Investor Relations

[ Financial Results for Fiscal 2009 Performance Briefing ]Q&A

Q1. The balance sheet value of inventories had fallen to 105.6 billion yen at the end of March. Where do you see that figure going by the end of June? Also, what do you expect capacity utilization to be during the first quarter? Finally, could you provide a breakdown of the fiscal 2010 split between EPCOS and TDK in terms of capital expenditures, depreciation and amortization, and research and development expenses?
A1. We deliberately cut production levels to keep inventories as low as possible at the end of March. Since April, while we have basically been producing to order, the level of orders has been sufficient to apply some downward pressure to inventories. At the same time, we are making concerted efforts to cut inventories through measures such as reductions in lead times so at the very least inventory levels do not rise. Turning to our capacity utilization, this was under 50% through March but has climbed back into the 60-70% range since April.

In terms of the projected capital expenditures and other figures for EPCOS for the year to March 2010, since it is a separately listed company, I am afraid that we are not at liberty to disclose any other figures than those that EPCOS has published.
Q2. I would like to make my usual inquiry as to indexed quarterly sales and shipment volumes for HDD heads and multilayer ceramic chip capacitors (MLCC). In particular, do you have more detail on the HDD head business in terms of actual and projected figures for HDDs, head gimbal assemblies and the average number of heads per HDD?
A2. If we set the level of HDD head shipment volumes in the first quarter of fiscal 2009 at 100, then the figures for the rest of the year were 113 in the second quarter and 97 in the third quarter, before falling to 69 in the fourth quarter. We expect shipment volumes to recover to 95 in the first quarter of fiscal 2010. Total demand for HDDs in fiscal 2009 was 510 million units, the average number of heads per HDD was 3.01, and demand for HGAs was over 1,500 million units. For fiscal 2010, we are projecting total HDD demand of 470 million units, an average number of heads per HDD of 3.0 and total HGA demand of over 1,400 million units.

Our market share in fiscal 2009 was 29%, and we are aiming for over 30% in fiscal 2010.

Finally, regarding the MLCC business, sales revenues fell 31% in fiscal 2009. We expect sales volumes to be roughly flat this year, with discounting in the 10-15% range.
Q3. You have provided full-term projections for the current year, but if possible could you provide a quarterly overview along with an idea of when you expect TDK to start making money again? Also, with demand picking up for components at present, why is it that TDK isn't planning to move into the black immediately?
A3. This year we have not issued any interim guidance. This is because, while we are seeing a recovery in orders at the moment, it is difficult to predict at this stage if this recovery will be sustained and at what level, or if there will be a slight correction of some kind. So that is why we have not made any quarterly projections. As far as the first quarter is concerned, we expect TDK's sales excluding EPCOS sales to be around 42 billion yen. The structural reforms that we have undertaken mean that we can break even at 45 billion yen in sales, so I would expect a small loss in the first quarter on that basis. Judging by the level of sales in April and May to date, we might actually be slightly ahead of this. But at this point we cannot tell whether conditions will be similar in the second quarter and beyond.
Q4. I would like to ask a question about HDD heads. TDK's capacity utilization rate seems to have recovered sharply for current wafer processes. When did the rate bottom out, and what is it at the moment?
A4. Our capacity utilization rate for HDD head wafers bottomed out at around 30% during the January-March quarter. Currently, it has recovered to around 70%.
Q5. Revenues and profits have worsened considerably in TDK's capacitor operations and conditions remain tough. How do you see the potential for the Honjo Plant relative to the Akita site where ongoing consolidation is taking place? Please give us an indication of the facility's future potential.
A5. As we said earlier, we see the Honjo Plant as the core facility for accommodating higher demand for high-capacitance capacitors and thin-layer devices going forward. In particular, it will be important for supplying new compact product lines. Due to the tough conditions, production yields were actually a few percentage points higher last year. We are focusing not just on the capital equipment but also on a variety of detailed improvements. We expect these to be finished in the first half of this year. Going forward, therefore, we have positioned the Honjo Plant as our core facility for manufacturing new product lines.
Q6. TDK's new three-year medium-term management plan commences this fiscal year. Can you provide us at this stage with any concrete figures that have been decided? Also, since it is now three years since President Kamigama was appointed, I would like to ask him to list what he considers his major achievements during the past three years. I realize that I may have asked a similar question three months ago.
A6. This year, fiscal 2010, does mark the beginning of our new three-year medium-term management plan. Formulating this plan necessarily involves discussions with EPCOS, so I have to reiterate that we will not be providing any concrete details of the new plan until we announce first-quarter results.

