Investor Relations | IR Events | Performance Briefing

[ Financial Results for Fiscal 2014 Performance Briefing ]Q&A

Q1. The results of restructuring actions to date are evident in the earnings guidance for fiscal 2015 (the year ending March 31, 2015), for which you forecast substantial growth in profits. What are the underlying business assumptions?
A1. We expect improved sales in high-frequency components and magnets, and growth in profits in rechargeable batteries and inductive devices.

With high-frequency components such as SAW filters, BAW filters and modules, we forecast increased demand as well as growth in orders from the outcome of reference design approval processes. We anticipate various projects to reach the stage of securing large, new orders, notably in discrete products (non-module components).

In magnets, we are seeing robust demand for ferrite magnets in the automotive sector. Our moves to integrate operating bases for these products in the previous fiscal year should also help to boost profits soon. In metallic magnets, while it will take a little time to gain approvals and secure orders, we are focusing on expanding this business in both the automotive and industrial equipment markets to support an ongoing steady recovery.

In rechargeable batteries, we see sales growing in smartphone, tablet and other ICT applications. It is a similar story for inductive devices, where sales are expanding steadily in ICT markets and the automotive sector.

One thing I have yet to mention is that demand is growing gradually in the core HDD heads business for datacenter applications, which is helping to offset the decline in demand for PCs. We see this business continuing to post reliable earnings in the current fiscal year.
Q2. Could you provide a breakdown of expected changes in operating income for fiscal 2015, in the same way as you did on Slide 9 for the year ended March 2014?
A2. We are not expecting much of an effect due to exchange rate fluctuations, because we assume a rate of ¥100/U.S.$1. Sales price reductions will be a significant factor, and overall we forecast erosion of a little over 4%. We expect a positive impact from higher sales. Based on projected volumes and changes in the sales mix, we think this will more or less offset the impact of price erosion. We will no longer incur restructuring costs in the current fiscal year. That said, we expect to incur rationalization and other related costs of around ¥2.0-¥3.0 billion in certain areas as we expand our ¥1 trillion business globally. These costs have already been factored into our business forecasts. We expect to see an additional positive effect of ¥4.0 billion on operating income in the current fiscal year. In terms of cost-reduction efforts, this year we are targeting ¥20-25 billion in savings. As a result of growth in sales, new business developments, and investments in systems, we expect SG&A expenses to increase by around ¥10 billion this year. Finally, since asset sales boosted operating income by ¥2.0 billion last year, this will be a negative factor in fiscal 2015. I think that covers all of the main factors involved.
Q3. Which operations account for planned growth in capital expenditures and R&D spending in the current fiscal year?
A3. We are projecting ¥80 billion in capital expenditures for this fiscal year. Rechargeable batteries are the main factor. We have budgeted ¥68 billion for R&D spending, and batteries are the main factor behind the increase in this figure as well.
Q4. Quarterly operating income was around ¥7.6 billion in the fourth quarter of fiscal 2014 in real terms after excluding restructuring charges. How does this compare with the projected operating income for the first quarter of fiscal 2015?
A4. As you said, quarterly operating income in the fourth quarter was ¥7.6 billion after restructuring costs. We expect a slightly higher figure than this for the first quarter of fiscal 2015.
Q5. Could we just divide the full-year operating income forecast of ¥57 billion by four as our estimate for first-quarter earnings?
A5. At this stage we expect to earn over 40% of that ¥57 billion in the first half and under 60% in the second half. The second and third quarters are typically the biggest for us, but we think the first quarter of this year will be better than the fourth quarter of last year. So, in summary, the first-quarter operating income forecast would be a bit less than a quarter of ¥57 billion.
Q6. What factors contributed to the major decline in operating income from passive components between the third quarter and the fourth quarter?
A6. Most of the movement in earnings from the passive components business between the third quarter and the fourth quarter was due to the effect of seasonal factors on sales of inductive devices and high-frequency components. There were no exceptional factors operating in the fourth quarter.
Q7. Ceramic capacitors were not one of the five priority businesses that you mentioned in your presentation. What is the approach for increasing profits from ceramic capacitor operations?
A7. The major restructuring of ceramic capacitor operations that we undertook in fiscal 2013 made the business profitable again in fiscal 2014, and performance is recovering steadily. As we’ve mentioned previously, our approach is to expand sales in the automotive field. This field is expected to grow, propelled by the introduction of more electrical components and the increasing market for environmentally friendly options such as electric and hybrid vehicles. We are also looking to create new products for ICT sectors such as smartphones and tablets. Now that we have finished integrating operating bases and restructuring, our aims are to increase margins and generate sales growth. Our target is to ensure ceramic capacitors can make a major contribution to earnings, and we are focused on the next steps needed to reach that goal. Leaving them in or out of the list of core products is not of major relevance in that specific context.
Q8. What is happening in the high-frequency components business by region, and what is the outlook for these operations?
A8. Orders from Chinese customers are currently running ahead of forecast. The demand for BAW filters is particularly strong, and we are adding to capacity in response. In South Korea, we have gained new approvals and expect to start supplying in line with customer production schedules. In North America, we expect demand to peak in the third quarter.
Q9. In the high-frequency components field, the media has reported that a U.S. power amplifier (PA) manufacturer is acquiring a Japanese SAW filter manufacturer. How does TDK view such developments?
A9. This case involves a PA manufacturer looking to achieve vertical integration, but we should note that the SAW filter operations in question do not supply a complete range of components like we can at TDK, including BAW filters. We do not compete directly with PA manufacturers since we do not make these products. We will continue to look for varied opportunities to sell our broad lineup of high-frequency components.
Q10. You have forecast HDD shipments of 535 million units for fiscal 2015. What are you assuming in terms of HDD head shipments, the market share of TDK, and the head number?
A10. We think our market share in HDD heads will be largely unchanged in fiscal 2015. We think the head number will increase slightly, while HDD shipment volume will decline slightly in year-on-year terms. We expect our shipments of HDD heads to be flat this fiscal year.
Q11. What consolidated earnings contribution do you anticipate from the new products that you discussed in the second half of the presentation?
A11. We think that sensors and modules have the greatest potential in terms of untapped demand. We are studying which products have the most potential use so that we can speed up efforts at product commercialization. These components will leverage TDK’s proprietary expertise in HDD heads, and we expect them to make a good contribution to earnings down the track.

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