitor production, expanding inductor sales and strengthening the magnetic products and power supplies businesses. In the recording media segment, now that major structural reforms are essentially complete, the most pressing issue in the second half of fiscal 2008 and thereafter will be improving profitability in remaining businesses. Since August, the recording media business has focused on development and manufacturing of proprietary products. As a result of this focus, we expect segment sales for the full year to drop by just over half from the previous fiscal year. Our forecasts assume an average yen-U.S. dollar exchange rate of 110 yen for the second half.

Fiscal 2008 is the inaugural year of our new medium-term management plan. In this important first year we have already concluded an agreement with Alps Electric Co., Ltd. concerning the transfer of certain Alps intangible and tangible assets in a move designed to further strengthen our stalwart HDD heads business. We have also announced plans to acquire a suspension assembly manufacturer and make it a TDK Group subsidiary. Competition remains as stiff as ever in the HDD industry, but we are determined to continue taking steps to strengthen our competitiveness with the aim of further cementing our position as a reliable and trusted components manufacturer over the medium term. Enhancing the earnings power of TDK as a whole is a goal of our new business plan. To achieve it, we will also work to improve businesses where we have been complacent with low earnings up to now. We are determined to make steady strides toward achieving our specific numerical goals, such as strengthening our position in the inductors business and improving the power supplies business.

That concludes my presentation of TDK's fiscal 2008 first-half operating results. We ask for your continued understanding and guidance. Thank you for your attention.