Your other question about what I have achieved as president in the three years since my appointment is an extremely difficult one to answer. It feels as if all we have been doing are acquisitions and spending quite a bit of money in the process. We bought HDD head-related assets from Alps Electric Co., Ltd., acquired Magnecomp Precision Technology Public Company Limited and EPCOS AG, and also made Densei-Lambda K.K. into a wholly owned subsidiary. I believe that all of these moves were essential, but I am conscious that we have more to do to reap the rewards. This is the year when we will start making that happen. I think we should see benefits emerging in particular in HDD heads. TDK-Lambda Corporation is now a much better integrated operation and we are starting to see progress on several fronts. Regrettably, however, the recession has hobbled both the semiconductor equipment and industrial machinery sectors, which means the business is still struggling. We are making every effort and I expect that we will be able to make these operations profitable in due course. Overall, we are doing everything possible to make the most out of these various moves. There are also sectors where we can see fresh growth coming through, such as applications relating to railway equipment, medicine, LEDs and lighting. One specific area where we are aggressively seeking to expand sales is in power supplies for the base stations used in telecommunications infrastructure.

Some might take the view that the economic downturn has made our new capacitor plant at Honjo excess baggage. At the same time, though, the recession has enabled us to consolidate operations extremely fast. The drop in capacity utilization provided us with a great opportunity to complete this consolidation into four sites in record time. This has allowed us to establish a clear role for each site. Previously, we were producing items all over the place, which was hardly beneficial because we had no clear picture of what we were doing. Now we have eliminated that opacity and we have an extremely clear-cut production set-up for capacitors. We expect to focus most of the production of new product lines at Honjo. I hope that we will have made up the ground to our competitors by the end of 2009. So my overall feeling is that we have made the investments and now we must generate a return as quickly as possible.
Q7. Leading on from the last question, what will change in the capacitor business with the appointment of Mr. Araya? Has TDK made any new discoveries or major improvements in this area? In that context, do you expect the capacitor operations to be breaking even or still losing money in the second half of fiscal 2010?
A7. Of course, the management approach will change. Mr. Araya isn't fully familiar with the capacitor business, so some management will be entrusted to his subordinates. We know what we have to do to reestablish the capacitor business. And all decisions have been made as to who has to do what. We just have to execute our plans and strategies. Mr. Araya is highly skilled in managing staff and the methods he applied to turn around our inductor operations proved highly effective. I believe that he can also raise subordinates to manage the capacitor business well too. That's where the management will differ from before.
Q8. With regard to President Kamigama's presentation on EPCOS, my impression from before was that TDK hoped to accelerate cooperative efforts with EPCOS on a number of fronts before creating a new company. Listening to today's presentation, however, it seems that any benefits will only come through in fiscal 2011 rather than the current fiscal year. I would like to ask President Kamigama whether he believes plans are on schedule or if there are factors delaying progress? Also, based on your thinking on that point and in the current business environment, do you see any synergy effects emerging without additional restructuring of facilities? In short, are you on track with EPCOS or not, and what does TDK need to do in this regard?
A8. As far as EPCOS is concerned, we are trying to get off to as rapid a start as we can and create tangible results. I am a little restricted in what I can say on this point, but we do have a number of things in train. I suspected that what I said earlier might give the impression of delay, but our plan is to provide a more detailed picture at the time of the first-quarter results, including synergies. A year has passed since we announced this acquisition. In that sense, I believe we have made moderate progress over the past 12 months. Practically all of the major decisions have been taken, and now it's just a matter of implementation. So I believe we are moving ahead satisfactorily. As I said, we expect to book 3.3 billon yen in restructuring charges for fiscal 2010, but that figure does not include the cost of any structural reforms at EPCOS. The reason for that is that we are only now in the process of calculating such costs and benefits to plug into the medium-term management plan, so at this stage we do not have any specific figure for what restructuring expenses might be required at EPCOS.
Q9. What level of profitability are you assuming for TDK's capacitor operations in your forecasts for the second half of fiscal 2010?
A9. Our aim is to restore these operations to profitability as soon as possible.
(Araya) I have only been managing this business for a month, but I would like to say a few words. Having originally been involved on the capital equipment side, I do know something about capacitors, even though I have not been working directly in the area over the past seven years. As President Kamigama said, all the elements have now basically come together. In terms of manufacturing facilities, through what has been a fairly complex process, we have managed to rectify the various issues so that we now have the necessary production capabilities for each separate product line. As I discovered when I managed a similarly complex process with our inductors, bringing together all the various elements is about more than sorting out the production line. It also involves the materials, product design and processes. Manufacturing is actually about integrating all of these things. I believe that all of these elements are now in place. My job is to make all of them work together. By integrating all of these things, I see it as my mission to ensure that we develop and manufacture these products more efficiently and more profitably than before.