Investor Relations | IR Events | Performance Briefing

[ 3rd Quarter of fiscal 2011 Performance Briefing ]Q&A

Q1. Can you discuss the net sales trajectory of each segment as you head into the fourth quarter?
A1. Our exchange rate assumption stands at \80 to the U.S. dollar. If accurate, we predict a roughly \5.0 billion decline in net sales in the recording devices business from the third to the fourth quarter, and a jump of approximately \3.0 billion in the passive components and other segments.
Q2. What changes do you anticipate in HDD head volume?
A2. If the first quarter of fiscal 2010 is 100, then the first quarter of fiscal 2011 was 122, the second quarter 122, and the third quarter 125. Right now, we expect the fourth quarter to be around 120. Although figures for the upcoming April to June period are still uncertain, it appears that growth will be mostly flat.
Q3. What percentage of the \35.2 billion in capacitor sales in the third quarter owed to ceramic capacitors, aluminum electrolytic capacitors, and film capacitors, respectively?
A3. Ceramic capacitors accounted for 60%, while film and aluminum electrolytic capacitors each accounted for around 20%.
Q4. What is the capacity utilization rate of multilayer ceramic capacitors (MLCC) for the third and fourth quarters?
A4. Capacity utilization is between 80% to 85% for both quarters, so definitely above 80%.
Q5. In HDD heads, when do you expect to begin mass production and shipment of 500GB/P products for 2.5-inch drives?
A5. Delays have emerged among some customers, but we hope to start mass production from the first quarter of next fiscal year.
Q6. In 500GB/P products for 2.5-inch drives, would you say that the development of TDK-produced heads is leading that of HDD manufacturers producing their heads in-house?
A6. The difficulty with 500GB/P products involves not only heads, but determining how to configure all three core elements?heads, media, and channels?to commercialize products. If we leverage the unique properties of our heads in configuring these elements, this will translate into advantages for drives.
Q7. In what ways are you looking to expand the module business, including in high-frequency modules?
A7. In high-frequency modules, and particularly where smartphones and other mobile phones are concerned, we now have a formidable lineup of high-frequency modules and module boards thanks to synergy effects with recently acquired EPCOS. This advantage is already aiding business expansion in the current term, and will likely contribute more heavily next fiscal year.
Q8. What level of improvement do you anticipate from the new MLCC process, and where are preparations ahead of adoption of the new process?
A8. The first line has been installed and is under verification. As for benefits, we estimate a cost savings of more than 10%.
Q9. In high-frequency modules, is it safe to say that smartphones will remain your target in the upcoming term and beyond? Or are their other applications on the horizon?
A9. Our target will be the mobile phone and mobile devices field, with an emphasis on smartphones.
Q10. TDK is planning to book a one-off charge of \3.5 billion in the fourth quarter. Can you confirm the amount of the income-side improvement that will potentially come about after this charge?
A10. The expected benefit for fiscal 2012 is somewhere around \1.0 billion.
Q11. Let’s suppose for a moment that earnings are relatively strong in the fourth quarter. Do you think you would increase this charge in preparation for next fiscal year?
A11. For right now, we don’t plan to take a charge of more than \3.5 billion.
Q12. HDD head volume for October to December was substantially ahead of initial forecasts. Can you discuss how capacity utilization rates have changed?
A12. In retrospect, our estimate for the third quarter was too low. We then moved to adjust production in line with market demand, which raised capacity utilization to over 80%. Of course, there was some slight monthly variation in HGA shipments, but there were no major fluctuations in production at the quarterly level.
Q13. Amortization of goodwill in the third quarter was \1.7 billion, up \0.6 billion from the second quarter. What caused this rise, and what figure do you foresee for the upcoming fiscal year?
A13. There were overestimates in our evaluation of some fixed assets when EPCOS was acquired. So the main cause was change in the amortization of this overestimated portion following the disposal and transfer of fixed assets. The level next fiscal year should be around \1.3 billion to \1.4 billion per quarter.
Q14. Can you discuss the factors behind the better-than-expected HDD head performance in the third quarter?
A14. Prior to the start of the third quarter, the overall situation for our customers appeared to be one in which they were braking, not accelerating, which led us to lower our estimates. However, positive factors emerged for most customers once the quarter got under way, ultimately culminating in growth to the 125 mark I mentioned earlier. Put differently, we foresaw more weakness than there actually was in our initial third-quarter projections.
Q15. In ceramic capacitor sales price trends, can you confirm your price expectations for the third and fourth quarters, and for the upcoming term?
A15. Based on the situation today, prices in the third quarter, excluding exchange rate effects, were down around 1% or 2%. This environment is unlikely to change much in the fourth quarter, but price competition will probably be more severe next fiscal year. We are preparing for that eventuality even as we speak.
Q16. How much will high-frequency components grow from the second to the third quarter? Can you discuss the potential continuation of this trend ahead of the fourth quarter?
A16. Sales are up more than 10% compared to the second quarter. Earnings have also greatly improved. The outlook for the fourth quarter right now is either flat or modestly lower sales. January and February will also likely see sales dip, largely due to the Lunar New Year. Things should pick up from March as the mobile phone market grows again, with growth in sales of high-frequency components also expected from that point.
Q17. To what extent are you looking to ramp up aluminum electrolytic and film capacitor production ahead of next fiscal year? Can you talk about your timetable for boosting production?
A17. As previously reported in some quarters, we are looking to boost production by around 30%, targeting bases in India, China and Brazil. Equipment is being readied as we speak, with contributions expected from the first quarter of next fiscal year.
Q18. What stimulated the growth in high-frequency components?
A18. A major factor was growth in high-frequency modules for mobile phones. In previous years, the main market for TDK was notebook PCs. I think growth has come from the addition of products for mobile phones to our repertoire.
Q19. In high-frequency components, have you continued to see growth in specific customers or in the customer base?
A19. Basically, our business with existing customers is expanding, but new clients are also emerging.

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