Investor Relations | IR Events | Performance Briefing

[ Financial Results for Fiscal 2010 Performance Briefing ]Q&A

Q1. Please give us HDD head figures using the normal index, as well as capacitor sales forecasts for fiscal 2011 and how you see sales trending on a quarterly basis.
A1. Regarding HDD head numbers, if we think of the first quarter of fiscal 2010 as 100, then the second quarter was 119, the third quarter was 129 and the fourth quarter was 128. At this time, we are projecting 138 to 139 for the first quarter of fiscal 2011.

In terms of fiscal 2011 capacitor forecasts, we are projecting a 5% sales increase. We now expect first-quarter sales to fall roughly 8% from the fourth quarter of fiscal 2010. However, we expect the second and third quarters to be about 15% up on the first quarter.
Q2. How much are you expecting to incur in structural reform expenses in fiscal 2011? You booked structural reform expenses of \7.9 billion in the fourth quarter of fiscal 2010. Excluding those costs, fourth-quarter operating income would actually have been \16.2 billion. Looking at your projected operating income of \62.0 billion for fiscal 2011, I get the impression that operating income isn't expect to improve that much based on the fourth-quarter result. I don't know how much restructuring you're planning in fiscal 2011, how did you put together the \62.0 billion forecast?
A2. We are forecasting structural reform expenses of between \4.0 billion and \5.0 billion for fiscal 2011. Regarding the operating income forecast, it reflects mainly the impact of discounting and forex.
Q3. So is it correct to assume then that you don't expect any businesses to drag down earnings from the fourth quarter through the first and second quarters of fiscal 2011?
A3. Yes.
Q4. My question is for the president. I think that EPCOS and multilayer ceramic capacitors (MLCC) may have been regarded a low-profit businesses up to now. But what is your feeling now? Do you feel that fiscal 2011 is the time for them to shine? Or do you have more work to do? You said that you expected to capture synergies with EPCOS in high-frequency components. But those operations have been making a loss. How then do you plan to change things?
A4. It has taken some time, but we finally believe that we can capture synergies in fiscal 2011. We expect the fastest synergies to be in mobile phones, particularly smart phones, so some of the projected sales increase will come from this area. Up until now, high-frequency components operations at both TDK and EPCOS have been unprofitable. However, I feel that with these synergies we can move back into the black. With infrastructure-related demand rising rapidly against the backdrop of energy and environmental problems, we expect to see increasing demand for film capacitors and aluminum electrolytic capacitors. So, in fiscal 2011 EPCOS' unprofitable businesses should all become profitable.
Q5. That being the case, what is EPCOS' annual earnings potential at present? For example, could it generate recurring profits equivalent to about 5% of sales? A level of around 10% would normally be considered a pass mark.
A5. I think it is about what you suggest. However, around next fiscal year (fiscal 2012), we must improve profitability much more. The thing is that EPCOS still has the old profit structure. It still has a backlog of orders because it concentrated on the industrial equipment market. In other words, it seemed to feel that it was acceptable to carry stock as well as to have long lead times. Therefore, it must shorten lead times and reduce product inventories to make improvements. And if it can raise the turnover rate, it will improve profits even more.
Q6. Please tell us your thinking on selling, general and administrative expenses. When you acquired EPCOS, I seem to remember you saying that you wanted to cut selling, general and administrative expenses. I'm sure you said that your goal was a ratio of 15% to net sales. Specifically, I'd like to know if you see TDK getting close to the 15% target for selling, general and administrative expenses relative to sales in fiscal 2011, given that the ratio was higher than this in fiscal 2010.
A6. As you say, we targeted a 15% ratio of selling, general and administrative expenses against projected sales of \800.0 billion before we acquired EPCOS. Now that EPCOS is part of the TDK Group, we want to achieve a ratio of 15% against net sales, including EPCOS, going forward.
Q7. So you're saying that we should expect to see you lower selling, general and administrative expenses in the fiscal year ending March 31, 2011? How much to do you plan to lower them by? In the fiscal year just ended March 31, 2010, they were just over \160.0 billion.
A7. We are planning to lower them to just under 18% of net sales.
Q8. My question is about HDD heads and is for both the president and Mr. Kobayashi. TDK is very strong in back-end processes, and is able to produce quality heads at a very low cost. Your front-end processes are also strong, naturally. However, could you tell me to what extent you plan this year to use the automated back-end line? How much do you plan to raise capacity? And what is your customer strategy when you raise capacity?
A8. Given that labor costs are rising in China as well, as we said previously, we plan to continue automating processes. In terms of existing assembly lines, the line we took over from Alps Electric Co., Ltd. is operating at 100% of capacity. Using that concept, we plan to successively introduce integrated lines at TDK. As we mentioned earlier, we are targeting a HDD head market share of at least 35% by March 2011 and will make preparations in step with this plan.

We still have a labor-intensive operation. Even if we automate processes, we must not compromise quality. For that reason, we will proceed carefully. However, we must raise quality still more than now, which will necessitate more rationalization of our operations.
Q9. You mentioned several things about high-frequency modules. Many of your comments gave me the impression that you are very confident. In what areas specifically are you confident?
A9. We expect sales of RF modules and platforms to expand. These are areas that we haven't been that successful in entering in the past. Until now, we have mostly sold electronic components as individual units. But we now expect that module sales will probably increase going forward.
Q10. You have projected \75.0 billion for capital expenditures in fiscal 2011. Could you give us a breakdown of that figure? Please break the figure down by sector.
A10. The heads sector, namely recording devices, accounts for around 30% of the \75.0 billion budget. Electronic components-related sectors-electronic materials and electronic devices-and then others account for the remainder, in that order.
Q11. The capital expenditures budgeted for HDD heads are to raise capacity. How many years ahead are you looking with this investment?
A11. Earlier we talked about front- and back-end processes for HDD heads. Well, as heads become more sophisticated, front-end steps will increase. A considerable share of the capital expenditures will therefore be invested in raising the competitiveness of new products. In line with the increasing sophistication, back-end processes as well must be capable of producing products with an extremely high level of precision. For that reason, the investments are for ensuring technological superiority as well as ramping up production, as our president said earlier. That said, we will make careful preparations in order to achieve our targeted market share.
Q12. So am I right in saying that rather than simply increasing volume, a large amount of your capital expenditure will be invested in enhancing your technological competitiveness from next fiscal year onward?
A12. Yes, that's what our focus is on.

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